Tennessee Valley Authority (Form: 10-Q, Received: 02/12/2021 06:01:35)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(MARK ONE)

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

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

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission file number 000-52313

TENNESSEE VALLEY AUTHORITY

(Exact name of registrant as specified in its charter)


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

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

(865) 632-2101

(Registrant's telephone number, including area code)

None

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

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


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

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

Yes x No o

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

Yes x No o

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

Large accelerated filer o Accelerated filer o

Non-accelerated filer x Smaller reporting company o

Emerging growth company o

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

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

Yes o No x

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Table of Contents

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

PART I - FINANCIAL INFORMATION

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

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...			42
Executive Overview...............................................................................................................................................................			43
Results of Operations............................................................................................................................................................			43
Liquidity and Capital Resources............................................................................................................................................			50
Key Initiatives and Challenges..............................................................................................................................................			52
Environmental Matters..........................................................................................................................................................			61
Legal Proceedings................................................................................................................................................................			68
Off-Balance Sheet Arrangements..........................................................................................................................................			68
Critical Accounting Policies and Estimates...........................................................................................................................			68
New Accounting Standards and Interpretations....................................................................................................................			68
Legislative and Regulatory Matters.......................................................................................................................................			68

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................................			68

ITEM 4. CONTROLS AND PROCEDURES..................................................................................................................................			68
Disclosure Controls and Procedures.....................................................................................................................................			68
Changes in Internal Control over Financial Reporting..........................................................................................................			69

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS..................................................................................................................................................			69

ITEM 1A. RISK FACTORS............................................................................................................................................................			70

ITEM 5. OTHER INFORMATION..................................................................................................................................................			71

ITEM 6. EXHIBITS........................................................................................................................................................................			73

SIGNATURES...............................................................................................................................................................................			74

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GLOSSARY OF COMMON ACRONYMS
Following are definitions of some of the terms or acronyms that may be used in this Quarterly Report on Form 10-Q for the quarter ended December 31, 2020 (the "Quarterly Report"):

Term or Acronym						Definition

ACE						Affordable Clean Energy
ANI						American Nuclear Insurers
AOCI						Accumulated other comprehensive income (loss)
ARO						Asset retirement obligation
ART						Asset Retirement Trust
Bonds						Bonds, notes, or other evidences of indebtedness
CAA						Clean Air Act
CCR						Coal combustion residuals
CEL						Chilling Effect Letter
CERCLA						Comprehensive Environmental Response, Compensation, and Liability Act
CME						Chicago Mercantile Exchange
CO2						Carbon dioxide
COVID-19						Coronavirus Disease 2019
CPP						Clean Power Plan
CSAPR						Cross-State Air Pollution Rule
CTs						Combustion turbine unit(s)
CVA						Credit valuation adjustment
CY						Calendar year
DCP						Deferred Compensation Plan
DER						Distributed energy resources
DOE						Department of Energy
EIS						Environmental Impact Statement
ELGs						Effluent Limitation Guidelines
EMP						Electromagnetic pulses
EO						Executive Order
EPA						Environmental Protection Agency
EPRI						Electric Power Research Institute
EPU						Extended Power Uprate
ESPA						Early Site Permit Application
FASB						Financial Accounting Standards Board
FERC						Federal Energy Regulatory Commission
FTP						Financial Trading Program
GAAP						Accounting principles generally accepted in the United States of America
GHG						Greenhouse gas
GMDs						Geomagnetic disturbances
HAP						Hazardous Air Pollutants
IRP						Integrated Resource Plan
JSCCG						John Sevier Combined Cycle Generation LLC
KOC						Knoxville Office Complex
kW						Kilowatts
kWh						Kilowatt hours
LPCs						Local power company customers
LTA						Long-Term Agreement
MATS						Mercury and Air Toxics Standards

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MD&A						Management's Discussion and Analysis of Financial Condition and Results of Operations
MLGW						Memphis Light, Gas and Water Division
mmBtu						Million British thermal unit(s)
MtM						Mark-to-market
MW						Megawatts
NAAQS						National Ambient Air Quality Standards
NAV						Net asset value
NDT						Nuclear Decommissioning Trust
NEIL						Nuclear Electric Insurance Limited
NEPA						National Environmental Policy Act
NERC						North American Electric Reliability Corporation
NES						Nashville Electric Service
NOx						Nitrogen oxide
NPDES						National Pollutant Discharge Elimination System
NRC						Nuclear Regulatory Commission
NSR						New Source Review
NWP						Nationwide Permit
OCI						Other comprehensive income (loss)
OMB						Office of Management and Budget
PARRS						Putable Automatic Rate Reset Securities
PM						Particulate matter
QTE						Qualified technological equipment and software
RCRA						Resource Conservation and Recovery Act
RECs						Renewable Energy Certificates
SCCG						Southaven Combined Cycle Generation LLC
SCRs						Selective catalytic reduction systems
SEC						Securities and Exchange Commission
SELC						Southern Environmental Law Center
SERP						Supplemental Executive Retirement Plan
SHLLC						Southaven Holdco LLC
SIPs						State implementation plans
SMR						Small modular reactor(s)
SO2						Sulfur dioxide
SPC						Summer Place Complex
SSSL						Seven States Southaven LLC
TDEC						Tennessee Department of Environment and Conservation
TVA Act						The Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee
TVARS						Tennessee Valley Authority Retirement System
U.S. Treasury						United States Department of the Treasury
VIE						Variable interest entity
XBRL						eXtensible Business Reporting Language

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FORWARD-LOOKING INFORMATION

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

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

•The impact of the Coronavirus Disease 2019 ("COVID-19") pandemic on TVA's operating results, financial condition, and cash flows, the demand for electricity, TVA's workforce and operations, the availability of fuel and critical parts, supplies, and services, the financial markets, and the business and financial condition of TVA's customers and counterparties;

•The duration and severity of the COVID-19 pandemic, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on economic and market conditions, including impacts on interest rates, commodity prices, investment performance, and foreign currency exchange rates;

•New, amended, or existing laws, regulations, executive orders, or administrative orders or interpretations, including those related to environmental matters, and the costs of complying with these laws, regulations, executive orders, or administrative orders or interpretations;

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

•Significant reductions in demand for electricity produced through non-renewable or centrally located generation sources that may result from, among other things, economic downturns, increased energy efficiency and conservation, increased utilization of distributed generation and microgrids, and improvements in alternative generation and energy storage technologies;

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

•Changes in technology;

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

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

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

•Significant delays, cost increases, or cost overruns associated with the construction and maintenance of generation, transmission, navigation, flood control, or related assets;

•Requirements or decisions changing the amount or timing of funding obligations associated with TVA's pension plans, other post-retirement benefit plans, or health care plans;

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

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

•Physical attacks on TVA's assets;

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

•The outcome of legal or administrative proceedings;

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

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

•Weather conditions;

•Catastrophic events such as fires, earthquakes, explosions, solar events, electromagnetic pulses ("EMPs"), geomagnetic disturbances ("GMDs"), droughts, floods, hurricanes, tornadoes, or other casualty events or pandemics, wars, national emergencies, terrorist activities, or other similar events, especially if these events occur in or near TVA's service area;

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

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

•Disruption of fuel supplies, which may result from, among other things, economic conditions, weather conditions, production or transportation difficulties, labor challenges, or environmental laws or regulations affecting TVA's fuel suppliers or transporters;

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•Purchased power price volatility and disruption of purchased power supplies;

•Events which affect the supply of water for TVA's generation facilities;

•Changes in TVA's determinations of the appropriate mix of generation assets;

•Ineffectiveness of TVA's efforts at adapting its organization to an evolving marketplace and remaining cost competitive;

•Inability to use regulatory accounting or loss of regulatory accounting approval for certain costs;

•Inability to obtain, or loss of, regulatory approval for the construction or operation of assets;

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

•Limitations on TVA's ability to borrow money which may result from, among other things, TVA's approaching or substantially reaching the limit on bonds, notes, and other evidences of indebtedness (collectively, "Bonds") specified in the Tennessee Valley Authority Act of 1933, as amended ("TVA Act");

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

•Changes in the economy and volatility in financial markets;

•Reliability or creditworthiness of counterparties;

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

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

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

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

•Inability to eliminate identified deficiencies in TVA's systems, standards, controls, or corporate culture;

•Inability to attract or retain a skilled workforce;

•Inability to respond quickly enough to current or potential customer demands or needs;

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

•Loss of quorum of the TVA Board of Directors ("TVA Board");

•Changes in the priorities of the TVA Board or TVA senior management; or

•Other unforeseeable events.

See also Item 1A, Risk Factors, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations in TVA's Annual Report on Form 10-K for the year ended September 30, 2020 (the "Annual Report"), and Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors in this Quarterly Report for a discussion of factors that could cause actual results to differ materially from those in any forward-looking statement. New factors emerge from time to time, and it is not possible for TVA to predict all such factors or to assess the extent to which any factor or combination of factors may impact TVA's business or cause results to differ materially from those contained in any forward-looking statement. TVA undertakes no obligation to update any forward-looking statement to reflect developments that occur after the statement is made.

GENERAL INFORMATION

Fiscal Year

References to years (2021, 2020, etc.) in this Quarterly Report are to TVA's fiscal years ending September 30. Years that are preceded by "CY" are references to calendar years.

Notes

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

Available Information

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

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PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

Three Months Ended December 31

(in millions)



	2020		2019
Operating revenues
Revenue from sales of electricity	$	2,270	$	2,532
Other revenue	34		46
Total operating revenues	2,304		2,578
Operating expenses
Fuel	369		423
Purchased power	206		219
Operating and maintenance	715		689
Depreciation and amortization	378		584
Tax equivalents	121		131
Total operating expenses	1,789		2,046
Operating income	515		532
Other income (expense), net	15		12
Other net periodic benefit cost	65		65
Interest expense	281		287
Net income (loss)	$	184	$	192
The accompanying notes are an integral part of these consolidated financial statements.

TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

Three Months Ended December 31

(in millions)



	2020		2019
Net income (loss)	$	184	$	192
Other comprehensive income (loss)
Net unrealized gain (loss) on cash flow hedges	101		76
Net unrealized (gain) loss reclassified to earnings from cash flow hedges	(45)		(59)
Total other comprehensive income (loss)	56		17
Total comprehensive income (loss)	$	240	$	209
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)


ASSETS
	December 31, 2020		September 30, 2020
Current assets
Cash and cash equivalents	$	509	$	500


Accounts receivable, net	1,368		1,529
Inventories, net	1,064		1,003
Regulatory assets	119		130
Other current assets	84		84
Total current assets	3,144		3,246

Property, plant, and equipment
Completed plant	65,295		64,970
Less accumulated depreciation	(33,822)		(33,550)
Net completed plant	31,473		31,420
Construction in progress	2,158		2,139
Nuclear fuel	1,463		1,504
Finance leases	505		516
Total property, plant, and equipment, net	35,599		35,579

Investment funds	3,587		3,198

Regulatory and other long-term assets
Regulatory assets	9,697		10,245
Operating lease assets, net of amortization	216		232
Other long-term assets	320		325
Total regulatory and other long-term assets	10,233		10,802

Total assets	$	52,563	$	52,825
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions)


LIABILITIES AND PROPRIETARY CAPITAL
	December 31, 2020		September 30, 2020
Current liabilities
Accounts payable and accrued liabilities	$	1,672	$	1,844

Accrued interest	295		298
Asset retirement obligations	345		345
Current portion of leaseback obligations	219		198

Regulatory liabilities	128		141
Short-term debt, net	112		57
Current maturities of power bonds	1,802		1,787
Current maturities of long-term debt of variable interest entities	41		41

Total current liabilities	4,614		4,711

Other liabilities
Post-retirement and post-employment benefit obligations	6,496		6,617
Asset retirement obligations	6,442		6,440
Finance lease liabilities	520		525
Other long-term liabilities	2,270		2,548
Leaseback obligations	4		25


Regulatory liabilities	13		23
Total other liabilities	15,745		16,178

Long-term debt, net
Long-term power bonds, net	17,988		17,956
Long-term debt of variable interest entities, net	1,049		1,048

Total long-term debt, net	19,037		19,004

Total liabilities	39,396		39,893

Contingencies and legal proceedings (Note 19)

Proprietary capital
Power program appropriation investment	258		258
Power program retained earnings	12,358		12,177
Total power program proprietary capital	12,616		12,435
Nonpower programs appropriation investment, net	546		548
Accumulated other comprehensive income (loss)	5		(51)
Total proprietary capital	13,167		12,932

Total liabilities and proprietary capital	$	52,563	$	52,825
The accompanying notes are an integral part of these consolidated financial statements.

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended December 31

(in millions)


	2020		2019
Cash flows from operating activities
Net income (loss)	$	184	$	192
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization(1)	384		590
Amortization of nuclear fuel cost	96		93
Non-cash retirement benefit expense	84		81

Other regulatory amortization and deferrals	6		(3)



Changes in current assets and liabilities
Accounts receivable, net	161		316
Inventories and other current assets, net	(73)		(88)
Accounts payable and accrued liabilities	(91)		(213)
Accrued interest	(3)		6

Pension contributions	(75)		(75)



Other, net	(78)		(61)
Net cash provided by operating activities	595		838

Cash flows from investing activities
Construction expenditures	(564)		(465)

Nuclear fuel expenditures	(79)		(117)

Loans and other receivables
Advances	(4)		(2)
Repayments	1		1
Other, net	2		(7)
Net cash used in investing activities	(644)		(590)

Cash flows from financing activities
Long-term debt


Redemptions and repurchases of power bonds	(1)		(218)


Short-term debt issues (redemptions), net	55		(27)
Payments on leases and leasebacks	(5)		(1)





Other, net	8		3
Net cash (used in) provided by financing activities	57		(243)
Net change in cash, cash equivalents, and restricted cash	8		5
Cash, cash equivalents, and restricted cash at beginning of period	521		322
Cash, cash equivalents, and restricted cash at end of period	$	529	$	327





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

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TENNESSEE VALLEY AUTHORITY

CONSOLIDATED STATEMENTS OF CHANGES IN PROPRIETARY CAPITAL (Unaudited)

For the Three Months Ended December 31, 2020 and 2019

(in millions)


	Power Program Appropriation Investment		Power Program Retained Earnings		Nonpower Programs Appropriation Investment, Net		Accumulated Other Comprehensive Income (Loss)		Total
Balance at September 30, 2019	$	258	$	10,823	$	556	$	(12)	$	11,625
Net income (loss)	—		194		(2)		—		192
Total other comprehensive income (loss)	—		—		—		17		17
Return on power program appropriation investment	—		(2)		—		—		(2)

Balance at December 31, 2019	$	258	$	11,015	$	554	$	5	$	11,832

Balance at September 30, 2020	$	258	$	12,177	$	548	$	(51)	$	12,932
Net income (loss)	—		186		(2)		—		184
Total other comprehensive income (loss)	—		—		—		56		56
Return on power program appropriation investment	—		(1)		—		—		(1)
Implementation of new accounting standard(1)	—		(4)		—		—		(4)
Balance at December 31, 2020	$	258	$	12,358	$	546	$	5	$	13,167
Note (1) See Note 2 — Impact of New Accounting Standards and Interpretations.
The accompanying notes are an integral part of these consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars in millions except where noted)


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

6	Other Long-Term Assets	17
7	Regulatory Assets and Liabilities	19
8	Variable Interest Entities	19
9	Other Long-Term Liabilities	21
10	Asset Retirement Obligations	22
11	Debt and Other Obligations	23
12	Accumulated Other Comprehensive Income (Loss)	24
13	Risk Management Activities and Derivative Transactions	24
14	Fair Value Measurements	29
15	Revenue	35
16	Other Income (Expense), Net	37
17	Supplemental Cash Flow Information	38
18	Benefit Plans	38
19	Contingencies and Legal Proceedings	38
20	Subsequent Events	42

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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 ("U.S.") that was created in 1933 by federal legislation in response to a proposal by President Franklin D. Roosevelt. TVA was created to, among other things, improve navigation on the Tennessee River, reduce the damage from destructive flood waters within the Tennessee River system and downstream on the lower Ohio and Mississippi Rivers, further the economic development of TVA's service area in the southeastern U.S., and sell the electricity generated at the facilities TVA operates.

Today, TVA operates the nation's largest public power system and supplies power in most of Tennessee, northern Alabama, northeastern Mississippi, and southwestern Kentucky and in portions of northern Georgia, western North Carolina, and southwestern Virginia to a population of approximately 10 million people.

TVA also manages the Tennessee River, its tributaries, and certain shorelines to provide, among other things, year-round navigation, flood damage reduction, and affordable and reliable electricity. Consistent with these primary purposes, TVA also manages the river system and public lands to provide recreational opportunities, adequate water supply, improved water quality, cultural and natural resource protection, and economic development.

The power program has historically been separate and distinct from the stewardship programs. It is required to be self-supporting from power revenues and proceeds from power financings, such as proceeds from the issuance of bonds, notes, or other evidences of indebtedness (collectively, "Bonds"). Although TVA does not currently receive congressional appropriations, it is required to make annual payments to the United States Department of the Treasury ("U.S. Treasury") as a return on the government's appropriation investment in TVA's power facilities (the "Power Program Appropriation Investment"). In the 1998 Energy and Water Development Appropriations Act, Congress directed TVA to fund essential stewardship activities related to its management of the Tennessee River system and nonpower or stewardship properties with power revenues in the event that there were insufficient appropriations or other available funds to pay for such activities in any fiscal year. Congress has not provided any appropriations to TVA to fund such activities since 1999. Consequently, during 2000, TVA began paying for essential stewardship activities primarily with power revenues, with the remainder funded with user fees and other forms of 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 ("TVA Act"). The TVA Act requires TVA to charge rates for power that will produce gross revenues sufficient to provide funds for operation, maintenance, and administration of its power system; payments to states and counties in lieu of taxes ("tax equivalents"); debt service on outstanding indebtedness; payments to the U.S. Treasury in repayment of and as a return on the Power Program Appropriation Investment; and such additional margin as the TVA Board may consider desirable for investment in power system assets, retirement of outstanding Bonds in advance of maturity, additional reduction of the Power Program Appropriation Investment, and other purposes connected with TVA's power business. TVA fulfilled its requirement to repay $1.0 billion of the Power Program Appropriation Investment with the 2014 payment; therefore, this item is no longer a component of rate setting. In setting TVA's rates, the TVA Board is charged by the TVA Act to have due regard for the primary objectives of the TVA Act, including the objective that power shall be sold at rates as low as are feasible. Rates set by the TVA Board are not subject to review or approval by any state or other federal regulatory body.

Fiscal Year

TVA's fiscal year ends September 30. Years (2021, 2020, etc.) refer to TVA's fiscal years unless they are preceded by "CY," in which case the references are to calendar years.

Cost-Based Regulation

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

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write off these costs. All regulatory asset write-offs would be required to be recognized in earnings in the period in which future recovery ceases to be probable.

Basis of Presentation

TVA prepares its consolidated interim financial statements in conformity with GAAP for consolidated interim financial information. Accordingly, TVA's consolidated interim financial statements do not include all of the information and notes required by GAAP for annual financial statements. As such, they should be read in conjunction with the audited financial statements for the year ended September 30, 2020, and the notes thereto, which are contained in TVA's Annual Report on Form 10-K for the year ended September 30, 2020 (the "Annual Report"). In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for fair presentation are included on the consolidated interim financial statements.

The accompanying consolidated interim financial statements, which have been prepared in accordance with GAAP, include the accounts of TVA and variable interest entities ("VIEs") of which TVA is the primary beneficiary. See Note 8 — Variable Interest Entities. Intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements requires TVA to estimate the effects of various matters that are inherently uncertain as of the date of the consolidated financial statements. Although the consolidated financial statements are prepared in conformity with GAAP, TVA is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the amounts of revenues and expenses, including impacts from the Coronavirus Disease 2019 ("COVID-19") pandemic, reported during the reporting period. Each of these estimates varies in regard to the level of judgment involved and its potential impact on TVA's financial results. Estimates are considered critical either when a different estimate could have reasonably been used, or where changes in the estimate are reasonably likely to occur from period to period, and such use or change would materially impact TVA's financial condition, results of operations, or cash flows.

Cash, Cash Equivalents, and Restricted Cash

Cash includes cash on hand, non-interest bearing cash, and deposit accounts. All highly liquid investments with original maturities of three months or less are considered cash equivalents. Cash and cash equivalents that are restricted, as to withdrawal or use under the terms of certain contractual agreements, are recorded in Other long-term assets on the Consolidated Balance Sheets. Restricted cash and cash equivalents includes cash held in trusts that are currently restricted for TVA economic development loans and for certain TVA environmental programs in accordance with agreements related to compliance with certain environmental regulations. See Note 19 — Contingencies and Legal Proceedings — Legal Proceedings — Environmental Agreements.

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


Cash, Cash Equivalents, and Restricted Cash
	At December 31, 2020		At September 30, 2020
Cash and cash equivalents	$	509	$	500

Restricted cash and cash equivalents included in Other long-term assets	20		21
Total cash, cash equivalents, and restricted cash	$	529	$	521

Due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its target balance of Cash and cash equivalents beginning in March 2020. TVA may continue to hold higher balances in future periods due to potential market volatility.

Allowance for Uncollectible Accounts

As described in Note 2 — Impact of New Accounting Standards and Interpretations, TVA adopted Financial Instruments - Credit Losses on October 1, 2020, using a modified retrospective method through a cumulative-effect adjustment to retained earnings. The standard, Current Expected Credit Losses ("CECL"), requires TVA to recognize an allowance that reflects the current estimate for credit losses expected to be incurred over the life of the financial assets based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectibility of the reported amounts. TVA has reviewed the current portfolio of financial receivables and developed a methodology to reasonably measure the estimate of credit losses for each major financial receivable type. The appropriateness of the allowance is evaluated at the end of each reporting period. TVA continues to monitor the impact of the COVID-19 pandemic on accounts and loans receivable balances to evaluate the allowance for uncollectible accounts.

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

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

The allowance for uncollectible accounts was less than $1 million at both December 31, 2020, and September 30, 2020, for trade accounts receivable. Additionally, loans receivable of $109 million and $105 million at December 31, 2020, and September 30, 2020, respectively, are included in Accounts receivable, net and Other long-term assets, for the current and long-term portions, respectively. Loans receivables are reported net of allowances for uncollectible accounts of $5 million and less than $1 million at December 31, 2020, and September 30, 2020, respectively. The increase in allowances for uncollectible accounts is due to the adoption of CECL. See Note 2 - Impact of New Accounting Standards and Interpretations.

Revenues

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

Depreciation

TVA accounts for depreciation of its properties using the composite depreciation convention of accounting. Under the composite method, assets with similar economic characteristics are grouped and depreciated as one asset. Depreciation is generally computed on a straight-line basis over the estimated service lives of the various classes of assets. The estimation of asset useful lives requires management judgment, supported by external depreciation studies of historical asset retirement experience. Depreciation rates are determined based on the external depreciation studies. These studies are updated approximately every five years, with a study currently being performed in 2021. Depreciation expense was $345 million and $539 million for the three months ended December 31, 2020 and 2019, respectively. See Note 5 — Plant Closures for a discussion of the impact of plant closures.

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2. Impact of New Accounting Standards and Interpretations

The following are accounting standard updates issued by the Financial Accounting Standards Board ("FASB") that TVA adopted during 2021:

Financial Instruments - Credit Losses

Description

This guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an allowance to be recorded for all expected credit losses for certain financial assets that are not measured at fair value. The allowance for credit losses is based on historical information, current conditions, and reasonable and supportable forecasts. The new standard also makes revisions to the other than temporary impairment model for available-for-sale debt securities.

Effective Date for TVA

October 1, 2020

Effect on the Financial Statements or Other Significant Matters

TVA adopted this standard on a modified retrospective method through a cumulative-effect adjustment to retained earnings on October 1, 2020. TVA recorded an initial transition adjustment of $4 million to retained earnings. The adoption of this standard did not materially impact TVA's financial condition, results of operations, or cash flows.

Fair Value Measurement Disclosure

Description

This guidance changes certain disclosure requirements for fair value measurements. It removes certain disclosure requirements, such as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; the policy for timing of the transfers between levels; and the valuation processes for Level 3 fair value measurements. Some disclosure requirements are added, such as the change in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.

Effective Date for TVA

October 1, 2020

Effect on the Financial Statements or Other Significant Matters

Adoption of this standard did not have a material impact on TVA's financial condition, results of operations, or cash flows.

The following accounting standard has been issued but at December 31, 2020, was not effective and had not been adopted by TVA:



























Reference Rate Reform
Description			This guidance provides temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rates.
Effective Date for TVA			The new standard is effective for adoption at any time between March 12, 2020, and December 31, 2022. TVA currently plans to adopt the standard by December 31, 2022.
Effect on the Financial Statements or Other Significant Matters			TVA continues to review this standard and evaluate the impact of using an alternative reference rate instead of LIBOR in its interest rate swap contracts. TVA does not expect the adoption of this standard to have a material 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:


Accounts Receivable, Net
	At December 31, 2020		At September 30, 2020
Power receivables	$	1,242	$	1,401
Other receivables	126		128

Accounts receivable, net(1)	$	1,368	$	1,529

Note

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

above. The allowance at December 31, 2020 includes the impact from adopting CECL on October 1, 2020.

In response to the COVID-19 pandemic, the TVA Board approved the Public Power Support and Stabilization Program in 2020. Through this program, TVA offered up to $1.0 billion of credit support to LPCs that demonstrated the need for temporary financial relief, through the deferral of a portion of LPCs' wholesale power payments owed to TVA. The program ended on December 31, 2020, with a total of $1 million of credit support approved under the program. Repayment of the $1 million has begun and full payment is expected in the second quarter of 2021.

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4. Inventories, Net

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


Inventories, Net
	At December 31, 2020		At September 30, 2020
Materials and supplies inventory	$	781	$	770
Fuel inventory	301		253
Renewable energy certificates inventory, net	17		15
Allowance for inventory obsolescence	(35)		(35)
Inventories, net	$	1,064	$	1,003

5. Plant Closures

Background

TVA must continuously evaluate all generating assets to ensure an optimal energy portfolio that provides safe, clean, and reliable power while maintaining flexibility and fiscal responsibility to the people of the Tennessee Valley. Based on results of assessments presented to the TVA Board in 2019, the retirement of Paradise Fossil Plant ("Paradise") Unit 3 by December 2020 and Bull Run Fossil Plant ("Bull Run") by December 2023 was approved. Subsequent to the TVA Board approval, TVA determined that Paradise would not be restarted after January 2020 due to the plant's material condition. Paradise Fossil Plant Unit 3 was taken offline on February 1, 2020, effectively retiring the plant.

Financial Impact

TVA's policy is to adjust depreciation rates to reflect the most current assumptions, ensuring units will be fully depreciated by the applicable retirement dates. As a result of TVA's decision to accelerate the retirements of Paradise and Bull Run, TVA has recognized a cumulative $986 million of accelerated depreciation, with $33 million and $225 million being recognized during the three months ended December 31, 2020 and 2019, respectively.

6. Other Long-Term Assets

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


Other Long-Term Assets (in millions)
	At December 31, 2020		At September 30, 2020

Loans and other long-term receivables, net	$	104	$	100
EnergyRight® receivables, net	65		69
Prepaid long-term service agreements	47		42
Commodity contract derivative assets	13		23
Restricted cash and cash equivalents	20		21
Prepaid capacity payments	10		11

Other	61		59
Total other long-term assets	$	320	$	325

EnergyRight® Receivables, Net. In association with the EnergyRight® program, TVA's local power company customers ("LPCs") offer financing to end-use customers for the purchase of energy-efficient equipment. Depending on the nature of the energy-efficiency project, loans may have a maximum term of five years or 10 years. TVA purchases the resulting loans receivable from its LPCs. The loans receivable are then transferred to a third-party bank with which TVA has agreed to repay in full any loans receivable that have been in default for 180 days or more or that TVA has determined are uncollectible. Given this continuing involvement, TVA accounts for the transfer of the loans receivable as secured borrowings. The current and long-term portions of the loans receivable are reported in Accounts receivable, net and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets. At December 31, 2020, and September 30, 2020, the carrying amount of the loans receivable, net of discount, reported in Accounts receivable, net was approximately $17 million and $18 million, respectively. See Note 9 — Other Long-Term Liabilities for information regarding the associated financing obligation.

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In response to the COVID-19 pandemic, customers experiencing financial hardship could request a deferral of EnergyRight® loan payments for a period of up to six months. The deferral option began in April 2020 and ended October 31, 2020. Deferred loans did not accrue interest during the deferral months and totaled less than $1 million.

Allowance for Loan Losses. As described in Note 2 — Impact of New Accounting Standards and Interpretations, TVA adopted CECL on October 1, 2020 to determine its allowance for loan loss. The allowance for loan loss is an estimate of expected credit losses, measured over the estimated life of the loan receivables that considers reasonable and supportable forecasts of future economic conditions in addition to information about historical experience and current conditions. See Note 1 — Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts.

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


Allowance Components (in millions)
	At December 31, 2020
EneryRight® loan reserve	$	2
Economic development loan collective reserve	1
Economic development loan specific loan reserve	2

Total allowance for loan losses	$	5

Prepaid Long-Term Service Agreements. TVA has entered into various long-term service agreements for major maintenance activities at certain of its combined cycle plants. TVA uses the direct expense method of accounting for these arrangements. TVA accrues for parts when it takes ownership and for contractor services when they are rendered. Under certain of these agreements, payments made exceed the value of parts received and services rendered. The current and long-term portions of the resulting prepayments are reported in Other current assets and Other long-term assets, respectively, on TVA's Consolidated Balance Sheets. At December 31, 2020, and September 30, 2020, prepayments of $5 million and $3 million, respectively, were recorded in Other current assets.

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7. Regulatory Assets and Liabilities

Regulatory assets generally represent incurred costs that have been deferred because such costs are probable of future recovery in customer rates. Regulatory liabilities generally represent obligations to make refunds to customers for previous collections for costs that are not likely to be incurred or deferral of gains that will be credited to customers in future periods. Components of regulatory assets and regulatory liabilities are summarized in the table below.


Regulatory Assets and Liabilities
	At December 31, 2020		At September 30, 2020
Current regulatory assets

Unrealized losses on interest rate derivatives	$	115	$	114

Unrealized losses on commodity derivatives	4		4


Fuel cost adjustment receivable	—		12

Total current regulatory assets	119		130

Non-current regulatory assets
Deferred pension costs and other post-retirement benefits costs	5,100		5,193
Non-nuclear decommissioning costs	2,502		2,512

Unrealized losses on interest rate derivatives	1,367		1,506
Nuclear decommissioning costs	582		896




Other non-current regulatory assets	146		138
Total non-current regulatory assets	9,697		10,245
Total regulatory assets	$	9,816	$	10,375

Current regulatory liabilities
Fuel cost adjustment tax equivalents	$	113	$	115
Fuel cost adjustment	2		—
Unrealized gains on commodity derivatives	13		26
Total current regulatory liabilities	128		141

Non-current regulatory liabilities

Unrealized gains on commodity derivatives	13		23


Total regulatory liabilities	$	141	$	164

8. Variable Interest Entities

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

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John Sevier VIEs

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

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

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

Southaven VIE

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

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

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

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

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

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Based on its analysis, TVA has determined that it is the primary beneficiary of SCCG and, as such, is required to account for the VIE on a consolidated basis.

Impact on Consolidated Financial Statements

The financial statement items attributable to carrying amounts and classifications of JSCCG, Holdco, and SCCG at December 31, 2020, and September 30, 2020, as reflected on the Consolidated Balance Sheets, are as follows:


Summary of Impact of VIEs on Consolidated Balance Sheets (in millions)
	At December 31, 2020		At September 30, 2020




Current liabilities
Accrued interest	$	23	$	10
Accounts payable and accrued liabilities	3		3
Current maturities of long-term debt of variable interest entities	41		41
Total current liabilities	67		54
Other liabilities
Other long-term liabilities	23		23
Long-term debt, net
Long-term debt of variable interest entities, net	1,049		1,048
Total liabilities	$	1,139	$	1,125

Interest expense of $13 million and $14 million for the three months ended December 31, 2020 and 2019, respectively, is included in the Consolidated Statements of Operations related to debt of VIEs and membership interests of VIEs subject to mandatory redemption.

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

9. Other Long-Term Liabilities

Other long-term liabilities consist primarily of liabilities related to certain derivative agreements, as well as for environmental remediation liabilities and liabilities under agreements related to compliance with certain environmental regulations. See Note 10 — Asset Retirement Obligations and Note 13 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivatives. The table below summarizes the types and amounts of Other long-term liabilities:


Other Long-Term Liabilities (in millions)
	At December 31, 2020		At September 30, 2020
Interest rate swap liabilities	$	1,754	$	1,927

Operating lease liabilities	159		171
Currency swap liabilities	41		123





EnergyRight® financing obligations	75		78

Accrued long-term service agreements	49		56
Other	192		193
Total other long-term liabilities	$	2,270	$	2,548

Interest Rate Swap Liabilities. TVA uses interest rate swaps to fix variable short-term debt to a fixed rate. The values of these derivatives are included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. At December 31, 2020, and September 30, 2020, the carrying amount of the interest rate swap liabilities reported in Accounts payable and accrued liabilities and Accrued interest was $115 million and $114 million, respectively. See Note 13 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Interest Rate Derivatives for information regarding the interest rate swap liabilities. As of December 31, 2020, interest rate swap liabilities decreased $172 million as compared to September 30, 2020, due to an increase in both market interest rates since September 30, 2020, and settlement payments during the three months ended December 31, 2020.

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EnergyRight® Financing Obligations. TVA purchases certain loans receivable from its LPCs in association with the EnergyRight® program. The current and long-term portions of the resulting financing obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheets. At both December 31, 2020, and September 30, 2020, the carrying amount of the financing obligations reported in Accounts payable and accrued liabilities was $19 million. See Note 6 — Other Long-Term Assets for information regarding the associated loans receivable.

In response to the COVID-19 pandemic, customers experiencing financial hardship could request a deferral of EnergyRight® loan payments for a period of up to six months. This deferral option began in April 2020 and ended October 31, 2020. Deferred loans did not accrue interest during the deferral months and totaled less than $1 million.

Accrued Long-Term Service Agreements. TVA has entered into various long-term service agreements for major maintenance activities at certain of its combined cycle plants. TVA uses the direct expense method of accounting for these arrangements. TVA accrues for parts when it takes ownership and for contractor services when they are rendered. Under certain of these agreements, parts received and services rendered exceed payments made. The current and long-term portions of the resulting obligation are reported in Accounts payable and accrued liabilities and Other long-term liabilities, respectively, on TVA's Consolidated Balance Sheets. At both December 31, 2020 and September 30, 2020, related liabilities of $15 million were recorded in Accounts payable and accrued liabilities.

10. Asset Retirement Obligations

During the three months ended December 31, 2020, TVA's total asset retirement obligations ("ARO") liability increased $2 million as a result of periodic accretion, partially offset by revisions in estimate and settlement projects that were conducted during the period. The nuclear and non-nuclear accretion amounts were deferred as regulatory assets. During the three months ended December 31, 2020, $18 million of the related regulatory assets were amortized into expense as these amounts were collected in rates. See Note 7 — Regulatory Assets and Liabilities. TVA maintains investment trusts to help fund its decommissioning obligations. See Note 14 — Fair Value Measurements — Investment Funds and Note 19 — Contingencies and Legal Proceedings — Contingencies — Decommissioning Costs for disclosure of the current balances of the trusts and a discussion of the trusts' objectives.


Asset Retirement Obligation Activity
	Nuclear		Non-Nuclear		Total
Balance at September 30, 2020	$	3,278	$	3,507	$	6,785	(1)
Settlements	(1)		(38)		(39)
Revisions in estimate	2		(12)		(10)


Accretion (recorded as regulatory asset)	37		14		51

Balance at December 31, 2020	$	3,316	$	3,471	$	6,787	(1)

Note

(1) Includes $345 million at both December 31, 2020, and September 30, 2020, respectively, in Current liabilities.

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11. Debt and Other Obligations

Debt Outstanding

Total debt outstanding at December 31, 2020, and September 30, 2020, consisted of the following:


Debt Outstanding (in millions)
	At December 31, 2020		At September 30, 2020
Short-term debt
Short-term debt, net	$	112	$	57
Current maturities of power bonds issued at par(1)	1,802		1,787
Current maturities of long-term debt of VIEs issued at par	41		41

Total current debt outstanding, net	1,955		1,885
Long-term debt
Long-term power bonds(2)	18,108		18,078
Long-term debt of VIEs, net	1,049		1,048

Unamortized discounts, premiums, issue costs, and other	(120)		(122)
Total long-term debt, net	19,037		19,004
Total debt outstanding	$	20,992	$	20,889

Notes

(1) Includes net exchange gain from currency transactions of $58 million and $73 million at December 31, 2020, and September 30, 2020, respectively.

(2) Includes net exchange gain from currency transactions of $50 million and $80 million at December 31, 2020, and September 30, 2020, respectively.

Debt Securities Activity

The table below summarizes the long-term debt securities activity for the period from October 1, 2020, to December 31, 2020:


Debt Securities Activity
	Date	Amount (in millions)		Interest Rate






Redemptions/Maturities(1)





2009 Series B	December 2020	$	1	3.77	%








Total redemptions/maturities of debt		$	1

Note

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

Credit Facility Agreements

TVA has funding available under four long-term revolving credit facilities totaling approximately $2.7 billion: a $150 million credit facility that matures on December 11, 2021, a $1.0 billion credit facility that matures on June 13, 2023, a $1.0 billion credit facility that matures on September 28, 2023, and a $500 million credit facility that matures on February 1, 2025. The interest rate on any borrowing under these facilities varies based on market factors and the rating of TVA's senior unsecured, long-term, non-credit-enhanced debt. TVA is required to pay an unused facility fee on the portion of the total $2.7 billion that TVA has not borrowed or committed under letters of credit. This fee, along with letter of credit fees, may fluctuate depending on the rating of TVA's senior unsecured, long-term, non-credit-enhanced debt. At December 31, 2020, and September 30, 2020, there were approximately $1.4 billion and $1.5 billion, respectively, of letters of credit outstanding under these facilities, and there were no borrowings outstanding. See Note 13 — Risk Management Activities and Derivative Transactions — Other Derivative Instruments — Collateral.

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


Summary of Long-Term Credit Facilities At December 31, 2020 (in millions)
Maturity Date	Facility Limit		Letters of Credit Outstanding		Cash Borrowings		Availability

December 2021	$	150	$	38	$	—	$	112
June 2023	1,000		432		—		568
September 2023	1,000		394		—		606
February 2025	500		500		—		—
Total	$	2,650	$	1,364	$	—	$	1,286

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 2021 with a maturity date of September 30, 2021. Access to this credit facility or other similar financing arrangements with the U.S. Treasury has been available to TVA since the 1960s. TVA can borrow under the U.S. Treasury credit facility only if it cannot issue Bonds in the market on reasonable terms, and TVA considers the U.S. Treasury credit facility a secondary source of liquidity. The interest rate on any borrowing under this facility is based on the average rate on outstanding marketable obligations of the U.S. with maturities from date of issue of one year or less. There were no outstanding borrowings under the facility at December 31, 2020. The availability of this credit facility may be impacted by how the U.S. government addresses the possibility of approaching its debt limit.

Lease/Leasebacks

TVA previously entered into leasing transactions to obtain third-party financing for 24 peaking combustion turbine units ("CTs") as well as certain qualified technological equipment and software ("QTE"). Due to TVA's continuing involvement with the combustion turbine facilities and the QTE during the leaseback term, TVA accounted for the lease proceeds as financing obligations. At both December 31, 2020, and September 30, 2020, the outstanding leaseback obligations related to the remaining CTs and QTE were $223 million. In May 2020, TVA made final rent payments under lease/leaseback transactions involving eight CTs, and TVA had previously acquired the equity interest related to these transactions. Rent payments under the remaining CT lease/leaseback transactions are scheduled to be made through January 2022. TVA does have the option to acquire the equity interests related to transactions involving the remaining eight CTs for additional amounts. In addition, on October 30, 2019, TVA provided notice of its intent to purchase the ownership interest in certain QTE. Repurchase payments are being made through a series of installments in 2021 and 2022, after which the associated leases will be terminated.

12. Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) ("AOCI") represents market valuation adjustments related to TVA's currency swaps. The currency swaps are cash flow hedges and are the only derivatives in TVA's portfolio that have been designated and qualify for hedge accounting treatment. TVA records exchange rate gains and losses on its foreign currency-denominated debt and any related accrued interest in net income and marks its currency swap assets and liabilities to market through other comprehensive income (loss) ("OCI"). TVA then reclassifies an amount out of AOCI into net income, offsetting the exchange gain/loss recorded on the debt. During the three months ended December 31, 2020 and 2019, TVA reclassified $45 million and $59 million of gains, respectively, related to its cash flow hedges from AOCI to Interest expense. See Note 13 — Risk Management Activities and Derivative Transactions.

TVA records certain assets and liabilities that result from the regulated ratemaking process that would not be recorded under GAAP for non-regulated entities. As such, certain items that would generally be reported in AOCI or that would impact the statements of operations are recorded as regulatory assets or regulatory liabilities. See Note 7 — Regulatory Assets and Liabilities for a schedule of regulatory assets and liabilities. See Note 13 — Risk Management Activities and Derivative Transactions for a discussion of the recognition in AOCI of gains and losses associated with certain derivative instruments. See Note 14 — Fair Value Measurements for a discussion of the recognition of certain investment fund gains and losses as regulatory assets and liabilities. See Note 18 — Benefit Plans for a discussion of the regulatory accounting related to components of TVA's benefit plans.

13. Risk Management Activities and Derivative Transactions

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

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and options on futures. Other than certain derivative instruments in its trust investment funds, it is TVA's policy to enter into these derivative transactions solely for hedging purposes and not for speculative purposes. During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts because these contracts no longer met the criteria of net settlement, and, as a result, the associated net derivative liabilities were derecognized at that time. In addition, TVA suspended its Financial Trading Program ("FTP") in 2014 and is not currently using financial instruments to hedge risks related to commodity prices. TVA plans to continue managing fuel price volatility through other methods and is reevaluating its suspended FTP program for future use of financial instruments.

Overview of Accounting Treatment

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

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


Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 1) Amount of Mark-to-Market Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) (in millions)
			Three Months Ended December 31
Derivatives in Cash Flow Hedging Relationship	Objective of Hedge Transaction	Accounting for Derivative Hedging Instrument	2020		2019
Currency swaps	To protect against changes in cash flows caused by changes in foreign currency exchange rates (exchange rate risk)	Unrealized gains and losses are recorded in AOCI and reclassified to Interest expense to the extent they are offset by gains and losses on the hedged transaction	$	101	$	76


Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 2)(1) Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Interest Expense (in millions)
	Three Months Ended December 31
Derivatives in Cash Flow Hedging Relationship	2020		2019
Currency swaps	$	45	$	59

Note

(1) There were no amounts excluded from effectiveness testing for any of the periods presented. Based on forecasted foreign currency exchange rates, TVA expects to reclassify approximately $6 million of losses from AOCI to Interest expense within the next 12 months to offset amounts anticipated to be recorded in Interest expense related to exchange gain on the debt.


Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment Amount of Gain (Loss) Recognized in Income on Derivatives(1)
			Three Months Ended December 31
Derivative Type	Objective of Derivative(2)	Accounting for Derivative Instrument	2020		2019
Interest rate swaps	To fix short-term debt variable rate to a fixed rate (interest rate risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities Realized gains and losses are recognized in Interest expense when incurred during the settlement period and are presented in operating cash flow	$	(29)	$	(21)

Commodity contract derivatives	To protect against fluctuations in market prices of purchased coal or natural gas (price risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities Realized gains and losses due to contract settlements are recognized in Fuel expense as incurred	—		1

Notes

(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 were no related gains (losses) recognized in income for these unrealized gains (losses) for the three months ended December 31, 2020 and 2019.

(2) During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts.

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Fair Values of TVA Derivatives

(in millions)

At December 31, 2020

At September 30, 2020

Derivatives That Receive Hedge Accounting Treatment:

Balance

Balance Sheet Presentation

Balance

Balance Sheet Presentation

Currency swaps

£200 million Sterling

(60)

Accounts payable and accrued liabilities $(60)

(78)

Accounts payable and

accrued liabilities $(78)

£250 million Sterling

(22)

Accounts payable and accrued liabilities $(4); Other long-term liabilities $(18)

(63)

Accounts payable and accrued liabilities $(5); Other long-term liabilities $(58)

£150 million Sterling

(26)

Accounts payable and accrued liabilities $(3); Other long-term liabilities $(23)

(68)

Accounts payable and

accrued liabilities $(3); Other long-term liabilities $(65)

Derivatives That Do Not Receive Hedge Accounting Treatment:

Balance

Balance Sheet Presentation

Balance

Balance Sheet Presentation

Interest rate swaps

$1.0 billion notional

(1,332)

Accounts payable and
accrued liabilities $(64); Accrued interest $(17);
Other long-term liabilities
$(1,251)

(1,449)

Accounts payable and

accrued liabilities $(43); Accrued interest $(37); Other long-term liabilities $(1,369)

$476 million notional

(533)

Accounts payable and
accrued liabilities $(30); Accrued interest $(1);
Other long-term liabilities
$(502)

(588)

Accounts payable and

accrued liabilities $(22); Accrued interest $(10);

Other long-term liabilities

$(556)

$42 million notional(1)

(4)

Accounts payable and
accrued liabilities $(2); Accrued interest $(1);
Other long-term liabilities
$(1)

(4)

Accounts payable and

accrued liabilities $(2); Other long-term liabilities $(2)

Commodity contract derivatives

Other current assets $12; Other long-term assets $13 Accounts payable and accrued liabilities $(3)

Other current assets $26; Other long-term assets $23; Accounts payable and accrued liabilities $(3)

Note

(1) Represents two interest rate swaps with notional amounts of $28 million and $14 million.

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 three currency swaps outstanding at December 31, 2020, with total currency exposure of £600 million and expiration dates ranging from 2021 to 2043.

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

Derivatives Not Receiving Hedge Accounting Treatment

Interest Rate Derivatives. Generally TVA uses interest rate swaps to fix variable short-term debt to a fixed rate, and TVA uses regulatory accounting treatment to defer the mark-to-market ("MtM") gains and losses on its interest rate swaps. The net deferred unrealized gains and losses are classified as regulatory assets or liabilities on TVA's Consolidated Balance Sheets and are included in the ratemaking formula when gains or losses are realized. The values of these derivatives are included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets, and realized gains and losses, if any, are included on TVA's Consolidated Statements of Operations. For the three months ended December 31,

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2020 and 2019, the changes in fair market value of the interest rate swaps resulted in the deferral of unrealized gains of $143 million and $171 million, respectively. TVA may hold short-term debt balances lower than the notional amount of the interest rate swaps from time to time due to changes in business conditions and other factors. While actual balances vary, TVA generally plans to maintain average balances of short-term debt equal to or in excess of the combined notional amount of the interest rate swaps.

Commodity Derivatives. TVA enters into certain derivative contracts for natural gas that require physical delivery of the contracted quantity of the commodity. TVA marks to market natural gas contracts and defers the fair market values as regulatory assets or liabilities on a gross basis. At December 31, 2020, TVA's natural gas contract derivatives had terms of up to four years.

Commodity Contract Derivatives

At December 31, 2020

At September 30, 2020

Number of Contracts

Notional Amount

Fair Value (MtM)

Number of Contracts

Notional Amount

Fair Value (MtM)

Natural gas contract derivatives

300 million mmBtu

302 million mmBtu

Offsetting of Derivative Assets and Liabilities

The amounts of TVA's derivative instruments as reported on the Consolidated Balance Sheets are shown in the table below:


Derivative Assets and Liabilities(1) (in millions)
	At December 31, 2020		At September 30, 2020
Assets

Commodity derivatives not subject to master netting or similar arrangement	$	25	$	49


Liabilities
Currency swaps(2)	$	108	$	209
Interest rate swaps(2)	1,869		2,041
Total derivatives subject to master netting or similar arrangement	1,977		2,250
Commodity derivatives not subject to master netting or similar arrangement	3		3
Total liabilities	$	1,980	$	2,253

Notes

(1) Offsetting amounts primarily include counterparty netting of derivative contracts, margin account deposits for futures commission merchants transactions, and cash collateral received or paid in accordance with the accounting guidance for derivatives and hedging transactions. There were no offsetting amounts on TVA's Consolidated Balance Sheets at either December 31, 2020, or September 30, 2020.

(2) Letters of credit of approximately $1.4 billion and $1.5 billion were posted as collateral at December 31, 2020, and September 30, 2020, respectively, to partially secure the liability positions of one of the currency swaps and one of the interest rate swaps in accordance with the collateral requirements for these derivatives.

Other Derivative Instruments

Investment Fund Derivatives. Investment funds consist primarily of funds held in the Nuclear Decommissioning Trust ("NDT"), the Asset Retirement Trust ("ART"), the Supplemental Executive Retirement Plan ("SERP"), and the TVA Deferred Compensation Plan ("DCP"). See Note 14 — Fair Value Measurements — Investment Funds for a discussion of the trusts, plans, and types of investments. The NDT and ART may invest in derivative instruments which may include swaps, futures, options, forwards, and other instruments. At December 31, 2020, and September 30, 2020, the NDT held investments in forward contracts to purchase debt securities. The fair values of these derivatives were in net asset positions totaling $11 million and $13 million at December 31, 2020, and September 30, 2020, respectively.

Collateral. TVA's interest rate swaps and currency swaps contain contract provisions that require a party to post collateral (in a form such as cash or a letter of credit) when the party's liability balance under the agreement exceeds a certain threshold. At December 31, 2020, the aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a liability position was $2.0 billion. TVA's collateral obligations at December 31, 2020, under these arrangements were approximately $1.4 billion, for which TVA had posted approximately $1.4 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.

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

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

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

Counterparty Risk

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

Customers. TVA is exposed to counterparty credit risk associated with trade accounts receivable from delivered power sales to LPCs, and from industries and federal agencies directly served, all located in the Tennessee Valley region. Of the $1.2 billion and $1.4 billion of receivables from power sales outstanding at December 31, 2020, and September 30, 2020, respectively, nearly all counterparties were rated investment grade. The obligations of customers that are not investment grade are secured by collateral. TVA is also exposed to risk from exchange power arrangements with a small number of investor-owned regional utilities related to either delivered power or the replacement of open positions of longer-term purchased power or fuel agreements. TVA believes its policies and procedures for counterparty performance risk reviews have generally protected TVA against significant exposure related to market and economic conditions. See Note 1 — Summary of Significant Accounting Policies — Allowance for Uncollectible Accounts, Note 3 — Accounts Receivable, Net, and Note 6 — Other Long-Term Assets.

TVA had revenue from two LPCs that collectively accounted for 16 percent of total operating revenues for both the three months ended December 31, 2020 and 2019.

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

maintenance, and capital programs. If one of TVA's fuel or purchased power suppliers fails to perform under the terms of its contract with TVA, TVA might lose the money that it paid to the supplier under the contract and have to purchase replacement fuel or power on the spot market, perhaps at a significantly higher price than TVA was entitled to pay under the contract. In addition, TVA might not be able to acquire replacement fuel or power in a timely manner and thus might be unable to satisfy its own obligations to deliver power.

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

Coal. To help ensure a reliable supply of coal, TVA had coal contracts with multiple suppliers at December 31, 2020. The contracted supply of coal is sourced from multiple geographic regions of the U.S. and is to be delivered via various transportation methods (e.g., barge, rail, and truck). Emerging technologies, environmental regulations, and low natural gas prices have contributed to weak demand for coal. As a result, coal suppliers are facing increased financial pressure, which has led to relatively poor credit ratings and bankruptcies. Continued difficulties by coal suppliers, including impacts from the COVID-19 pandemic, could result in consolidations, additional bankruptcies, restructuring, contract renegotiations, or other scenarios.

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

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

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Other Suppliers. At this time, TVA has experienced minimal impacts due to force majeure events, with the exception of a manufacturing delay for a major turbine component. A mitigation strategy was developed by TVA and the vendor to reduce projected delays and impacts to TVA's outage schedule. TVA will continue to monitor the supply base and remain in contact with suppliers to identify potential risks.

Derivative Counterparties. TVA has entered into physical and financial contracts that qualify as derivatives for hedging purposes, and TVA's NDT, ART, and qualified defined benefit pension plan have entered into derivative contracts for investment purposes. If a counterparty to one of the physical or financial derivative transactions defaults, TVA might incur substantial costs in connection with entering into a replacement transaction. If a counterparty to the derivative contracts into which the NDT, the ART, or the qualified pension plan have entered for investment purposes defaults, the value of the investment could decline significantly or perhaps become worthless. TVA has concentrations of credit risk from the banking, coal, and gas industries because multiple companies in these industries serve as counterparties to TVA in various derivative transactions. At December 31, 2020, all of TVA's currency swaps and interest rate swaps as well as all of the derivatives in the NDT and ART were with banking counterparties whose Moody's credit ratings were A3 or higher.

TVA classifies qualified forward natural gas contracts as derivatives. See Derivatives Not Receiving Hedge Accounting Treatment above. At December 31, 2020, the natural gas contracts were with counterparties whose ratings ranged from B1 to A2. TVA recognizes the slowdown in demand and the impacts on the oil and gas industry as a result of the COVID-19 pandemic. TVA will continue to monitor the impacts and affected credit ratings and enforce contract performance assurance provisions when applicable.

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 1 is the highest and Level 3 is the lowest) is based on the lowest level of input significant to the fair value measurement.

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

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Investment Funds

At December 31, 2020, Investment funds were comprised of $3.6 billion of equity securities and debt securities classified as trading measured at fair value. Equity and trading debt securities are held in the NDT, ART, SERP, and DCP. The NDT holds funds for the ultimate decommissioning of TVA's nuclear power plants. The ART holds funds primarily for the costs related to the future closure and retirement of TVA's other long-lived assets. The balances in the NDT and ART were $2.5 billion and $971 million, respectively, at December 31, 2020.

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

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

Private equity limited partnerships, private real asset investments, and private credit investments may include holdings of investments in private real estate, venture capital, buyout, mezzanine or subordinated debt, restructuring or distressed debt, and special situations through funds managed by third-party investment managers. These investments generally involve a three-to-four-year period where the investor contributes capital, followed by a period of distribution, typically over several years. The investment period is generally, at a minimum, 10 years or longer. The NDT had unfunded commitments related to private equity limited partnerships of $214 million, private real assets of $105 million, and private credit of $48 million at December 31, 2020. The ART had unfunded commitments related to limited partnerships in private equity of $130 million, private real assets of $73 million, and private credit of $23 million at December 31, 2020. These investments have no redemption or limited redemption options and may also impose restrictions on the NDT's and ART's ability to liquidate their investments. There are no readily available quoted exchange prices for these investments. The fair value of these investments is based on information provided by the investment managers. These investments are valued on a quarterly basis. TVA's private equity limited partnerships, private real asset investments, and private credit investments are valued at net asset values ("NAV") as a practical expedient for fair value. TVA classifies its interest in these types of investments as investments measured at NAV in the fair value hierarchy.

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

Realized and unrealized gains and losses on equity and trading debt securities are recognized in current earnings and are based on average cost. The gains and losses of the NDT and ART are subsequently reclassified to a regulatory asset or liability account in accordance with TVA's regulatory accounting policy. See Note 1 — Summary of Significant Accounting Policies — Cost-Based Regulation and Note 7 — Regulatory Assets and Liabilities. TVA recorded unrealized gains and losses related to its equity and trading debt securities held during each period as follows:


Unrealized Investment Gains (Losses) (in millions)
		At or for the Three Months Ended December 31
Fund	Financial Statement Presentation	2020		2019
NDT	Regulatory asset	$	230	$	111
ART	Regulatory asset	92		37
SERP	Other income (expense)	4		1
DCP	Other income (expense)	1		1

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Currency and Interest Rate Swap Derivatives

See Note 13 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps and Derivatives Not Receiving Hedge Accounting Treatment for a discussion of the nature, purpose, and contingent features of TVA's currency swaps and interest rate swaps. These swaps are classified as Level 2 valuations and are valued based on income approaches using observable market inputs for similar instruments.

Commodity Contract Derivatives

See Note 13 — Risk Management Activities and Derivative Transactions —Derivatives Not Receiving Hedge Accounting Treatment. Most of these contracts are valued based on market approaches which utilize short-term and mid-term market-quoted prices from an external industry brokerage service.

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 credit valuation adjustments ("CVAs"). TVA determines an appropriate CVA for each applicable financial instrument based on the term of the instrument and TVA's or the counterparty's credit rating as obtained from Moody's. For companies that do not have an observable credit rating, TVA uses internal analysis to assign a comparable rating to the counterparty. TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY 2019) for companies with a similar credit rating over a time period consistent with the remaining term of the contract. The application of CVAs resulted in a less than $1 million decrease in the fair value of assets and a $1 million decrease in the fair value of liabilities at December 31, 2020.

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Fair Value Measurements

The following tables set forth by level, within the fair value hierarchy, TVA's financial assets and liabilities that were measured at fair value on a recurring basis at December 31, 2020, and September 30, 2020. 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 December 31, 2020 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Investments
Equity securities	$	588	$	—	$	—	$	588
Government debt securities(1)	500		29		—		529
Corporate debt securities(2)	—		400		—		400
Mortgage and asset-backed securities	—		27		—		27
Institutional mutual funds	214		—		—		214
Forward debt securities contracts	—		11		—		11
Private equity funds measured at net asset value(3)	—		—		—		238
Private real asset funds measured at net asset value(3)	—		—		—		190
Private credit measured at net asset value(3)	—		—		—		56
Commingled funds measured at net asset value(3)	—		—		—		1,334
Total investments	1,302		467		—		3,587

Commodity contract derivatives	—		25		—		25


Total	$	1,302	$	492	$	—	$	3,612

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities
Currency swaps(4)	$	—	$	108	$	—	$	108
Interest rate swaps	—		1,869		—		1,869
Commodity contract derivatives	—		3		—		3
Total	$	—	$	1,980	$	—	$	1,980

Notes

(1) Includes obligations of government-sponsored entities.

(2) Includes both U.S. and foreign debt.

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

(4) TVA records currency swaps net of cash collateral received from or paid to the counterparty, to the extent such amount is not recorded in Accounts payable and accrued liabilities. See Note 13 — Risk Management Activities and Derivative Transactions — Offsetting of Derivative Assets and Liabilities.

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Fair Value Measurements At September 30, 2020 (in millions)
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets
Investments
Equity securities	$	500	$	—	$	—	$	500
Government debt securities(1)	485		40		—		525
Corporate debt securities(2)	—		356		—		356
Mortgage and asset-backed securities	—		27		—		27
Institutional mutual funds	188		—		—		188
Forward debt securities contracts	—		13		—		13
Private equity funds measured at net asset value(3)	—		—		—		194
Private real asset funds measured at net asset value(3)	—		—		—		168
Private credit measured at net asset value(3)	—		—		—		53
Commingled funds measured at net asset value(3)	—		—		—		1,174
Total investments	1,173		436		—		3,198

Commodity contract derivatives	—		49		—		49


Total	$	1,173	$	485	$	—	$	3,247


	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Liabilities
Currency swaps(4)	$	—	$	209	$	—	$	209
Interest rate swaps	—		2,041		—		2,041
Commodity contract derivatives	—		3		—		3


Total	$	—	$	2,253	$	—	$	2,253

Notes

(1) Includes obligations of government-sponsored entities.

(2) Includes both U.S. and foreign debt.

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


Fair Value Measurements Using Significant Unobservable Inputs (in millions)
	Commodity Contract Derivatives(1)
Balance at October 1, 2019	$	(4)




Change in net unrealized gains (losses) deferred as regulatory assets and liabilities	(13)
Balance at December 31, 2019	$	(17)

Note

(1) During the fourth quarter of 2020, TVA discontinued derivative accounting for forward coal contracts. Therefore, the fair value measurement using significant unobservable inputs was zero at October 1, 2020, and December 31, 2020.

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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 instruments. The fair value of the financial instruments held at December 31, 2020, and September 30, 2020, 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 December 31, 2020, and September 30, 2020, were as follows:


Estimated Values of Financial Instruments Not Recorded at Fair Value (in millions)
		At December 31, 2020				At September 30, 2020
	Valuation Classification	Carrying Amount		Fair Value		Carrying Amount		Fair Value
EnergyRight® receivables, net (including current portion)	Level 2	$	82	$	82	$	87	$	86

Loans and other long-term receivables, net (including current portion)	Level 2	109		96		105		93

EnergyRight® financing obligations (including current portion)	Level 2	94		104		97		108

Unfunded loan commitments	Level 2	—		6		—		2

Membership interests of VIEs subject to mandatory redemption (including current portion)	Level 2	26		35		26		35

Long-term outstanding power bonds (including current maturities), net	Level 2	19,790		26,801		19,743		26,630

Long-term debt of VIEs (including current maturities), net	Level 2	1,090		1,430		1,089		1,419

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

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

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15. Revenue

Revenue from Sales of Electricity

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


LPC sales			Approximately 92 percent of TVA's revenue from sales of electricity for the three months ended December 31, 2020 was to LPCs, which then distribute the power to their customers using their own distribution systems. Power is delivered to each LPC at delivery points within the LPC's service territory. TVA recognizes revenue when the customer takes possession of the power at the delivery point. For power sales, the performance obligation to deliver power is satisfied in a series over time because the sales of electricity over the term of the customer contract are a series of distinct goods that are substantially the same and have the same pattern of transfer to the customer. TVA has no continuing performance obligations subsequent to delivery. Using the output method for revenue recognition provides a faithful depiction of the transfer of electricity as customers obtain control of the power and benefit from its use at delivery. Additionally, TVA has an enforceable right to consideration for energy delivered at any discrete point in time and will recognize revenue at an amount that reflects the consideration to which TVA is entitled for the energy delivered. The amount of revenue is based on contractual prices approved by the TVA Board. Customers are invoiced monthly for power delivered as measured by meters located at the delivery points. The net transaction price is offset by certain credits available to customers that are known at the time of billing. Credits are designed to achieve objectives of the TVA Act and include items such as hydro preference credits for residential customers of LPCs, economic development credits to promote growth in the Tennessee Valley, wholesale bill credits to maintain long-term partnerships with LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. Payments are typically due within approximately one month of invoice issuance.

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

Other Revenue

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

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Disaggregated Revenues

During the three months ended December 31, 2020, revenues generated from TVA's electricity sales were $2.3 billion and accounted for virtually all of TVA's revenues. TVA's operating revenues by state for the three months ended December 31, 2020 and 2019, are detailed in the table below:


Operating Revenues By State (in millions)
	Three Months Ended December 31
	2020		2019
Alabama	$	334	$	369
Georgia	58		63
Kentucky	137		157
Mississippi	212		237
North Carolina	16		18
Tennessee	1,501		1,676
Virginia	10		11
Subtotal	2,268		2,531
Off-system sales	2		1
Revenue from sales of electricity	2,270		2,532
Other revenue	34		46
Total operating revenues	$	2,304	$	2,578

TVA's operating revenues by customer type for the three months ended December 31, 2020 and 2019, are detailed in the table below:


Operating Revenues by Customer Type (in millions)
	Three Months Ended December 31
	2020		2019
Revenue from sales of electricity
Local power companies(1)	$	2,091	$	2,357
Industries directly served	154		150
Federal agencies and other	25		25
Revenue from sales of electricity	2,270		2,532
Other revenue	34		46
Total operating revenues	$	2,304	$	2,578

Note

(1) The amount for the three months ended December 31, 2020 and 2019, is net of $42 million and $34 million, respectively, of wholesale bill credits to LPCs participating in the long-term Partnership Agreement.

TVA and LPCs continue to work together to meet the changing needs of consumers around the Tennessee Valley. In 2019, the TVA Board approved a Partnership Agreement option that better aligns the length of LPC power contracts with TVA's long-term commitments. Under the partnership arrangement, the LPC power contracts have a 20-year termination notice provision that renews each year after their initial effective date, contingent upon certain circumstances, including limited rate increases going forward. Participating LPCs will receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. In June 2020, TVA provided participating LPCs a flexibility option that allows them to locally generate up to approximately five percent of average total hourly energy sales over the prior five years in order to meet their individual customers' needs. As of February 11, 2021, 142 LPCs had signed the 20-year Partnership Agreement with TVA, and 68 LPCs had signed a Flexibility Agreement.

In August 2020, the TVA Board approved a Pandemic Relief Credit which became effective beginning October 2020. The credit applies to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers as a 2.5 percent monthly base rate credit, approximating $200 million for 2021.

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The number of LPCs by contract arrangement, the revenues derived from such arrangements for the three months ended December 31, 2020, and the percentage those revenues comprised of TVA's total operating revenues for the same period, are summarized in the table below:


TVA Local Power Company Contracts At or for the Three Months Ended December 31, 2020
Contract Arrangements(1)	Number of LPCs	Revenue from Sales of Electricity to LPCs (in millions)		Percentage of Total Operating Revenues
20-year termination notice	142	$	1,720	74.7	%




5-year termination notice	11	371		16.1	%
Total	153	$	2,091	90.8	%

Note

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

TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a 20-year termination notice period, respectively. Sales to MLGW and NES each accounted for eight percent of TVA's total operating revenues during both the three months ended December 31, 2020 and 2019. Certain LPCs, including MLGW, are evaluating options for future energy choices. In addition, in January 2021, four LPCs accounting for four percent of TVA's total operating revenues during the three months ended December 31, 2020, filed a complaint and petition with the Federal Energy Regulatory Commission ("FERC") asking FERC to order TVA to provide transmission and interconnection service to the LPCs or other suppliers that want to serve them. See Note 19 — Contingencies and Legal Proceedings — Legal Proceedings — Challenge to Anti-Cherrypicking Amendment.

Contract Balances

Contract assets represent an entity's right to consideration in exchange for goods and services that the entity has transferred to customers. TVA does not have any material contract assets at December 31, 2020.

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

Economic Development Incentives. Under certain economic development programs, TVA offers incentives to existing and potential power customers in targeted business sectors that make multi-year commitments to invest in the Tennessee Valley. TVA records those incentives as reductions of revenue. During the three months ended December 31, 2020 and 2019, TVA recorded $75 million and $76 million, respectively, in incentives as a reduction of revenue. Incentives that have been approved but have not been paid are recorded in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets. At December 31, 2020, and September 30, 2020, the outstanding unpaid incentives were $168 million and $172 million, respectively. Incentives that have been paid out may be subject to claw back if the customer fails to meet certain program requirements. Additionally, in May 2020, TVA established flexibility provisions to support the continued operations and recovery of participating customers experiencing financial and operational hardships as a result of the COVID-19 pandemic and corresponding economic downturn. These provisions have not had a material impact to TVA.

16. Other Income (Expense), Net

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


Other Income (Expense), Net
	Three Months Ended December 31
	2020		2019

Interest income	$	3	$	5
External services	4		2
Gains (losses) on investments	9		5
Miscellaneous	(1)		—
Total Other income (expense), net	$	15	$	12

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17. Supplemental Cash Flow Information

Construction in progress and Nuclear fuel expenditures included in Accounts payable and accrued liabilities at December 31, 2020 and 2019, were $273 million and $254 million, respectively, and are excluded from the Statements of Consolidated Cash Flows for the three months ended December 31, 2020 and 2019, as non-cash investing activities.

18. Benefit Plans

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

The components of net periodic benefit cost and other amounts recognized as changes in regulatory assets for the three months ended December 31, 2020 and 2019, were as follows:


Components of TVA's Benefit Plans(1)
	For the Three Months Ended December 31
	Pension Benefits				Other Post-Retirement Benefits
	2020		2019		2020		2019
Service cost	$	14	$	12	$	5	$	4
Interest cost	91		104		4		4
Expected return on plan assets	(123)		(122)		—		—
Amortization of prior service credit	(24)		(24)		(5)		(6)
Recognized net actuarial loss	112		109		3		2
Total net periodic benefit cost as actuarially determined	70		79		7		4
Amount expensed / (capitalized) due to actions of regulator	7		(2)		—		—
Total net periodic benefit cost	$	77	$	77	$	7	$	4

Note

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

TVA's minimum required pension plan contribution for 2021 is $300 million. TVA contributes $25 million per month to TVARS and as of December 31, 2020, had contributed $75 million. The remaining $225 million will be contributed by September 30, 2021. For the three months ended December 31, 2020, TVA also contributed $26 million to the 401(k) plan and $9 million (net of $1 million in rebates) to the other post-retirement plans. TVA expects to contribute $5 million to the SERP in 2021.

TVA's pension and other investment portfolios have experienced significant fluctuations over the past year, which had substantially recovered as of September 30, 2020, and have continued to experience gains through the three months ended December 31, 2020. However, effects due to the COVID-19 pandemic on the financial markets, regulations, and experience are uncertain and continue to evolve. The ultimate impact of the COVID-19 pandemic on the pension plan and other post-retirement plans depends on factors beyond TVA’s knowledge or control, including the duration and severity, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on the country and region’s economy. Therefore, TVA cannot estimate the potential impact to the pension plan and other post-retirement plans.

19. Contingencies and Legal Proceedings

Contingencies

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

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

•Within the Secondary Financial Protection level, the licensee of each nuclear reactor has a contingent obligation to pay a retrospective premium, equal to its proportionate share of the loss in excess of the primary level, regardless

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of proximity to the incident of fault, up to a maximum of approximately $138 million per reactor per incident. With TVA's seven reactors, the maximum total contingent obligation per incident is $963 million. This retrospective premium is payable at a maximum rate currently set at approximately $20 million per year per incident per reactor. Currently, 97 reactors are participating in the Secondary Financial Protection program.

In the event that a nuclear incident results in public liability claims, the primary level provided by ANI combined with the Secondary Financial Protection should provide up to approximately $13.8 billion in coverage.

Federal law requires that each NRC power reactor licensee obtain property insurance from private sources to cover the cost of stabilizing and decontaminating a reactor and its station site after an accident. TVA carries property, decommissioning liability, and decontamination liability insurance from Nuclear Electric Insurance Limited ("NEIL"). The limits for each site vary depending on the site and range from up to $2.1 billion to $2.8 billion available for a loss at TVA's three sites. Some of this insurance may require the payment of retrospective premiums up to a maximum of approximately $145 million.

TVA purchases accidental outage (business interruption) insurance for TVA's nuclear sites from NEIL. In the event that an accident covered by this policy takes a nuclear unit offline or keeps a nuclear unit offline, NEIL will pay TVA, after a waiting period, an indemnity (a set dollar amount per week) with a maximum indemnity of $490 million per unit. This insurance policy may require the payment of retrospective premiums up to a maximum of approximately $43 million, but only to the extent the retrospective premium is deemed necessary by the NEIL Board of Directors to pay losses unable to be covered by NEIL's surplus.

Decommissioning Costs. TVA recognizes legal obligations associated with the future retirement of certain tangible long-lived assets related primarily to nuclear generating plants, coal-fired generating plants, hydroelectric generating plants/dams, transmission structures, and other property-related assets. See Note 10 — Asset Retirement Obligations.

Nuclear Decommissioning. Provision for decommissioning costs of nuclear generating units is based on options prescribed by the Nuclear Regulatory Commission ("NRC") procedures to dismantle and decontaminate the facilities to meet the NRC criteria for license termination. At December 31, 2020, $3.3 billion, representing the discounted value of future estimated decommissioning costs, was included in AROs. The actual decommissioning costs may vary from the derived estimates because of, among other things, changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. Utilities that own and operate nuclear plants are required to use different procedures in calculating nuclear decommissioning costs under GAAP than those that are used in calculating nuclear decommissioning costs when reporting to the NRC. The two sets of procedures produce different estimates for the costs of decommissioning primarily because of differences in the underlying assumptions. Decommissioning costs studies are updated for each of TVA's nuclear units at least every five years.

TVA maintains a NDT to provide funding for the ultimate decommissioning of its nuclear power plants. See Note 14 — Fair Value Measurements — Investment Funds. TVA monitors the value of its NDT and believes that, over the long term and before cessation of nuclear plant operations and commencement of decommissioning activities, adequate funds from investments and additional contributions, if necessary, will be available to support decommissioning. TVA's operating nuclear power units are licensed through various dates between 2033-2055, depending on the unit. It may be possible to extend the operating life of some of the units with approval from the NRC. See Note 7 — Regulatory Assets and Liabilities and Note 10 — Asset Retirement Obligations.

Non-Nuclear Decommissioning. At December 31, 2020, $3.5 billion, representing the discounted value of future estimated decommissioning costs, was included in AROs. This decommissioning cost estimate involves estimating the amount and timing of future expenditures and making judgments concerning whether or not such costs are considered a legal obligation. Estimating the amount and timing of future expenditures includes, among other things, making projections of the timing and duration of the asset retirement process and how costs will escalate with inflation. The actual decommissioning costs may vary from the derived estimates because of changes in current assumptions, such as the assumed dates of decommissioning, changes in regulatory requirements, changes in technology, and changes in the cost of labor, materials, and equipment. TVA updates its underlying assumptions for non-nuclear decommissioning AROs at least every five years. However, material changes in underlying assumptions that impact the amount and timing of undiscounted cash flows are continuously monitored and incorporated into ARO balances in the period identified.

TVA maintains an ART to help fund the ultimate decommissioning of its non-nuclear power assets. See Note 14 — Fair Value Measurements — Investment Funds. Estimates involved in determining if additional funding will be made to the ART include inflation rate, rate of return projections on the fund investments, and the planned use of other sources to fund decommissioning costs. See Note 7 — Regulatory Assets and Liabilities and Note 10 — Asset Retirement Obligations.

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

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

TVA estimates that compliance with existing and future Clean Air Act ("CAA") requirements (excluding GHG requirements) could lead to additional costs of $147 million from 2021 to 2025, which include existing controls capital projects and air operations and maintenance projects. TVA also estimates additional expenditures of approximately $902 million from 2021 to 2025 relating to TVA's CCR Conversion Program, as well as expenditures of approximately $173 million from 2021 to 2025 relating to compliance with Clean Water Act requirements. Future costs could differ from these estimates if new environmental laws or regulations become applicable to TVA or the facilities it operates, or if existing environmental laws or regulations are revised or reinterpreted. There could also be costs that cannot reasonably be predicted at this time, due to uncertainty of actions that could increase these estimates.

Liability for releases and cleanup of hazardous substances is primarily regulated by the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and other federal and parallel state statutes. In a manner similar to many other industries and power systems, TVA has generated or used hazardous substances over the years. TVA operations at some facilities have resulted in releases of contaminants that TVA is addressing consistent with state and federal requirements. At December 31, 2020, and September 30, 2020, TVA's estimated liability for cleanup and similar environmental work for those sites for which sufficient information is available to develop a cost estimate was approximately $15 million and $14 million, respectively, on a non-discounted basis, and was included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheets.

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

Other contractor employees and family members have filed lawsuits against Jacobs that are pending in the Eastern District. These pending lawsuits are stayed and raise similar claims to those being litigated in the case referenced above.

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

Legal Proceedings

General. At December 31, 2020, TVA had accrued $14 million of probable losses with respect to Legal Proceedings. Of the accrued amount, $12 million is included in Other long-term liabilities and $2 million is included in Accounts payable and accrued liabilities. No assurance can be given that TVA will not be subject to significant additional claims and liabilities. If actual liabilities significantly exceed the estimates made, TVA's results of operations, liquidity, and financial condition could be materially adversely affected.

Environmental Agreements. In April 2011, TVA entered into two substantively similar agreements, one with the EPA and the other with Alabama, Kentucky, North Carolina, Tennessee, and three environmental advocacy groups: the Sierra Club, the National Parks Conservation Association, and Our Children's Earth Foundation (collectively, the "Environmental Agreements"). Under the Environmental Agreements, TVA committed to, among other things, take actions regarding coal units that have been

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completed. TVA also agreed to invest $290 million in certain TVA environmental projects of which TVA had spent approximately $280 million as of December 31, 2020. Additionally, TVA holds restricted cash in an interest earning trust to fund the remaining project commitments. Under the Environmental Agreements, any interest earned through the trust must also be spent on agreed upon environmental projects. The total remaining committed spend, including interest earned through the trust, is approximately $11 million as of December 31, 2020. In exchange for these commitments, most past claims against TVA based on alleged New Source Review ("NSR") and associated violations were waived and cannot be brought against TVA. Future claims, including those for sulfuric acid mist and GHG emissions, can still be brought against TVA.

The liabilities related to the Environmental Agreements are included in Accounts payable and accrued liabilities and Other long-term liabilities on the December 31, 2020, Consolidated Balance Sheets. In conjunction with the approval of the Environmental Agreements, the TVA Board determined that it was appropriate to record TVA's obligations under the Environmental Agreements as regulatory assets, and they are included as such on the December 31, 2020 Consolidated Balance Sheets and will be recovered in rates in future periods.

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

Case Involving Tennessee River Boat Accident. In July 2015, plaintiffs filed suit in the U.S. District Court for the Northern District of Alabama ("Northern District"), seeking recovery for personal injuries sustained when the plaintiffs' boat struck a TVA transmission line which was being raised from the Tennessee River during a repair operation. The Northern District dismissed the case, finding that TVA's exercise of its discretion as a governmental entity in deciding how to carry out the operation barred any liability for negligence. In August 2017, the U.S. Court of Appeals for the Eleventh Circuit ("Eleventh Circuit") affirmed the decision. The plaintiffs petitioned the Supreme Court for review of the decision, arguing that the provision of the TVA Act which allows suit to be brought against TVA does not allow TVA to claim immunity for discretionary actions. In April 2019, the Supreme Court issued its opinion reversing the judgment of the Eleventh Circuit and remanding the case to the Eleventh Circuit. In July 2019, the Eleventh Circuit remanded the case to the district court for further proceedings consistent with the Supreme Court's opinion. TVA filed a motion for summary judgment on all of the plaintiffs’ claims on November 23, 2020, and the plaintiffs filed a motion for partial summary judgment. The court cancelled the trial scheduled for February 16, 2021, and stated that the trial would be rescheduled, if necessary, following the court’s ruling on the parties’ summary judgment motions.

Case Involving Bellefonte Nuclear Plant. In November 2018, Nuclear Development, LLC, filed suit against TVA in the Northern District of Alabama. The plaintiff alleges that TVA breached its agreement to sell Bellefonte to the plaintiff. The plaintiff seeks, among other things, (1) an injunction requiring TVA to maintain Bellefonte and the associated NRC permits until the case is concluded, (2) an order compelling TVA to complete the sale of Bellefonte to the plaintiff, and (3) if the court does not order TVA to complete the sale, monetary damages in excess of $30 million. In December 2018, Nuclear Development, LLC, and TVA filed a joint stipulation with the court. Under the stipulation, Nuclear Development, LLC, withdrew its request for an expedited hearing on its injunction in exchange for TVA's agreement to continue to maintain Bellefonte in accordance with the NRC permits and to give Nuclear Development, LLC, and the court five days prior notice of any filing by TVA to terminate the permits or sell the site. TVA filed a motion to dismiss the case in February 2019. In May 2019, the court denied TVA's motion. On September 23, 2020, the parties filed competing motions for summary judgment, and oral argument on the motions is scheduled for February 16, 2021. Trial is currently scheduled for March 29, 2021.

Case Involving Rate Changes. On June 9, 2020, a proposed class action lawsuit was filed in federal court in Abingdon, Virginia, by a LPC customer, asserting claims for breach of contract and violation of the Administrative Procedure Act. The lawsuit alleges that the customers of TVA's LPCs are third-party beneficiaries under TVA's wholesale power contracts with its LPCs and that TVA’s rate changes dating back to 2010 violate Section 11 of the TVA Act. Section 11 of the TVA Act establishes the broad policy that TVA power projects shall be considered primarily for the benefit of the people of the Tennessee Valley and that service to industry is a secondary purpose to be used principally to secure a sufficiently high load factor and revenue returns to permit domestic and rural use at the lowest possible rates. The remedies requested include an injunction prohibiting TVA rate changes that violate Section 11, monetary damages, and repayment of rates charged in violation of Section 11. TVA filed a motion to dismiss the case on November 9, 2020, and filed a supplemental motion to dismiss on December 21, 2020, in response to an amended complaint filed by the plaintiff. Oral argument on the motion is scheduled for February 18, 2021.

Cases Involving Long-Term Agreements. On August 17, 2020, the Southern Environmental Law Center ("SELC") filed a lawsuit in the United States District Court for the Western District of Tennessee on behalf of three environmental groups alleging that, beginning in August 2019, TVA violated the National Environmental Policy Act ("NEPA") and Section 10 of the TVA

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Act by offering a Long-Term Agreement ("LTA") to its LPCs. The environmental groups represented by SELC are Protect Our Aquifer, Energy Alabama, and Appalachian Voices.

The environmental groups claim that TVA violated NEPA because (1) TVA failed to perform an environmental review of the LTAs, which harmed the groups' advocacy efforts and their ability to participate in and to inform TVA's decision, and (2) the LTAs will have a negative effect on the environment by increasing TVA's reliance on coal and gas and impeding TVA's customers' efforts to institute renewable energy options. The groups also claim that the LTAs violate Section 10 of the TVA Act, which authorizes TVA to enter into power contracts "for a term not exceeding twenty years," because, the groups allege, the twenty-year rolling contract with a twenty-year notice of termination requirement makes the LTAs effectively "never ending."

The environmental groups request the federal court to (1) declare that TVA's entry into long-term power agreements without preparing an environmental review violated NEPA and the TVA Act, (2) vacate the long-term contracts, and (3) enjoin TVA from implementing "system-wide energy contract programs that significantly affect the environment." TVA filed a motion to dismiss the case on October 20, 2020, and filed a supplemental motion to dismiss on December 4, 2020, in response to an amended complaint filed by the plaintiffs. Oral argument on the motion is scheduled for February 19, 2021.

On January 28, 2021, TVA was served with a lawsuit filed by the Glasgow Electric Plant Board ("GEPB") against TVA in the United States District Court for the Western District of Kentucky seeking to rescind its LTA. The lawsuit advances multiple legal theories in asking the court to rescind the LTA, declare it null and void, or, in the alternative, reinstate GEPB's 90-day review period under the LTA. The issues raised by GEPB are limited to its contract with TVA, and the lawsuit does not seek relief that would apply to other customers. TVA is evaluating the complaint and assessing its legal defenses.

Challenge to Anti-Cherrypicking Amendment. On January 11, 2021, Athens Utilities Board, Gibson Electric Membership Corporation, Joe Wheeler EMC, and Volunteer Energy Cooperative filed a complaint and petition with the Federal Energy Regulatory Commission ("FERC") asking FERC to order TVA to provide transmission and interconnection service to the LPCs or other suppliers that want to serve them. The petitioners seek to avoid the limitations of the Anti-Cherrypicking Amendment ("ACPA") to the Federal Power Act ("FPA"), which prohibits FERC from ordering TVA to wheel power from another supplier if the power will be consumed within the TVA service territory. The petitioners argue that section 211A of the FPA, which gives FERC limited jurisdiction over the rates, terms, and conditions of transmission service provided by unregulated transmitting utilities such as TVA, provides an alternate grant of authority to enable FERC to order TVA to wheel power inside its service area unrestricted by the application of the ACPA. The petitioners also argue that the public power model is antiquated and TVA’s refusal to wheel power is not in the public interest because it stifles competition. On January 19, 2021, FERC issued a notice of the complaint and petition in the Federal Register, establishing February 1, 2021, as the due date for TVA’s response and for others’ interventions, comments, and protests. On January 21, 2021, TVA asked FERC for a 21-day extension to file its response, and FERC granted TVA's request establishing February 22, 2021, as the new response deadline.

20. Subsequent Events

Credit Facility Amendment

On February 9, 2021, TVA executed a second amendment to its $150 million December Maturity Community Bank Credit Agreement dated as of December 12, 2016 and amended as of December 11, 2018, with Truist Bank, as Administrative Agent, Letter of Credit Issuer, and a Lender, First Horizon Bank, First National Bank, HomeTrust Bank, Pinnacle Bank, Regions Bank, SmartBank, and United Community Bank (the “Credit Agreement”). The second amendment, among other things, (1) extends the maturity date of the Credit Agreement to February 9, 2024, (2) changes the name of the Credit Agreement to the February Maturity Community Bank Credit Agreement, (3) adds new definitions, (4) adds provisions regarding a successor rate to LIBOR, (5) adds provisions regarding qualified financial contracts, and (6) updates the schedule of commitments and applicable percentages. The other material terms and conditions of the Credit Agreement were not changed.

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

(Dollars in millions except where noted)

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") explains the results of operations and general financial condition of the Tennessee Valley Authority ("TVA"). The MD&A should be read in conjunction with the accompanying unaudited consolidated financial statements and TVA's Annual Report on Form 10-K for the year ended September 30, 2020 (the "Annual Report").

Executive Overview

TVA's operating revenues were $2.3 billion and $2.6 billion for the three months ended December 31, 2020 and 2019, respectively. The decrease in operating revenue was primarily due to lower demand revenue as a result of higher peak demand during the three months of the prior year, lower fuel cost recovery revenue from lower fuel rates, and lower effective rates. Lower effective rates resulted primarily from the Pandemic Relief Credit that the TVA Board approved in August 2020 which became effective beginning October 2020. The credit applies to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA's directly served customers as a 2.5 percent monthly base rate credit, approximating $200 million for 2021. For the three months ended December 31, 2020, these credits accounted for $49 million of the decrease to operating revenue.

Depreciation and amortization expense decreased $206 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This decrease was primarily due to a decrease in depreciation expense as a result of the decision in 2019 to accelerate the retirements of Bull Run Fossil Plant ("Bull Run") and Paradise Fossil Plant ("Paradise"). Fuel and purchased power expense decreased $67 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This decrease was primarily due to lower natural gas prices, improved nuclear fleet performance, and more hydroelectric generation.

TVA continues to closely monitor developments associated with the COVID-19 pandemic. For the three months ended December 31, 2020, the COVID-19 pandemic did not significantly decrease TVA's base revenue. TVA estimates base revenues were lower by approximately $10 million during this period as a result of economic conditions surrounding COVID-19. TVA expects these conditions could continue impacting revenue for the remainder of 2021, and has planned for $10.0 billion in total operating revenues for 2021. TVA's pension and other investment portfolios have experienced significant fluctuations over the past year, but had substantially recovered as of September 30, 2020, and have continued to experience gains through the three months ended December 31, 2020. In addition, operations and delivery of energy to customers have not been materially impacted by the COVID-19 pandemic at this time. See Key Initiatives and Challenges - COVID-19 Pandemic for an expanded discussion of the impact to TVA and related initiatives.

TVA continues to maintain 99.999 percent reliability in delivering energy to its customers. TVA's reliability, competitive rates, and economic development efforts continue to attract and encourage the expansion of business and industries in the Tennessee Valley, with over $2.3 billion in investments and more than 32,100 jobs created or retained during the first quarter of 2021.

Results of Operations

Sales of Electricity

Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 36,672 and 36,667 million of kWh for the three months ended December 31, 2020 and 2019, respectively. TVA sells power at wholesale rates to LPCs that then resell the power to their customers at retail rates. TVA also sells power to directly served customers, consisting primarily of federal agencies and customers with large or nonstandard loads. In addition, power exceeding TVA's system needs is sold under exchange power arrangements with certain other power systems.

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The following chart compares TVA's sales of electricity by customer type for the periods indicated:

Sales of Electricity

Three Months Ended December 31

(millions of kWh)

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

Note

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

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Weather affects both the demand for TVA power and the price for that power. TVA uses degree days to measure the impact of weather on its power operations. Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit.


	Degree Days
	Variation from Normal								Variation from Prior Period
	2020	Normal	Percent Change		2019	Normal	Percent Change		Percent Change
Heating Degree Days
Three Months Ended December 31	1,201	1,289	(6.8)	%	1,278	1,289	(0.9)	%	(6.0)	%


Cooling Degree Days
Three Months Ended December 31	46	43	7.0	%	90	43	109.3	%	(48.9)	%

Sales of electricity for the three months ended December 31, 2020 were flat as compared to the same period of the prior year. Sales of electricity from industries directly served increased as a result of certain customers shifting maintenance outages from December 2020 to the summer of 2020, while businesses were closed due to the COVID-19 pandemic. This increase was offset by a decrease in sales of electricity as a result of overall milder weather experienced during the three months ended December 31, 2020.

Financial Results

The following table compares operating results for the three months ended December 31, 2020 and 2019:


Summary Consolidated Statements of Operations (in millions)
	Three Months Ended December 31
	2020		2019		Percent Change
Operating revenues	$	2,304	$	2,578	(10.6)	%
Operating expenses	1,789		2,046		(12.6)	%
Operating income	515		532		(3.2)	%
Other income (expense), net	15		12		25.0	%
Other net periodic benefit cost	65		65		—	%
Interest expense	281		287		(2.1)	%
Net income (loss)	$	184	$	192	(4.2)	%

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Operating Revenues. Operating revenues were $2.3 billion and $2.6 billion for the three months ended December 31, 2020 and 2019, respectively, and consisted of the following:

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

In 2019, the TVA Board approved a Partnership Agreement option that better aligns the length of LPC power contracts with TVA's long-term commitments. Under the partnership arrangement, the LPC power contracts have a 20-year termination notice provision that renews each year after their initial effective date, contingent upon certain circumstances, including limited rate increases going forward. Participating LPCs will receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. As of February 11, 2021, 142 LPCs had signed the 20-year Partnership Agreement with TVA.

In 2020, the TVA Board approved a Pandemic Relief Credit which became effective beginning October 2020. The credit applies to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers as a 2.5 percent monthly base rate credit, approximating $200 million for 2021.

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

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The changes in revenue components for the three months ended December 31, 2020, compared to the three months ended December 31, 2019, are summarized below:


Changes in Revenue Components (in millions)
	Three Months Ended December 31
	2020		2019		Change
Base revenue
Energy revenue	$	1,060	$	1,067	$	(7)
Demand revenue	750		883		(133)
Grid access charge	149		149		—
Long-term partnership credits for LPCs	(42)		(34)		(8)
Pandemic relief credit	(49)		—		(49)
Other charges and credits(1)	(141)		(144)		3
Total base revenue	1,727		1,921		(194)
Fuel cost recovery	541		610		(69)
Off-system sales	2		1		1
Revenue from sales of electricity	2,270		2,532		(262)
Other revenue	34		46		(12)
Total operating revenues	$	2,304	$	2,578	$	(274)

Note

(1) Includes economic development credits to promote growth in the Tennessee Valley, hydro preference credits for residential customers of LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. See Note 15 — Revenue.

Operating revenues decreased $274 million for the three months ended December 31, 2020, as compared to the same period of the prior year, primarily due to a $194 million decrease in base revenue and a $69 million decrease in fuel cost recovery revenue. The $194 million decrease in base revenue was driven by a decrease of $119 million primarily attributable to lower demand volume and a decrease of $75 million attributable to lower effective rates. Lower demand volume resulted primarily from higher peak demand during the three months ended December 31, 2019. During this period, TVA's service territory experienced peaks of record-setting heat in October 2019 and record-setting cold in November 2019. Lower effective rates resulted primarily from the Pandemic Relief Credits that began in 2021, totaling $49 million for the three months ended December 31, 2020. For the three months ended December 31, 2020, the COVID-19 pandemic did not significantly decrease TVA's base revenue. TVA estimates base revenues were lower by approximately $10 million during this period as a result of economic conditions surrounding COVID-19. TVA expects these conditions could continue impacting revenue for the remainder of 2021, and has planned for $10.0 billion in total operating revenues for 2021. It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2021. The $69 million decrease in fuel cost recovery revenue was driven by lower fuel rates resulting primarily from lower market prices for natural gas.

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Operating Expenses. Operating expense components as a percentage of total operating expenses for the three months ended December 31, 2020 and 2019, consisted of the following:


Operating Expenses (in millions)
	Three Months Ended December 31
	2020		2019		Change
Operating expenses
Fuel	$	369	$	423	$	(54)
Purchased power	206		219		(13)
Operating and maintenance	715		689		26
Depreciation and amortization	378		584		(206)
Tax equivalents	121		131		(10)
Total operating expenses	$	1,789	$	2,046	$	(257)

Fuel expense decreased $54 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This decrease was primarily due to lower effective fuel rates of $60 million, resulting from lower natural gas prices, improved nuclear fleet performance, and more hydroelectric generation. Partially offsetting this decrease was an increase in fuel volume of $4 million due to an increase of TVA-owned generation as well as an increase of $2 million in fuel rate recovery.

Purchased power expense decreased $13 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This was primarily driven by a $17 million decrease in volume resulting from higher availability of TVA-owned generation. Partially offsetting this decrease was a $4 million increase in fuel rate recovery.

Operating and maintenance expense increased $26 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This was primarily due to an increase in outage expense of $30 million, driven by an increase in planned nuclear outage days. Additionally, there was a $14 million increase in payroll and benefit costs due to labor escalation for cost of living increases. Partially offsetting these increases was a reduction related to TVA's capital spare program of $15 million.

Depreciation and amortization expense decreased $206 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This was primarily driven by a net decrease in depreciation expense of $201 million related to the decision in 2019 to accelerate the retirements of Bull Run and Paradise. Paradise was fully depreciated in the second quarter of 2020. Additionally, amortization expense of non-nuclear decommissioning costs recovered in rates decreased $24 million. Partially offsetting these decreases was an increase due to depreciation of additions to completed plant.

Tax equivalents expense decreased $10 million for the three months ended December 31, 2020, as compared to the same period of the prior year. The change is primarily driven by a decrease in TVA's revenue from sales of electricity in 2020, which is used as the basis for calculating tax equivalent expense. Additionally, the amount of tax equivalents collected in the fuel rate recovery decreased during 2020.

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


Total Power Supply by Generating Source
	Three Months Ended December 31
	2020			2019
	kWh (millions)	Percent of Power Supply		kWh (millions)	Percent of Power Supply		Change	Percentage Change
Coal-fired	3,299	9	%	5,170	14	%	(1,871)	(36)	%
Nuclear	16,348	44	%	15,716	42	%	632	4	%
Hydroelectric	4,705	13	%	3,655	10	%	1,050	29	%
Natural gas and/or oil-fired	8,389	22	%	7,855	21	%	534	7	%

Total TVA-operated generation facilities(1)	32,741	88	%	32,396	87	%	345	1	%
Purchased power (non-renewable)(2)	2,536	7	%	2,954	8	%	(418)	(14)	%
Purchased power (renewable)(3)	1,980	5	%	1,950	5	%	30	2	%
Total purchased power	4,516	12	%	4,904	13	%	(388)	(8)	%
Total power supply	37,257	100	%	37,300	100	%	(43)	—	%

Notes

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

(2) Purchased power (non-renewable) includes generation from Caledonia Combined Cycle Plant ("Caledonia CC"), which is currently a leased facility operated by TVA. Generation from Caledonia CC was 1,071 million kWh and 805 million kWh for the three months ended December 31, 2020 and 2019, respectively.

(3) Purchased power (renewable) includes purchased power from the following renewable sources: hydroelectric, solar, wind, biomass, and cogeneration.

In addition to power supply sources included here, TVA offers energy efficiency programs that effectively reduce energy needs. TVA estimates energy needs could be reduced by 2,500 million kWh in 2021 due to TVA's energy efficiency programs.

Interest Expense. Interest expense and interest rates for the three months ended December 31, 2020 and 2019, were as follows:


Interest Expense and Rates
	Three Months Ended December 31
	2020			2019			Percent Change
Interest expense(1)	$	281		$	287		(2.1)	%

Average blended debt balance(2)	21,287			22,230			(4.2)	%

Average blended interest rate(3)	5.17		%	5.06		%	2.2	%

Notes

(1) Includes amortization of debt discounts, issuance, and reacquisition costs, net.

(2) Includes average balances of long-term power bonds, debt of VIE, and discount notes.

(3) Includes interest on long-term power bonds, debt of VIE, and discount notes.

Total interest expense decreased $6 million for the three months ended December 31, 2020, as compared to the same period of the prior year. This decrease was primarily driven by lower average balances and rates on short-term debt and lower average balances on long-term debt. Partially offsetting these decreases was an increase due to higher average rates on long-term debt.

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Liquidity and Capital Resources

Sources of Liquidity

TVA depends on various sources of liquidity to meet cash needs and contingencies. TVA's primary sources of liquidity are cash from operations and proceeds from the issuance of short-term debt in the form of discount notes, along with periodic issuances of long-term debt. TVA's balance of short-term debt typically changes frequently as TVA issues discount notes to meet short-term cash needs and pay scheduled maturities of discount notes and long-term debt. The periodic amounts of short-term debt issued are determined by near-term expectations for cash receipts, cash expenditures, and funding needs, while seeking to maintain a target range of cash and cash equivalents on hand.

In addition to cash from operations and proceeds from the issuance of short-term and long-term debt, TVA's sources of liquidity include a $150 million credit facility with the United States Department of the Treasury ("U.S. Treasury"), four long-term revolving credit facilities totaling approximately $2.7 billion, and proceeds from other financings. See Note 11 — Debt and Other Obligations — Credit Facility Agreements. Other financing arrangements may include sales of receivables, loans, or other assets.

The TVA Act authorizes TVA to issue bonds, notes, or other evidences of indebtedness (collectively, "Bonds") in an amount not to exceed $30.0 billion outstanding at any time. Power bonds outstanding, excluding unamortized discounts and premiums and net exchange gains from foreign currency transactions, at December 31, 2020, were $20.1 billion (including current maturities). The balance of Bonds outstanding directly affects TVA's capacity to meet operational liquidity needs and to strategically use Bonds to fund certain capital investments as management and the TVA Board may deem desirable. Other options for financing not subject to the limit on Bonds, including lease financings (see Lease Financings below and Note 8 — Variable Interest Entities), could provide supplementary funding if needed. Currently, TVA expects to have adequate capability to fund its ongoing operational liquidity needs and make planned capital investments over the next decade. See Lease Financings below, Note 8 — Variable Interest Entities, and Note 11 — Debt and Other Obligations for additional information.

TVA may from time to time seek to retire or purchase its outstanding debt through cash purchases and/or exchanges for securities, in open market purchases, privately negotiated transactions, or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, TVA's liquidity requirements, contractual restrictions, and other factors. The amounts involved may be material. TVA's next material power bond maturity of $1.5 billion is in February 2021.

Debt Securities. TVA's Bonds are not obligations of the U.S., and the U.S. does not guarantee the payments of principal or interest on Bonds. TVA's Bonds consist of power bonds and discount notes. Power bonds have maturities of between one and 50 years. At December 31, 2020, the average maturity of long-term power bonds was 15.07 years, and the average interest rate was 4.56 percent. Discount notes have maturities of less than one year. Power bonds and discount notes have a first priority and equal claim of payment out of net power proceeds. Net power proceeds are defined as the remainder of TVA's gross power revenues after deducting the costs of operating, maintaining, and administering its power properties and payments to states and counties in lieu of taxes, but before deducting depreciation accruals or other charges representing the amortization of capital expenditures, plus the net proceeds from the sale or other disposition of any power facility or interest therein. In addition to power bonds and discount notes, TVA had long-term debt associated with certain VIEs outstanding at December 31, 2020. See Lease Financings below, Note 8 — Variable Interest Entities, and Note 11 — Debt and Other Obligations for additional information.

The following table provides additional information regarding TVA's short-term borrowings:


Short-Term Borrowing Table
	At December 31, 2020			Three Months Ended December 31, 2020			At December 31, 2019			Three Months Ended December 31, 2019
Gross Amount Outstanding (at End of Period) or Average Gross Amount Outstanding (During Period)
Discount Notes	$	112		$	146		$	895		$	767
Maximum Month-End Gross Amount Outstanding (During Period)
Discount Notes	N/A			$	115		N/A			$	895
Weighted Average Interest Rate
Discount Notes	0.07		%	0.06		%	1.56		%	1.71		%

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Lease Financings. TVA has entered into certain leasing transactions with special purpose entities ("SPEs") to obtain third-party financing for its facilities. These SPEs are sometimes identified as VIEs of which TVA is determined to be the primary beneficiary. TVA is required to account for these VIEs on a consolidated basis. See Note 8 — Variable Interest Entities and Note 11 — Debt and Other Obligations for information about TVA's lease financing activities. During 2017 and 2016, TVA acquired 100 percent of the equity interests in certain SPEs created for the purpose of facilitating lease financing. TVA may seek to enter into similar arrangements in the future. In 2019, TVA made final rent payments under lease/leaseback transactions involving eight CTs and terminated these transactions. In 2020, TVA made final rent payments under lease/leaseback transactions involving eight additional CTs and anticipate these transactions will be terminated in 2021. TVA will continue making rent payments under the remaining lease/leaseback transactions through 2022.

Summary Cash Flows

A major source of TVA's liquidity is operating cash flows resulting from the generation and sale of electricity. Cash, cash equivalents, and restricted cash were $529 million at December 31, 2020, compared to $327 million at December 31, 2019. A summary of cash flow components for the three months ended December 31, 2020 and 2019, follows:

Cash provided by (used in):

Operating Activities. TVA's cash flows from operations are primarily driven by sales of electricity, fuel expense, and operating and maintenance expense. The timing and level of cash flows from operations can be affected by the weather, changes in working capital, commodity price fluctuations, outages, and other project expenses.

Net cash flows provided by operating activities decreased $243 million for the three months ended December 31, 2020, as compared to the same period of the prior year. The decrease is primarily due to lower revenue collections from lower demand volume, lower effective rates as a result of the Pandemic Relief Credit, and lower fuel cost recovery revenue. These decreases were partially offset by decreases in fuel and purchased power payments as a result of lower natural gas prices and more availability of lower cost TVA-owned generation in the current year.

Investing Activities. The majority of TVA's investing cash flows are due to investments to acquire, upgrade, or maintain

generating and transmission assets, including environmental projects and the purchase of nuclear fuel. Nuclear fuel

expenditures vary depending on the number of outages and the prices and timing of purchases of uranium and enrichment

services.

Net cash flows used in investing activities increased $54 million for the three months ended December 31, 2020, as compared to the same period of the prior year driven by an increase in capacity expansion projects due to construction of the new Colbert and Paradise Combustion Turbine units in addition to the Boone Dam remediation project. This increase was partially offset by a decrease in expenditures for the Pickwick South Embankment remediation project nearing completion.

Financing Activities. TVA's cash flows provided by or used in financing activities are primarily driven by the timing and level of cash flows provided by operating activities, cash flows used in investing activities, and net issuance and redemption of debt instruments to maintain a strategic balance of cash on hand.

Net cash provided by financing activities was $57 million for the three months ended December 31, 2020, as compared to $243 million in net cash used in financing activities in the same period of the prior year. The net change of $300 million was due to an increase in TVA’s target balance of Cash and cash equivalents and short-term cash needs. As a result of higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its target balance of Cash and cash equivalents beginning in March 2020 and continues to hold an approximately $200 million higher balance at December 31, 2020, as compared to December 31, 2019.

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Impact of COVID-19 to Liquidity

The COVID-19 pandemic did not significantly decrease base revenue for the three months ended December 31, 2020; however, TVA will continue to monitor the impact of the COVID-19 pandemic on revenue for the remainder of 2021. See Results of Operations — Financial Results — Operating Revenues and Key Initiatives and Challenges — Coronavirus Pandemic for an expanded discussion of the impact to TVA.

The COVID-19 pandemic has also created economic uncertainty for TVA's LPCs and the communities they serve. To

support LPCs and strengthen the public power response to the COVID-19 pandemic, TVA has created initiatives such as the

Public Power Support and Stabilization Program, Back-to-Business Credit Program, Community Care Fund, and Pandemic

Relief Credit. TVA has also provided regulatory flexibility for LPCs to halt disconnection of services. See Key Initiatives and Challenges — Coronavirus Pandemic for an expanded discussion of these initiatives.

Contractual Obligations

TVA has certain obligations and commitments to make future payments under contracts. During the three months ended December 31, 2020, there were no material changes in TVA's contractual obligations outside of the ordinary course of business. TVA's contractual obligations are discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources and Note 21 — Benefit Plans of the Notes to Consolidated Financial Statements in the Annual Report.

Key Initiatives and Challenges

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus was reported in China. As this strain continued to spread across the globe, the World Health Organization declared the outbreak of the 2019 novel coronavirus a pandemic on March 11, 2020. TVA has performed risk analyses across the company to determine potential impacts and monitor performance throughout the situation and has implemented a company-wide pandemic plan to address specific aspects of the COVID-19 pandemic. TVA's pandemic plan continues to evolve based on medical guidance and federal, regional, and local requirements and guidelines.

Based on ongoing monitoring, COVID-19 continues to pose a significant risk in the U.S. and in the Tennessee Valley region, and as a result TVA has extended the timeframe for workforce reintegration and continues to limit non-essential travel. Mandatory telework has been implemented for those employees who do not have to be physically present at a TVA facility or office building to provide mission-essential activities or produce safe, reliable power. TVA continues to implement strong physical and cybersecurity measures to ensure that systems remain functional to keep employees, customers, and communities safe and enable TVA to continue achieving its mission to serve the people of the Valley. In addition to measures to protect its workforce, stakeholders, and critical operations, TVA is actively monitoring generation, transmission, and distribution functions. Operations and delivery of energy to customers have not been materially impacted by the COVID-19 pandemic at this time. Certain TVA recreation areas including TVA campgrounds, day use areas, trails, and undeveloped lands have reopened since TVA had initially closed them to slow the spread of the virus. However, for public and staff safety, restrooms and pavilions remain closed. These changes will continue until TVA believes it is safe to resume full operations.

For the three months ended December 31, 2020, the COVID-19 pandemic did not significantly decrease TVA's base revenue. TVA estimates base revenues were lower by approximately $10 million as a result of economic conditions surrounding COVID-19. TVA expects these conditions could continue impacting revenue for the remainder of 2021 and has planned for $10.0 billion in total operating revenue in 2021. It is uncertain at this time the extent to which revenues may be impacted beyond 2021. The ultimate impact of the COVID-19 pandemic on TVA's financial condition depends on factors beyond TVA's knowledge or control, including the duration and severity, actions taken to contain its spread and mitigate its effects, and broader impacts of the COVID-19 pandemic on the country and region's economy. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Financial Results — Operating Revenues.

TVA also continues to assess potential supplier performance risks, including procurement of fuel, parts, and services. If suppliers are unable to perform under TVA's existing contracts or if TVA is unable to obtain similar services from other vendors, TVA could experience delays, disruptions, additional costs, or other operational outcomes that may impact generation, maintenance, and capital programs. At this time, TVA has experienced minimal impacts due to force majeure events, with the exception of a manufacturing delay for a major turbine component. A mitigation strategy was developed by TVA and the vendor to reduce projected delays and impacts to TVA's outage schedule. TVA will continue to monitor the supply base and remain in contact with suppliers to identify potential risks.

Customer Pandemic Initiatives. The COVID-19 pandemic has created economic uncertainty for TVA's customers and the communities they serve. To support and strengthen the public power response to the COVID-19 pandemic, TVA announced the following initiatives:

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Regulatory Flexibility. TVA provided regulatory flexibility for LPCs to halt disconnection of services and respond to the local needs of their customers and communities.

Program Flexibility. In 2020, TVA established flexibility provisions for certain economic development programs for participating customers impacted by the COVID-19 pandemic, as well as deferral options for EnergyRight® program loan payments, through October 31, 2020, for customers experiencing financial hardship. See Note 6 — Other Long-Term Assets, Note 9 — Other Long-Term Liabilities, and Note 15 — Revenue.

Financial Support. In 2020, the TVA Board approved the Public Power Support and Stabilization Program. Through this program, TVA offered up to $1.0 billion of credit support to LPCs that demonstrated the need for temporary financial relief, through the deferral of a portion of LPCs' wholesale power payments owed to TVA. The program ended December 31, 2020, with a total of $1 million of credit support approved under the program. Repayment has begun and full payment is expected in the second quarter of 2021.

Back-to-Business Credit Program. TVA created the Back-to-Business Credit Program to enable TVA and LPCs to provide relief to certain large customers affected by the COVID-19 pandemic by providing certain credits when returning to operations. As of December 31, 2020, TVA had provided approximately $11 million in Back-to-Business credits under this program since its inception, with approximately $1 million provided in the three months ended December 31, 2020.

Community Care Fund. TVA also continues to partner with LPCs through the Community Care Fund by making available over $4 million in TVA matching funds to support local initiatives that address hardships created by the COVID-19 pandemic. As of December 31, 2020, over $3 million in matching funds had been provided by TVA, with approximately $1 million provided in the three months ended December 31, 2020.

Pandemic Relief Credit. In August 2020, the TVA Board approved a Pandemic Relief Credit which became effective beginning October 2020. The credit applies to service provided to TVA's LPCs, their large commercial and industrial customers, and TVA directly served customers as a 2.5 percent monthly base rate credit, approximating $200 million for 2021. As of December 31, 2020, TVA had provided approximately $49 million in Pandemic Relief Credits.

These actions continue to show TVA's commitment to support the financial integrity of LPCs along with communities and customers across the Tennessee Valley during these challenging economic conditions caused by the COVID-19 pandemic. The COVID-19 pandemic is an evolving situation that may lead to extended disruption of economic activity and an adverse impact on TVA's results of operations. TVA is closely monitoring developments and will continue adjusting its response as necessary to ensure reliable service while protecting the safety and health of its workforce.

Distributed Energy Resources

Consumer desire for energy choice, among other things, is driving the expectation for flexible options in the electric industry. TVA and LPCs are working together to leverage the strengths of the Tennessee Valley public power model to provide distributed energy solutions that are economical, sustainable, and flexible. TVA will focus on the safety and reliability impacts of these resources as they are interconnected to the grid and will ensure that the pricing of electricity remains as low as feasible. Additional regulatory considerations and analysis may be required as the DER market, technologies, and programs evolve. The TVA Board recently approved new policies and an optional wholesale Electric Vehicle (“EV”) rate aimed at encouraging the development of charging infrastructure in the Valley. The updated policies enable LPC investment in public charging infrastructure and allow for the conditional resale of electricity for transportation purposes only, by any charging developer. This will enable transparent and economical refueling pricing options for EV drivers on a kWh basis. The optional wholesale rate was developed with high power EV charging in mind and provides a stable, economical option for those developing charging infrastructure. Setting policies such as these, positions TVA’s service territory to attract more EV and associated technology investment. TVA will continue to develop pricing and regulatory structures for each current and future program offering, in partnership with LPCs, in order to give customers choices and provide end use consumers flexibility.

In 2017, the TVA Board authorized up to $300 million to be spent over the next 10 years, subject to annual budget availability and necessary environmental reviews, to build an enhanced fiber optic network that will better connect TVA's operational assets. Fiber is a vital part of TVA's modern communication infrastructure. The new fiber optic lines will improve the reliability and resiliency of the generation and transmission system while enabling the system to better accommodate DER as they enter the market. As of December 31, 2020, TVA had spent $129 million on installation of the fiber optic lines and expects to spend an additional $171 million.

Changing Customer Preferences

As more consumers and businesses are demanding cleaner energy, the utility industry is evolving to meet those needs. As TVA also evolves, it will see impacts to the way it does business through the pricing of products, transmission of energy, and development of new products and services for its customers in support of changing customer preferences and its economic development efforts. End-use customers are becoming more technologically sophisticated and want greater control over their energy usage. Many companies are focusing on sustainability and requiring more energy efficiency and renewable energy

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options. The continuing challenge for TVA and others is finding ways to meet the needs and preferences of customers while successfully developing flexible pricing models to accommodate the evolving markets.

Low-Income Energy Efficiency Program. Through the Home Uplift Program, TVA is partnering with LPCs, state and local governments, non-profit agencies, energy efficiency advocates, and the Tennessee Valley Public Power Association to complete home evaluations and make high-impact home energy upgrades for qualifying homeowners. In addition, TVA and LPCs conduct workshops to educate homeowners about low and no-cost energy efficiency upgrades that improve their quality of life.

Renewable Power Purchase Agreements. In order to meet customer preferences and requirements for cleaner energy, TVA has entered into certain power purchase agreements ("PPAs") with renewable resource providers. In 2019, as a result of TVA's 2017 request for proposals for renewable energy, TVA signed four solar PPAs for 674 megawatts ("MW") of solar generation at sites in Tennessee and Alabama. One of these four solar projects is expected to come online in 2021 and two of the projects are expected to come online in 2022. In 2020, one of the counterparties failed to comply with the terms of its PPA. TVA terminated the 150 MW agreement due to the counterparty's default and is evaluating its rights under the PPA and next steps. During 2020, as a result of TVA's 2019 request for proposals for renewable energy, TVA signed six PPAs for a total of 661 MW of solar generation with 50 MW of battery storage expected to come online in 2023. Due to transmission issues for one of the projects, the 661 MW will be decreased to 651 MW. TVA issued another request for proposal during the second quarter of 2020 for up to 200 MW of new renewable energy. During 2021, as a result of the 2020 request for proposal and increased customer demand, TVA signed seven additional PPAs for a total of 964 MW of solar generation with 130 MW of battery storage expected to come online in 2023. TVA anticipates making any remaining selections in the second quarter of 2021.

TVA will procure the renewable energy and sell the resulting Renewable Energy Certificates ("RECs") to specific customers, allowing TVA to increase its renewable energy portfolio without additional costs to other Tennessee Valley customers. These agreements help to align the core values of TVA and the public power model with the desire of TVA's customers for renewable energy.

Renewable Power Solutions. TVA encourages renewable power through various current offerings. Offerings include the Green Switch Program that allows customers to support wind, solar, and biomass renewable resources through purchasing renewable energy generated in the Tennessee Valley, sold in 200 kWh blocks. The Green Flex Program gives commercial and industrial customers the ability to meet sustainability goals and to make renewable energy claims through RECs from wind generation located outside TVA's service area. TVA also offers a utility-scale program and a mid-scale flexibility option that better equip TVA and LPCs with the flexibility to meet changing end-use customer needs. The utility-scale program, Green Invest, aggregates demand through a competitive procurement process and is implemented through a renewable investment agreement. The goal of the Green Invest program is to meet the long-term sustainability needs of customers at scale. TVA may also construct its own renewable facilities to meet these needs. The mid-scale option, also known as the Flexibility Research Project, is a joint project with LPCs to enable solutions for situations where the end-use consumer needs onsite renewable or distributed generation. This project will allow TVA to gain market knowledge and operational insights. In addition, TVA launched the Green Connect Program in January 2021 to connect residential customers interested in on-site solar installations with qualified solar installers.

Energy Exchange Market

TVA and other utilities across the southeastern United States are exploring the creation of a new automated energy exchange across the region, to facilitate more immediate and short-term power exchanges. The energy exchange would be an enhancement to TVA's existing trading program, and the creation of this energy exchange platform would require approval of the Federal Energy Regulatory Commission, which regulates transmission service and power transfers by jurisdictional public utilities. These discussions demonstrate TVA's commitment to maintaining and improving reliability in the Tennessee Valley in the least-cost manner.

Natural Resource Plan

In 2020, the TVA Board of Directors accepted changes to TVA's Natural Resource Plan ("NRP") to support a more strategic, flexible, and comprehensive management approach to TVA's natural resource stewardship work, and TVA published its Record of Decision to complete its environmental review process. The updated plan enhances alignment with TVA's mission through economic development, energy, and environmental stewardship, and guides business planning. In the newly published NRP, TVA expanded from six resource areas to ten focus areas, ensuring the NRP provides a more comprehensive view of resource stewardship efforts.

Strategic Financial Plan

In 2019, the TVA Board approved an annual budget that reflects the first year of a new Strategic Financial Plan. The Strategic Financial Plan, which extends from 2020 through 2030, is flexible in aligning customer preferences and TVA's mission while at the same time establishing a long-term forecast of financial results. Key focus areas of the Strategic Financial Plan include maintaining rates as low as feasible, establishing better alignment between the length of LPC contracts and TVA's long-

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term commitments, stabilizing debt, assuming 100 percent long-term partner participation, maintaining a target cash balance of $300 million, and pursuing operational efficiencies. As TVA executes the plan, key assumptions and performance may change estimated debt and cash balances. For example, TVA is continuing to evaluate its long-term asset needs. In addition, due to higher volatility in the financial markets associated with the COVID-19 pandemic, TVA increased its target balance of Cash and cash equivalents in 2020. TVA may continue to hold higher balances in future periods due to potential market volatility.

In 2021, TVA retained Lazard Frères & Co. LLC ("Lazard"), an international financial advisory and asset management firm, to evaluate TVA’s financial performance from 2014 through 2020 against TVA’s 2014 long range financial plan (“2014 Plan”). Further, Lazard also reassessed whether the public power model and TVA’s existing business structure are reasonable approaches to support TVA’s mission, consistent with the scope of analysis and findings from Lazard’s 2014 Strategic Assessment Report (“2014 Lazard Report”). In the 2021 report, Lazard concluded that TVA’s financial performance from 2014 through fiscal year 2020 has been strong when measured against the financial performance objectives as set forth in TVA’s 2014 Plan and the performance of other large utility companies. Lazard also concluded that TVA’s performance in recent years and current positioning suggest that the public power model is a reasonable approach to support TVA’s mission. In addition, the 2021 report reaffirmed that Lazard’s previous conclusions from the 2014 Lazard Report with respect to the benefits and considerations of the public power model compared against alternative business models are still valid today.

Generation Resources

Extreme Flooding Preparedness. Updates to the TVA analytical hydrology model completed in 2009 indicated that under "probable maximum flood" conditions, some of TVA's dams might not have been capable of regulating the higher flood waters. A "probable maximum flood" is an extremely unlikely event; however, TVA has a responsibility to provide protection for its nuclear plants against such events. As a result, TVA installed a series of modifications at four dams.

Since 2009, TVA has performed further hydrology modeling of portions of the TVA watershed using updated modeling tools. The revised hydrology models were reviewed and approved by the NRC for Watts Bar Units 1 and 2. However, TVA identified an error in the modeling that will require the models for Watts Bar Units 1 and 2 to be resubmitted. TVA plans to resubmit models for Watts Bar Units 1 and 2 by the end of the third quarter of 2021. In addition, TVA submitted models for Sequoyah Nuclear Plant ("Sequoyah") Units 1 and 2 in 2020. TVA will subsequently address conditions at Browns Ferry as needed. As of December 31, 2020, TVA had spent $154 million on the modifications and improvements related to extreme flooding preparedness. TVA is deferring the decision on the need for additional modifications until after the modeling work is complete.

Mitigation of Beyond-Design-Basis Events. NRC rulemaking has been developed to codify the requirements promulgated by orders related to beyond-design-basis flooding discussed above. The NRC Commissioners approved the final rule in 2019. TVA plans to implement requirements for Sequoyah and Watts Bar by 2022 and for Browns Ferry by 2023. A gap review of the revised rule has been performed, and no new gaps to compliance were identified. Actions to complete flood assessments are still ongoing. See Extreme Flooding Preparedness above.

Work Environment at Nuclear Plants. In 2016, the NRC issued a Chilling Effect Letter ("CEL") to TVA regarding work environment concerns identified at Watts Bar. In the mid-cycle assessment letter issued in 2018, the NRC issued a Cross Cutting Issue in safety conscious work environment ("CCI") and outlined the closure criteria for both the CEL and CCI. In October 2019, TVA informed the NRC of its CEL and CCI closure criteria readiness, and the NRC completed its inspection, resulting in no additional findings with progress noted as documented in its December 2019 inspection report. In March 2020, the NRC issued its Annual Assessment Letter for Watts Bar noting TVA's progress in addressing the CEL and CCI while stating that the NRC continues to monitor TVA's activities as they deliberate on the appropriate time to close the CEL and CCI.

Apparent Violations of NRC Regulations. On March 2, 2020, the NRC issued a letter to TVA identifying four apparent violations of NRC regulations that prohibit licensees from retaliating against employees for their having raised protected nuclear safety concerns. In June 2020, TVA participated in a pre-decisional enforcement conference before the NRC, and in August 2020, the NRC issued violations to TVA and a notice of proposed imposition of civil penalties in an amount less than $1 million. TVA submitted a written response to the NRC that denies the violations and opposes the imposition of civil penalties. In October 2020, the NRC issued an order imposing civil penalties in an amount less than $1 million. In November 2020, TVA requested an evidentiary hearing before the NRC’s Atomic Safety and Licensing Board. The evidentiary hearing is scheduled for August 2021.

On March 9, 2020, the NRC issued a letter to TVA identifying twelve apparent violations of NRC regulations: six relating

to operational activities and six relating to NRC regulations governing the completeness and accuracy of information. TVA

participated in a pre-decisional enforcement conference before the NRC in July 2020, and on November 6, 2020, the NRC

issued five violations to TVA and a notice of proposed imposition of civil penalties in an amount less than $1 million. TVA submitted a written response to the NRC violations in December 2020, accepting the violations in part and denying them in part, and requesting a reduction of the civil penalties consistent with the denial. TVA anticipates that the NRC will issue its order imposing civil penalties in February 2021.

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Tritium-Producing Burnable Absorber Rods. TVA was a cooperating agency in the 2016 Department of Energy ("DOE") Final Supplemental Environmental Impact Statement for the Production of Tritium in a Commercial Light Water Reactor. In 2017, due to an anticipated need for more tritium-producing burnable absorber rods ("TPBARs"), the DOE announced its preferred alternative for irradiation services, which included use of an additional reactor. As a result of TVA's assessment and concurrence with the DOE's alternative, TVA submitted a license amendment request to the NRC to authorize the irradiation of TPBARs in Watts Bar Unit 2. The NRC approved the request in 2019, and TVA began tritium production in Watts Bar Unit 2 in November 2020. The DOE's decision also allows for irradiation of TPBARs at Sequoyah in the future; however, TVA does not have plans to employ Sequoyah units for tritium production in the near term.

Extended Power Uprate. TVA has undertaken an extended power uprate ("EPU") project at Browns Ferry to increase the amount of electrical generation capacity of its reactors. The license for each reactor was amended to allow reactor operation at the higher power level. The Browns Ferry EPU license amendments were approved by the NRC in 2017, following a nearly two-year review.

The project involved extensive engineering analyses and modification and replacement of certain existing plant components to enable the units to produce the additional power requested by the license amendments. The project's total cost will be approximately $475 million. Physical work on all units was completed in 2019. The generating capacity is expected to increase by an estimated 465 MW that must be validated through operation of all units for four seasons and completion of additional testing. TVA is currently operating and testing the units through the required period to complete the validation of the increased generating capacity and will update the official capacity upon issuance of the engineering memos.

Watts Bar Unit 2. During the recently completed Watts Bar Unit 2 refueling outage, TVA identified degraded steam generator conditions on unit 2. Based on a continued operation assessment, TVA submitted a License Amendment Request that supports unit operation until approximately August 2021. The request is under NRC review and a decision is expected in February 2021. A project team is in place to ensure operational assessments, analysis work, and regulatory interface occur to allow for a safe and efficient mid-cycle steam generator inspection. Watts Bar Unit 2 will remain at 90 percent of rated output until assessments are completed, defining the conditions required to operate the unit until the mid-cycle outage in the September 2021 timeframe. The mid-cycle outage will focus on an inspection protocol with multiple contingency repair strategies such that safe and reliable operation can be assured until the permanent steam generator replacement occurs, which is projected for March 2022.

Plant Closures. Results of assessments performed at Paradise and Bull Run were presented to the TVA Board at its February 2019 meeting. The TVA Board approved the retirement of Paradise Unit 3 by December 2020 and Bull Run by December 2023. Subsequent to the TVA Board approval, TVA determined that Paradise would not be restarted after January 2020 due to the plant's material condition. Paradise Fossil Plant Unit 3 was taken offline on February 1, 2020, effectively retiring the plant. See Note 5 — Plant Closures.

Optimum Energy Portfolio. TVA must continuously evaluate all generating assets to ensure an optimal energy portfolio that provides safe, clean, and reliable power while maintaining flexibility and fiscal responsibility to the people of the Tennessee Valley. During 2019, the TVA Board approved the Integrated Resource Plan, which recommended an action to evaluate the engineering end-of-life of aging fossil units. These assessments consider material condition, plant performance, system flexibility needs, environmental impacts, grid support, and other factors. TVA is also considering plans for additional generating facilities to replace retiring or expiring capacity and to support a low cost, reliable, flexible, and increasingly clean power system. In addition, TVA will prepare Environmental Assessments ("EAs") pursuant to the National Environmental Policy Act ("NEPA") prior to retiring or building a plant.

Natural Gas-Fired Units. During 2019, the TVA Board approved an expansion of approximately 1,500 MW of peaking gas replacement capacity at two combustion turbine gas facilities. In 2020, the capacity expansion projects began at TVA’s Paradise and Colbert sites. Each project is expected to increase combustion turbine generation capacity by 750 MW at a cost not to exceed approximately $503 million per project. As of December 31, 2020, TVA had spent approximately $132 million on these expansions in total and expects to spend an additional $874 million. Both projects are planned to enter commercial operations by the end of CY 2023.

During 2019, the TVA Board approved approximately 500 MW for an aeroderivative combustion turbine project, at a cost not to exceed $499 million. In 2020, the project began at TVA’s Johnsonville site. As of December 31, 2020, TVA had spent approximately $1 million on this project and expects to spend an additional $498 million. The project is expected to enter commercial operations by the end of CY 2024.

Coal Combustion Residuals Facilities. TVA has committed to a programmatic approach for the elimination of wet storage of coal combustion residuals ("CCR") within the TVA service area. Under this program ("CCR Conversion Program"), TVA is converting all operational coal-fired plants to dry CCR storage and closing all wet storage facilities.

Dry generation and dewatering projects. Conversion of coal plant CCR wet processes to dry generation or dewatering is complete at Bull Run, Shawnee, and Kingston Fossil Plant ("Kingston"). Construction at Gallatin Fossil Plant ("Gallatin") was

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completed during 2020. Construction of dewatering and dry generation facilities is underway at Cumberland Fossil Plant ("Cumberland") and is scheduled for completion in the third quarter of 2021.

Landfills. TVA has made strategic decisions to build and maintain lined and permitted dry storage facilities on TVA-owned property at some TVA locations, allowing these facilities to operate beyond existing dry storage capacity. Lined and permitted landfills are completed and operational at Bull Run, Kingston, and Gallatin; a lined and permitted landfill at Shawnee is currently under construction with completion projected for March 2021; construction of a lined and permitted landfill at Cumberland is expected to start in 2021; and TVA is designing and permitting a lateral expansion of the existing landfill at Gallatin. TVA has withdrawn its permit applications for a new lined landfill at Bull Run and has stopped construction of a permitted lined landfill expansion at Kingston until TVA can determine its need for these landfills with certainty. Construction of additional lined and dry storage facilities may occur to support future business requirements.

Wet CCR impoundment closures. TVA is working to close wet CCR impoundments in accordance with federal and state requirements. Closure project schedules and costs are driven by the selected closure methodology (such as closure-in-place or closure-by-removal). Closure initiation dates are driven by environmental regulations. TVA's predominant closure methodology is closure-in-place, with exceptions at certain facilities. TVA issued an environmental impact statement ("EIS") in June 2016 that addresses the closure of CCR impoundments at TVA's coal-fired plants. TVA issued its associated Record of Decision in July 2016. Although the EIS was designed to be programmatic in order to address the mode of impoundment closures, it specifically addressed closure methods at 10 impoundments. TVA subsequently decided to close those impoundments. The method of final closure for each of these facilities will depend on various factors, including approval by appropriate state regulators. Additional site-specific NEPA studies will be conducted as other facilities are designated for closure. See Note 10 — Asset Retirement Obligations.

Groundwater monitoring. Compliance with the Environmental Protection Agency's ("EPA's") CCR rule ("CCR Rule") as well as other requirements will require additional engineering and analysis as well as implementation of a comprehensive groundwater monitoring program. As further analyses are performed, including evaluation of monitoring results, there is the potential for additional costs for investigation and/or remediation. TVA expects to continue to evaluate and update these cost estimates.

In compliance with the CCR Rule, TVA published the results of additional groundwater testing at TVA's CCR facilities on March 1, 2019. The results included values above groundwater protection standards for some constituents at several CCR units. TVA will have to cease sending CCR and non-CCR wastestreams to unlined CCR surface impoundments as soon as possible but no later than the applicable CCR Rule date. The EPA has published a final rule that changes the deadline to cease sending CCR and non-CCR wastestreams to unlined CCR impoundments and to initiate closure or retrofit the units from October 31, 2020 to April 11, 2021. The final rule establishes a process for a utility to seek site-specific approval from the EPA to continue to use the unlined CCR impoundments based on meeting certain criteria. TVA evaluated and published Assessment of Corrective Measures reports to its CCR website in August 2019. TVA is continuing to publish periodic reports on additional groundwater testing at its CCR facilities; the latest reports were published on February 28, 2020 and August 28, 2020. Under the CCR Rule, based on the results of the assessment of corrective measures, TVA is required to select a remedy as soon as feasible. TVA continues to investigate and evaluate remedies and will continue posting semi-annual progress reports on the status of remedy selection.

As of December 31, 2020, TVA had spent approximately $2.1 billion on its CCR Conversion Program. TVA expects to spend an additional $902 million on the CCR Conversion Program through 2025. These estimates may change depending on the final closure method selected for each facility. Once the CCR Conversion Program is completed, TVA will continue to undertake certain CCR projects, including building new landfill cells under existing permits and closing existing cells once they reach capacity.

TVA was involved in two lawsuits concerning the CCR facilities at Gallatin. One of these cases was decided in TVA's favor by the U.S. Court of Appeals for the Sixth Circuit, and the other case was resolved by the entry of a consent order that became effective July 24, 2019. Under the consent order, TVA agreed to close the existing wet ash impoundments by removal, either to an onsite landfill or to an offsite facility. TVA may also consider options for beneficial reuse of the CCR. TVA has submitted the removal plan to the Tennessee Department of Environment and Conservation ("TDEC") and other applicable parties pursuant to the consent order. See Note 10 — Asset Retirement Obligations.

In October 2019, TDEC released amendments to its regulations which govern solid waste disposal facilities, including TVA's active CCR facilities covered by a solid waste disposal permit and those which closed pursuant to a TDEC approved closure plan. Such facilities are generally subject to a 30-year post-closure care period during which the owner or operator must undertake certain activities, including monitoring and maintaining the facility. The amendments, among other things, add an additional 50-year period after the end of the post-closure care period, require TVA to submit recommendations as to what activities must be performed during this 50-year period to protect human health and the environment, and require TVA to submit revised closure plans every 10 years.

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

River Management. The Tennessee Valley experienced the wettest year on record in CY 2020 and experienced above normal rainfall and runoff for the first quarter of 2021 helping TVA meet its river system commitments, including managing minimum river flows for navigation, generating low-cost hydroelectric power, maintaining water quality and water supply, and providing recreational opportunities for the Tennessee Valley. In addition, having cool water available helps TVA to meet thermal compliance and support normal operation of TVA's nuclear and fossil-fueled plants, while oxygenating water helps fish species remain healthy. Rainfall and runoff in the Tennessee Valley during the first quarter of 2021 were 105 percent and 135 percent of normal, respectively.

Small Modular Reactors. In 2015, the DOE entered into an Interagency Agreement with TVA to support site characterization activities and the development of an Early Site Permit Application ("ESPA") for a generic small modular reactor ("SMR"). The ESPA is based on the potential construction and operation of two or more SMR units at TVA's Clinch River Site in Oak Ridge, Tennessee. TVA submitted the ESPA for review by the NRC in 2016. NRC staff concluded their review and the permit was issued by the NRC in December 2019. The permit is valid through 2039 and therefore provides TVA a great deal of flexibility to make new nuclear decisions based on energy needs and economic factors.

TVA is in the process of evaluating new nuclear technology options and potential deployment scenarios. TVA is exploring advanced reactor designs that would lead to economically viable electricity generating options that can compete with alternatives in the 2030s and beyond. In addition, TVA has partnerships in place through memorandums of understanding that allow for collaboration with Oak Ridge National Laboratory and the University of Tennessee. Any decision to construct an SMR would require approval by the TVA Board and the NRC. As of December 31, 2020, TVA had spent $84 million on work regarding SMRs, including work to complete the ESPA for the Clinch River Site, of which the DOE had reimbursed TVA $28 million. Additional expenditures will be determined based on future project development.

System Operations Center. A new system operations center has been approved for $255 million. The new secured facility is being built to accommodate a new energy management system and to adapt to new regulatory requirements. The facility is expected to be constructed by the second quarter of 2023 and fully operational by 2024. As of December 31, 2020, TVA had spent approximately $50 million on the project and expects to spend an additional $205 million.

Dam Safety and Remediation Initiatives

Assurance Initiatives. TVA has an established dam safety program, which includes procedures based on the Federal Guidelines for Dam Safety, with the objective of reducing the risk of a dam safety event. The program is comprised of various engineering activities for all of TVA's dams including safety reassessments using modern industry criteria and the new probable maximum flood and site-specific seismic load cases. One aspect of the guidelines is that dam structures will be periodically assessed to assure that TVA's dams meet current design criteria. These assessments include material sampling of the dam and foundational structures and detailed engineering analysis. TVA will continue preventative and ongoing maintenance as a part of this safety program.

Boone Dam Remediation. In 2015, a sinkhole was discovered near the base of the earthen embankment at Boone Dam, and a small amount of water and sediment was found seeping from the river bank below the dam. TVA identified underground pathways contributing to the seepage and prepared a plan to repair the dam, which consists of the construction of a composite seepage barrier wall in the dam's earthen embankment. TVA has completed grouting and construction of an upstream and downstream buttress. Installation of the concrete cut-off wall elements is in process.

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As construction of the embankment repair project continues, the estimated cost and duration continue to be refined. As of December 31, 2020, TVA had spent $275 million related to this project and expects to spend an additional $160 million through 2023. TVA expects the reservoir to return to normal operations in 2022 and is continuing to work with the community to help mitigate local impacts of the extended drawdown.

Pickwick South Embankment Remediation. Reassessments of Pickwick Landing Dam ("Pickwick") found low safety factors for post-earthquake stability indicating that the dam is at significant risk for slope stability failure following a seismic event in portions of the south embankment. Slope stability failure could lead to a breach of the south embankment and loss of the reservoir, resulting in loss of life and damage to property downstream, disruption to navigation, and loss of generation and recreation.

TVA is upgrading the south embankment by constructing berms on the upstream and downstream slopes. Construction began in the spring of 2019, and the project is currently estimated to be complete in 2022. As of December 31, 2020, TVA had spent $118 million related to this project and expects to spend an additional $14 million through 2022.

Regulatory Compliance

Steam-Electric Effluent Guidelines. In 2015, the EPA published a final rule revising the existing steam-electric effluent limitation guidelines ("ELGs"). The ELGs updated the existing technology-based water discharge limitations for power plants. Compliance with new requirements was required in the 2018-2023 timeframe and necessitated major upgrades to wastewater treatment systems at all coal-fired plants. Dry fly ash handling was mandated by the rule. The rule also required either dry bottom ash handling systems or "no discharge" recycle of bottom ash transport waters, and new technology-based limits on flue gas desulfurization ("FGD") (scrubber) wastewater required primary physical/chemical treatment and secondary biological treatment to meet extremely low limits for arsenic, mercury, and selenium.

The EPA published a rule in 2017, postponing certain compliance/applicability dates to provide the EPA time to review and revise, as necessary, the 2015 ELGs for FGD wastewater and bottom ash transport water. The EPA delayed the compliance dates for these two waste streams from the 2018-2023 timeframe to 2020-2023. However, the 2018-2023 applicability dates and the accompanying requirements for fly ash transport water, flue gas mercury control wastewater, and gasification wastewater remain unchanged. While the EPA was reconsidering the limits for FGD wastewater and bottom ash transport water, states issued National Pollutant Discharge Elimination System ("NPDES") permits for all of TVA's active coal facilities based on the 2015 ELGs, recognizing that the permits may need to be reopened to incorporate modifications to those ELGs.

In October 2020, the EPA issued final revised ELGs for bottom ash transport water and FGD wastewater. The primary impact of these regulations for TVA is on the operation of existing coal-fired generation facilities. The revised ELGs could impact long-term investment decisions being made relative to the long-term compliance and operability of these plants. The revisions may require TVA to install additional wastewater treatment systems for FGD wastewater and bottom ash transport water, and TVA could incur substantial costs to comply with the new rule. In addition, the revised ELGs could cause TVA to reduce utilization of its coal-fired generation facilities or even close such facilities. The revision also includes a subcategory for which Cumberland would qualify that provides TVA greater flexibility in meeting the ELGs. The revision includes two additional subcategories for low utilization units and units that cease coal combustion by the end of 2028. TVA will evaluate the applicability of those subcategories to its plants as appropriate. Petitions for judicial review of the October 2020 ELG rule were filed in the U.S. Court of Appeals for the District of Columbia Circuit ("D.C. Circuit") and the U.S. Court of Appeals for the Fourth Circuit (the “Fourth Circuit”) and have been consolidated in the Fourth Circuit in the case Appalachian Voices, et al. v. EPA.

Allen Groundwater Investigation. The CCR Rule required TVA to implement a comprehensive groundwater monitoring program at units subject to the rule. As a result of this groundwater monitoring program, TVA reported to TDEC in 2017 elevated levels of arsenic, lead, and fluoride in groundwater samples collected from two shallow-aquifer groundwater monitoring wells around the Allen East Ash Disposal Area. TVA, under the oversight of TDEC, conducted a remedial investigation into the nature and extent of the contamination. In 2018, TVA submitted a draft Remedial Investigation Report to TDEC which was revised after discussions with TDEC and additional investigation. TVA submitted the Final Updated Remedial Investigation Report to TDEC in 2019.

The remedial investigation confirmed that the high arsenic, fluoride, and lead concentrations are limited to the shallow alluvial aquifer in the north and south areas of the Allen East Ash Disposal Area. These areas are not adversely impacting the Memphis aquifer, which is the source of the public drinking water supply. All samples taken from the Memphis aquifer through TVA production wells were below the EPA drinking water standards. As the result of a pumping test conducted on TVA production wells at the nearby Allen Combined Cycle Plant ("Allen CC") by the United States Geological Survey and the University of Memphis, TVA is committed to not operating these production wells until additional data supports safe use. TVA constructed water tanks on site and is purchasing cooling water from MLGW. The use of water tanks rather than the wells may impose some operational restrictions on the Allen CC due to the lower availability of cooling water.

TVA is taking steps to remediate the groundwater at the East Ash Disposal Area. The Interim Response Action Plan will include a groundwater extraction system and a groundwater treatment system. TVA will also continue to dewater the East Ash

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Disposal Area and treat the water before it is discharged to the NPDES outfall. A feasibility study to evaluate remedial actions for the site was submitted to TDEC on September 4, 2020. A virtual public meeting to present the Interim Response Action as the Proposed Plan for the site was held on November 17, 2020. The public was invited to review the remediation documents and encouraged to comment on the Proposed Plan during the public comment period. After public comments are considered, TDEC will issue a Record of Decision. TVA is also preparing a Remedial Action Plan to move forward with the remediation at the site.

TVA's Remedial Investigation/Interim Response Action Groundwater Monitoring Plan is reviewed and modified annually. The 2020 Remedial Investigation/Interim Response Action Groundwater Monitoring Plan was approved by TDEC in May 2020. TVA continues to sample the monitoring wells at the site as described by the plan quarterly. TVA prepares a memorandum after each quarterly event and prepares an annual report to evaluate the sampling results. The 2019 Remedial Investigation/Interim Response Action Groundwater Monitoring report was submitted to TDEC on July 2, 2020. The 2020 Remedial Investigation/Interim Response Action Groundwater Monitoring report is in development.

TVA has evaluated closure options for the Allen East Ash Disposal Area, as well as the nearby West Ash Impoundment, through an EIS pursuant to NEPA. In March 2019, TVA released its public scoping report, which eliminated closure-in-place as an alternative. TVA published the final EIS on March 13, 2020 and its Record of Decision on April 14, 2020, which documents the final decision regarding the closure method for the CCR units at the Allen Fossil Plant. TVA has decided to remove CCR from the above identified areas to an existing permitted offsite landfill.

Federal Contracting and Hiring Practices. On August 3, 2020, the Trump administration issued an "Executive Order ("EO") on Aligning Federal Contracting and Hiring Practices With the Interests of American Workers." Among other things, the EO directs federal agencies to review contracts awarded in 2018 and 2019 to assess (i) whether temporary foreign labor was used and impacts from such use, and (ii) whether any offshoring occurred and its impacts. The EO also directs agencies to review employment policies for compliance with specific laws. TVA conducted a review and reported a summary of its findings to the Office of Management and Budget ("OMB") in December 2020.

Buy American Executive Order. On January 25, 2021, President Biden issued EO 14005, “Ensuring the Future Is Made in All of America by All of America’s Workers.” EO 14005 imposes new reporting and procedural requirements, as well as additional executive oversight, for federal agency purchases of foreign goods and services. It also directs the Federal Acquisition Regulatory Council to consider proposing regulatory amendments (for notice, comment, and potential promulgation) that could further restrict federal agencies’ ability to buy foreign goods and services in some circumstances.

Ratemaking

TVA, LPCs, and directly served industries have worked collaboratively in recent years to develop changes to rates that focus on TVA's long-term pricing efforts and the changing needs of customers in the Tennessee Valley. These changes have improved pricing by better aligning rates with underlying cost drivers and by sending improved pricing signals, while maintaining competitive industrial rates and keeping residential rates affordable.

Safeguarding Assets

Physical Security — Non-Nuclear Asset Protection. TVA utilizes a variety of security technologies, security awareness activities, and security personnel to prevent sabotage, vandalism, and thefts. Any of these activities could negatively impact the ability of TVA to generate, transmit, and deliver power to its customers. TVA's Police and Emergency Management personnel are active participants with numerous professional and peer physical security organizations in both the electric industry and law enforcement communities.

Physical attacks on transmission facilities across the country have heightened awareness of the need to physically protect facilities. TVA continues to work with the North American Electric Reliability Corporation ("NERC"), the SERC Reliability Corporation, the North American Transmission Forum, and other utilities to implement industry approved recommendations and standards.

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Nuclear Security. Nuclear security is carried out in accordance with federal regulations as set forth by the NRC. These regulations are designed for the protection of TVA's nuclear power plants, the public, and employees from the threat of radiological sabotage and other nuclear-related terrorist threats. TVA has security forces to guard against such threats.

Cybersecurity. TVA operates in a highly regulated environment with respect to cybersecurity. TVA's cybersecurity program aligns or complies with the Federal Information Security Management Act, the NERC Critical Infrastructure Protection requirements, and the NRC requirements for cybersecurity, as well as industry best practices. As part of the U.S. government, TVA coordinates with and works closely with the U.S. Department of Homeland Security's Cybersecurity and Infrastructure Security Agency ("CISA") and the U.S. Computer Emergency Readiness Team ("US-CERT"). CISA serves as the agency assisting other federal entities in defending against threats and securing critical infrastructure. US-CERT functions as a liaison between the U.S. Department of Homeland Security and the public and private sectors to coordinate responses to security threats.

The risk of cybersecurity events such as malicious code attacks, unauthorized access attempts, and social engineering attempts continues to intensify. While TVA and its third-party vendors and service providers have been, and will likely continue to be, subjected to such attacks and attempts to disrupt operations, to date the attacks have not impacted TVA's ability to operate as planned. See Item 1A, Risk Factors — Cybersecurity Risks — TVA's facilities and information infrastructure may not operate as planned due to cyber threats to TVA's assets and operations in the Annual Report.

In December 2020, TVA was notified of the SolarWinds breach by multiple sources including CISA. TVA cybersecurity personnel immediately responded to determine any impact and took measures intended to protect TVA from potential risks from the compromised software. TVA continues to receive and evaluate new information regarding the event and take the necessary actions to protect the computing environment. This event has not had a significant or material impact on business or operations.

Over the last few years, there has been an increase of malicious cyber activity across all industries, including the energy sector. TVA has observed a significant increase in malicious activity related to the COVID-19 pandemic including phishing campaigns and malicious websites. These types of malicious activity are occurring across the industry and have also been observed by TVA's external vendors, stakeholders, and partners. This activity has caused the need for heightened awareness and preparedness. TVA is leveraging federal and other partners to better identify, detect, protect, and respond to these potential attacks. While there have been incidents of phishing and attempted fraud against TVA and its vendors and service providers, these events have not had a significant or material impact on business or operations.

Transmission Assets. In addition to physical and cybersecurity attacks, TVA's transmission assets are vulnerable to various types of electrically charged energy disruptions such as those from geomagnetic disturbances ("GMDs") and electromagnetic pulses ("EMPs"). Because the effects of GMD and EMP are similar, they are often considered together. In September 2016, the Federal Energy Regulatory Commission ("FERC") approved a new standard to address GMD events, and in March 2020, FERC approved a revision to the standard. TVA has met the requirements of the original standard and subsequent revisions, and has evaluated the effects of solar storms ranging from NERC's reference case to possible extreme levels. TVA continues as an active participant with NERC in this field. The most serious threats from EMP are those caused by high-altitude nuclear explosions. Like others in the industry, TVA is coordinating with federal and state authorities, NERC, Electric Power Research Institute, and other grid owners and operators to address this concern.

Bulk-Power System Assets. On May 1, 2020, the Trump administration issued EO 13920, "Securing the United States Bulk-Power System." Among other things, the EO prohibits the acquisition or installation of any bulk-power system electric equipment where the transaction (1) involves any property in which any foreign country or a national thereof has any interest and (2) poses an undue risk to the bulk-power system in, or national security of, the United States. Whether a bulk-power system electric equipment acquisition or installation is prohibited will depend on determinations by the Secretary of DOE. On December 17, 2020, DOE issued a Prohibition Order Securing Critical Defense Facilities (“DOE Order”). The DOE Order, among other things, prohibits electric utilities that own or operate Defense Critical Electric Infrastructure (“DCEI”), as defined by section 215A(a)(4) of the Federal Power Act, from acquiring, importing, transferring, or installing certain bulk-power system electric equipment that (a) has been manufactured or supplied by a person owned by, controlled by, or subject to the jurisdiction or direction of the People’s Republic of China, and (b) is for use as a component of DCEI serving critical defense facilities. The DOE Order originally took effect on January 16, 2021. On January 20, 2021, the Biden administration suspended EO 13920 for 90 days, and as a result the DOE Order is also suspended for the same period. EO 13990, "Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis," directs DOE and OMB to consider whether to recommend the issuance of a replacement EO to EO 13920. At this time, it is uncertain to what extent EO 13920 or a future EO that may potentially address risks associated with the bulk-power system may impact TVA's operations.

Environmental Matters

TVA's activities, particularly its power generation activities, are subject to comprehensive regulation under environmental laws and regulations relating to air pollution, water pollution, and management and disposal of solid and hazardous wastes, among other matters. Emissions from all TVA-owned and operated units (including small combustion turbine units of less than 25 MW) have been reduced from historic peaks. Emissions of nitrogen oxide ("NOx") have been reduced by 96 percent below peak 1995 levels and emissions of sulfur dioxide ("SO2") have been reduced by 99 percent below 1977 levels

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through CY 2019. For CY 2019, TVA's emission of carbon dioxide ("CO2") from its sources was 47 million tons, a 55 percent reduction from 2005 levels. This amount includes 2,383 tons from units rated at less than 25 MW. To remain consistent and to align with the EPA's reporting requirements, TVA intends to continue reporting CO2 emissions on a calendar year basis.

Clean Air Act

The Clean Air Act ("CAA") establishes a comprehensive program to protect and improve the nation's air quality and control sources of air pollution. The major CAA programs that affect TVA's power generation activities are described below.

National Ambient Air Quality Standards. The CAA requires the EPA to set National Ambient Air Quality Standards ("NAAQS") for certain air pollutants. The EPA has done this for ozone, particulate matter ("PM"), SO2, nitrogen dioxide, carbon monoxide, and lead. Over the years, the EPA has made the NAAQS more stringent. Each state must develop a plan to be approved by the EPA for achieving and maintaining NAAQS within its borders. These plans impose limits on emissions from pollution sources, including TVA fossil fuel-fired plants. Areas meeting a NAAQS are designated as attainment areas. Areas not meeting a NAAQS are designated as non-attainment areas, and more stringent requirements apply in those areas, including stricter controls on industrial facilities and more complicated permitting processes. TVA fossil fuel-fired plants can be impacted by these requirements. All TVA generating units are located in areas designated as in attainment with NAAQS.

Cross-State Air Pollution Rule. The EPA issued the Cross-State Air Pollution Rule ("CSAPR") in July 2011 requiring several states in the eastern U.S. to improve air quality by reducing power plant emissions that contribute to pollution in other states. In 2016, the EPA issued an update to CSAPR to address cross-state air pollution (the "CSAPR Update Rule"). The EPA subsequently issued an additional rule to resolve any remaining cross-state air pollutant issues ("CSAPR Close-Out Rule"). The D.C. Circuit has remanded a portion of the CSAPR Update Rule back to the EPA to address its failure to require upwind states to eliminate substantial contributions to downwind non-attainment areas by the statutory deadline. The D.C. Circuit also vacated the CSAPR Close-Out Rule. On October 30, 2020, the EPA published the proposed revisions to the CSAPR Update Rule in the Federal Register, and the revisions must be finalized by March 30, 2021. TVA cannot predict the impact of this proposal to TVA's operations until the rulemaking is complete.

Mercury and Air Toxics Standards for Electric Utility Units. On April 16, 2020, the EPA issued a final rule which revokes the agency's earlier finding that regulation of hazardous air pollutants ("HAP") emitted from steam electric utilities is appropriate and necessary. The rule does not remove electric generating units from the source categories listed under Section 112 of the CAA nor does it rescind the Mercury and Air Toxics Standards ("MATS") requirements. Additionally, the EPA determined that further restrictions on HAP emissions are not warranted based on a residual risk and technology review for this source category. TVA does not anticipate that the final rule will change TVA's MATS compliance requirements or strategy. Certain states and environmental groups have filed petitions in the D.C. Circuit challenging the EPA's finding that regulating HAPs from electric generating units is not appropriate and necessary. TVA cannot predict the outcome of these judicial petitions at this time.

Environmental Agreements. See Note 19 — Contingencies and Legal Proceedings — Legal Proceedings — Environmental Agreements for a discussion of the Environmental Agreements, which discussion is incorporated herein by reference.

Acid Rain Program. The Acid Rain Program is intended to help reduce emissions of SO2 and NOx, which are the primary pollutants implicated in the formation of acid rain. The program includes a cap-and-trade emission reduction program for SO2 emissions from power plants. TVA continues to reduce SO2 and NOx emissions from its coal-fired plants, and the SO2 allowances allocated to TVA under the Acid Rain Program are sufficient to cover the operation of its coal-fired plants. In the TVA service area, the limitations imposed on SO2 and NOx emissions by the CSAPR program are more stringent than the Acid Rain Program. Therefore, TVA does not anticipate that the Acid Rain Program will impose any additional material requirements on TVA.

Regional Haze Program. The EPA issued the Clean Air Visibility Rule, which required certain older sources to install best available retrofit technology. No additional controls or lower operating limits are required for any TVA units to meet best available retrofit technology requirements. In January 2017, the EPA published the final rule that changed some of the requirements for Regional Haze State Implementation Plans ("SIPs"). Specific impacts cannot be determined until future Regional Haze SIPs are developed for the next decennial review under the visibility haze provisions of the CAA. States must submit their Regional Haze SIPs to the EPA by July 31, 2021.

Opacity. Opacity, or visible emissions, measures the denseness (or color) of power plant plumes and has traditionally been used by states as a means of monitoring good maintenance and operation of particulate control equipment. Under some conditions, retrofitting a unit with additional equipment to better control SO2 and NOx emissions can adversely affect opacity performance, and TVA and other utilities have addressed this issue. The evaluation of utilities' compliance with opacity requirements is coming under increased scrutiny, especially during periods of startup, shutdown, and malfunction. Historically, SIPs developed under the CAA typically excluded periods of startup, shutdowns, and malfunctions, but in June 2015, the EPA finalized a rule to eliminate such exclusions. The EPA rule required states to modify their implementation plans by November 2016. Kentucky, Tennessee, and Mississippi submitted implementation plans, but Alabama has not. Environmental petitioners and several states filed petitions for judicial review of the EPA final rule before the D.C. Circuit. In April 2017, the D.C. Circuit, at

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the request of the new EPA Administrator, ordered this litigation to be suspended pending the EPA's review to determine whether to reconsider all or part of the rule. On October 9, 2020, the EPA issued a guidance memorandum that supersedes and replaces policy statements outlined in the EPA's June 2015 rule. TVA does not expect significant impacts from these rule changes at the state level.

New York Petition to Address Impacts from Upwind High Emitting Sources. In March 2018, the State of New York filed a petition with the EPA under Section 126(b) of the CAA to address ozone impacts on New York from the NOx emissions from sources emitting at least 400 tons of NOx in CY 2017 from nine states including Kentucky. The New York petition requests that the EPA require daily NOx limits for utility units with selective catalytic reduction systems ("SCRs") such as Shawnee Units 1 and 4 and emission reductions from utility units without SCRs such as Shawnee Units 2, 3 and 5-9. Kentucky utility unit NOx emissions are already limited by the CSAPR Update Rule and are declining, and current EPA modeling projects no additional requirements to reduce Kentucky NOx emissions are necessary. In September 2019, the EPA finalized its denial of New York's petition because the state did not demonstrate, and the EPA could not independently establish, that sources in the states listed in the petition contribute to exceedances of the 2008 and 2015 ozone NAAQS in New York. The State of New York filed a petition in the D.C. Circuit for judicial review of the EPA's denial of the petition. In July 2020, the D.C. Circuit vacated the EPA's denial of the petition and remanded the petition to the EPA for reconsideration. Specific impacts to TVA cannot be determined until the EPA takes further action on the petition.

Affordable Clean Energy Rule. In June 2019, the EPA finalized the final Affordable Clean Energy ("ACE") rule and repealed the EPA's previous regulation addressing greenhouse gas ("GHG") emissions from existing fossil fuel-fired units. The ACE rule established guidelines for GHG emissions from existing coal-fired units based on efficiency improvements that can be achieved at those units at reasonable cost. Several industry, environmental, and state and local petitioners filed for judicial review of the ACE rule. On January 19, 2021, the D.C. Circuit vacated and remanded the ACE rule, holding, among other things, that the ACE rule rests on the erroneous legal premise that the text of the CAA expressly foreclosed consideration of emission reduction measures other than those that apply to the individual source. TVA is unable to predict the future course of this litigation on appeal, nor the direction that the EPA may take in the future to regulate GHG emissions from coal-fired units.

New Source Performance Standards. In December 2018, the EPA proposed revisions to the GHG emission standards for new, modified, and reconstructed electric utility generating units that were finalized by the EPA in October 2015. For coal-fired units, the EPA proposes to revise the current new source standards such that carbon capture and sequestration technology is no longer necessary to meet the standards of performance that reflect the best system of emission reduction. The resulting limits are less stringent than limits under the current rule and can be met by modern coal-fired units (e.g., supercritical steam generators) in combination with best operating practices, but without carbon capture and sequestration. The EPA is not proposing to revise the new source performance standard for GHG emission from gas-fired units. If finalized as proposed, the revisions are not expected to significantly impact TVA since TVA does not currently plan to construct, modify, or reconstruct any coal-fired units.

Climate Change

Executive Actions. In March 2017, the Trump administration issued Executive Order ("EO") 13783, "Promoting Energy Independence and Economic Growth." The EO reversed or altered many actions taken by the federal government in the last four years of the Obama Administration to address climate change and mandated that federal agencies review existing regulations and actions that potentially burden energy development and use. EO 13783 did not, however, mandate that the EPA reconsider its finding under the CAA that GHG emissions cause climate change and therefore endanger public health and the environment.

Implementation of EO 13783 has resulted in the replacement of the Clean Power Plan ("CPP") rule for existing fossil generation units by the ACE rule and revisions to the GHG emission standards for new, modified, and reconstructed electric utility generating units. As discussed above, the ACE rule was recently vacated.

In May 2018, EO 13834, "Efficient Federal Operations," was signed. EO 13834 emphasized meeting statutory requirements and gave agencies greater flexibility and discretion to decide how best to improve operations in order to "optimize energy and environmental performance, reduce waste, and cut costs." It called on the White House Council of Environmental Quality to streamline pre-existing environmental orders by "refocusing agencies on cost-effectively meeting mandates and goals" established by law. The order sought to consolidate requirements related to energy and water efficiency, high performance buildings, renewable energy consumption, and federal vehicle fleet management. TVA consistently seeks to improve its operations in order to optimize energy and environmental performance and did not experience any significant changes in its planning or operations as a result of the EO.

On January 20, 2021, President Biden issued EO 13990, “Protecting Public Health and the Environment and Restoring Science To Tackle the Climate Crisis.” EO 13990 revoked EO 13783 and most provisions of EO 13834, including the provisions discussed above, and directs federal agencies to review and revise regulations consistent with broad policy goals to improve public health and the environment, reduce greenhouse gas emissions, and prioritize environmental justice. In addition, on January 27, 2021, President Biden issued EO 14008, “Executive Order on Tackling the Climate Crisis at Home and Abroad.” Among other things, EO 14008 expresses the following policies of the federal government: (1) to organize and deploy the full

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capacity of its agencies to combat the climate crisis to implement a government-wide approach that reduces climate pollution in every sector of the economy, (2) to align the management of federal procurement and real property, public lands and waters, and financial programs to support robust climate action, (3) to use all available procurement authorities to achieve or facilitate (a) a carbon pollution-free electricity sector no later than 2035 and (b) clean and zero-emission vehicles for federal, state, local, and tribal government fleets, (4) to put the U.S. on a path to achieve net-zero emissions, economy-wide, by no later than 2050, (5) to accelerate the deployment of clean energy and transmission projects in an environmentally stable manner, (6) to ensure that, to the extent consistent with applicable law, federal funding is not directly subsidizing fossil fuels, (7) to promote the flow of capital toward climate-aligned investments and away from high-carbon investments, and (8) improve air and water quality. TVA is closely monitoring these developments and aside from the directive to update TVA’s Climate Change Adaptation Plan, specific impacts on TVA cannot be determined at this time.

International Accords. In September 2016, the U.S. formally accepted the Paris Agreement. The agreement met the threshold of at least 55 countries that account for at least 55 percent of global GHG emissions and formally entered into force in November 2016. On November 4, 2019, the U.S. formally notified the United Nations that it would withdraw from the agreement. Under the terms of the agreement, the effective date for the withdrawal was November 4, 2020. On January 20, 2021, President Biden formally accepted the Paris Agreement on behalf of the U.S. Specific impacts to TVA cannot be determined at this time.

In response to the Trump administration's Paris withdrawal announcement, 25 states have formed the U.S. Climate Alliance, a bipartisan coalition of governors committed to reducing GHG emissions consistent with the goals of the Paris Agreement. North Carolina and Virginia are the only states in the TVA region that are U.S. Climate Alliance members. Among other commitments, each state commits to implement policies that advance the goals of the Paris Agreement, aiming to reduce GHG emissions by at least 26-28 percent below CY 2005 levels by CY 2025 and to accelerate new and existing policies to reduce carbon pollution and promote clean energy deployment at the state and federal level. In June 2017, U.S. states, cities, and businesses representing more than half of the U.S. economy made a pledge to meet the GHG reduction targets of the Paris Agreement, called "America's Pledge." In September 2020, America's Pledge released its second economy-wide policy analysis with recommendations of how states, cities, businesses, and other stakeholders can influence U.S. decarbonization. It is premature to determine potential impacts to TVA.

Litigation. In addition to legislative activity, climate change issues have been the subject of a number of lawsuits, including lawsuits against TVA. See Note 19 — Contingencies and Legal Proceedings for additional information.

Indirect Consequences of Regulation or Business Trends. Legal, technological, political, and scientific developments regarding climate change may create new opportunities and risks. The potential indirect consequences could include an increase or decrease in electricity demand, increased demand for generation from alternative energy sources, and subsequent impacts to business reputation and public opinion.

Physical Impacts of Climate Change. TVA's Climate Change Adaptation Plan was last updated in July 2020. The goal of the adaptation planning process is to ensure TVA continues to achieve its mission and program goals and to operate in a secure, effective, and efficient manner in a changing climate by integrating climate change adaptation efforts in coordination with state and local partners, tribal governments, and private stakeholders. TVA manages the potential effects of climate change on its mission, programs, and operations within its environmental management processes.

Actions Taken by TVA to Reduce GHG Emissions. TVA has reduced GHG emissions from both its generation stations and its operations. Recent TVA Board actions have focused on TVA's plan to balance its coal-fired generation by increasing its nuclear capacity, modernizing its hydroelectric generation system, increasing natural gas-fired generation, installing emission control equipment on certain of its coal-fired units, increasing its purchases of renewable energy, building solar facilities, and investing in energy efficiency initiatives to reduce energy use in the Tennessee Valley. Additionally, TVA has invested to increase energy efficiency in its operations. The combination of more stringent environmental regulations, lower natural gas prices, and lower demand for energy across the Tennessee Valley has reduced the utilization of coal-fired generation. These factors have resulted in lower CO2 emissions from the TVA system, as previously discussed in this section.

Renewable/Clean Energy Standards

Twenty-nine states and the District of Columbia have established enforceable or mandatory requirements for electric utilities to generate a certain amount of electricity from renewable sources. One state within the TVA service area, North Carolina, has a mandatory renewable standard that, while not applying directly to TVA, does apply to TVA's LPCs serving retail customers in that state. TVA's policy is to provide compliance assistance to any distributor of TVA power, and TVA is providing assistance to the covered LPCs that sell TVA power in North Carolina. In 2020, Virginia signed into law the Clean Economy Act. The Act establishes a mandatory requirement for utilities to generate a certain amount of electricity from renewable sources. At this time, TVA is not impacted by the legislation due to the relatively small amount of electricity that TVA provides in Virginia compared to other utilities. Likewise, the Mississippi Public Service Commission adopted an energy efficiency rule applying to electric and natural gas providers in the state, and TVA is supplying information on participation in TVA's energy efficiency programs to support the covered Mississippi LPCs.

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Water Quality Control Developments

Cooling Water Intake Structures. In May 2014, the EPA released a final rule under Section 316(b) of the Clean Water Act relating to cooling water intake structures ("CWIS") for existing power generating facilities. The rule requires changes in CWIS used to cool the vast majority of coal, gas, and nuclear steam-electric generating plants and a wide range of manufacturing and industrial facilities in the U.S. The final rule requires CWIS to reflect the best technology available for minimizing adverse environmental impacts, primarily by reducing the amount of fish and shellfish that are impinged or entrained at a cooling water intake structure. These new requirements will potentially affect a number of TVA's fossil- and nuclear-fueled facilities and will likely require capital upgrades to ensure compliance. Most TVA facilities are projected to require retrofit of CWIS with "fish-friendly" screens and fish return systems to achieve compliance with the new rule. The rule is being implemented through permits issued under the National Pollutant Discharge Elimination System ("NPDES") in Section 402 of the Clean Water Act. State agencies administer the NPDES permit program in most states including those in which TVA's facilities are located. In addition, the responsible state agencies must provide all permit applications to the U.S. Fish and Wildlife Service for a 60-day review prior to public notice and an opportunity to comment during the public notice. As a result, the permit may include requirements for additional studies of threatened and endangered species arising from U.S. Fish and Wildlife Service comments and may require additional measures be taken to protect threatened and endangered species and critical habitats directly or indirectly related to the plant cooling water intake. TVA's review of the final rule indicates that the rule offers adequate flexibility for cost-effective compliance. The required compliance timeframe is linked to plant specific NPDES permit renewal cycles (i.e., technology retrofits), and compliance is expected to be required in the CYs 2022-2024 timeframe.

The EPA has never applied the requirements under Section 316(b) to hydroelectric facilities. However, two EPA regions that do not cover TVA's activities are proposing to include Section 316(b) requirements in NPDES permits for hydroelectric facilities in those regions that withdraw water used for cooling purposes. It is not clear whether the requirements will be adopted nationwide or, given the unique features of hydroelectric facilities and the manner in which they withdraw water for cooling purposes, how the best technology available standard would be applied to TVA's hydroelectric facilities. The specific impacts to TVA from this potential policy change cannot be determined at this time.

Hydrothermal Discharges. The EPA and many states continue to focus regulatory attention on potential effects of hydrothermal discharges. Many TVA plants have variances from thermal standards under Section 316(a) of the Clean Water Act that are subject to review as NPDES permits are renewed. Specific data requirements in the future will be determined based on negotiations between TVA and state regulators. If plant thermal limits are made more stringent, TVA may have to install cooling towers at some of its plants and operate installed cooling towers more often. This could result in a substantial cost to TVA.

Steam-Electric Effluent Guidelines. In 2015, the EPA revised existing steam-electric effluent limitation guidelines ("ELGs"), which regulate water discharge pollutants and require the application of certain pollutant control technologies. The 2015 ELGs established more stringent performance standards for existing and new sources and required major upgrades to wastewater treatment options at all coal-fired plants. Compliance with new requirements was originally required in the CYs 2018-2023 timeframe, but the EPA delayed the compliance dates for flue gas desulfurization ("FGD") wastewater and bottom ash transport water until CYs 2020-2023 to allow the EPA time to review and potentially revise the ELGs with regard to these waste streams.

In October 2020, the EPA issued final revised ELGs for bottom ash transport water and FGD wastewater. The primary impact for TVA is on the operation of existing coal-fired generation facilities. The revised ELGs could impact long-term investment decisions being made relative to the long-term compliance and operability of these plants. The revisions may require TVA to install additional wastewater treatment systems for FGD wastewater and bottom ash transport water, and TVA could incur substantial costs to comply with the new rule. In addition, the revised ELGs could cause TVA to reduce utilization of its coal-fired generation facilities or even close such facilities. The revision also includes a subcategory for which Cumberland would qualify that provides TVA greater flexibility in meeting the ELGs. The revision includes two additional subcategories for low utilization units and units that cease coal combustion by the end of 2028. TVA will evaluate the applicability of those subcategories to its plants as appropriate. Petitions for judicial review of the October 2020 ELG rule were filed in the D.C. Circuit and the Fourth Circuit and have been consolidated in the Fourth Circuit in the case Appalachian Voices, et al. v. EPA.

Other Clean Water Act Requirements. As is the case in other industrial sectors, TVA and other utilities are also facing more stringent requirements related to the protection of wetlands, reductions in storm water impacts from construction activities, new water quality criteria for nutrients and other pollutants, new wastewater analytical methods, and changes in regulation of pesticide application.

Recent Clean Water Act Decisions

On April 23, 2020, in County of Maui v. Hawaii Wildlife Fund, the Supreme Court held that the Clean Water Act requires a permit when there is a direct discharge of pollutants from a point source to waters of the U.S. and when there is the "functional equivalent" of a direct discharge to such waters. The Court suggested seven factors for determining when such a discharge is the functional equivalent of a direct discharge and acknowledged that the new test would be somewhat difficult to apply, potentially requiring evaluation of multiple factors. The Court noted that "time and distance" of pollutant migration often will be the most important factor but that other relevant factors may include, for example, the nature of the material through which the

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pollutant travels and the extent to which the pollutant is diluted or chemically changed as it travels. TVA is evaluating what potential impact the decision and application of the test could have on its operations.

On April 15, 2020, in Northern Plains Resource Council v. U.S. Army Corps of Engineers, the U.S. District Court for the District of Montana ("District Court of Montana") vacated the Nationwide Permit ("NWP") 12, which authorizes discharges of dredged or fill material into waters of the U.S., and enjoined the U.S. Army Corps of Engineers from authorizing projects nationwide under the permit. The District Court of Montana's decision was subsequently amended and the injunction was limited to the Keystone XL pipeline. As a result, the decision has no immediate effect on TVA. However, unless the District Court of Montana's decision is reversed on appeal, there remains a risk that NWP 12 will not be available to authorize impacts to waters of the U.S. for TVA projects in the future. On January 13, 2021, the U.S. Army Corps of Engineers published notice of a final rule in the Federal Register for the reissuance and modification of NWPs, including NWP 12. The final rule limits the applicability of NWP 12 to oil and natural gas pipelines, modifies certain pre-construction notification requirements, and creates new NWPs for certain utility line activities. The final rule is unlikely to have a material impact on TVA, but the impact cannot be evaluated fully until any legal challenges to the rule are resolved.

Cleanup of Solid and Hazardous Wastes

Liability for releases and cleanup of hazardous substances is imposed under the federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), the Resource Conservation and Recovery Act ("RCRA"), and other federal and parallel state statutes. In a manner similar to many other industries and power systems, TVA has generated or used hazardous substances over the years.

TVA Sites. TVA operations at some of its facilities have resulted in releases of contaminates that TVA is addressing including at TVA's Environmental Research Center at Muscle Shoals, Alabama. At December 31, 2020, TVA's estimated liability for cleanup and similar environmental work for those sites for which sufficient information was available to develop a cost estimate is approximately $15 million and was included in Accounts payable and accrued liabilities and Other long-term liabilities on the Consolidated Balance Sheet. In addition, the Environmental Research Center has an active groundwater monitoring program as part of a permitted corrective action plan.

Non-TVA Sites. TVA is aware of alleged hazardous-substance releases at certain non-TVA areas for which it may have some liability. See Note 19 — Contingencies and Legal Proceedings — Environmental Matters.

Coal Combustion Residuals. The EPA published its final rule governing CCR in 2015. The rule regulates CCR as nonhazardous waste under Subtitle D of the RCRA. While states may adopt the rule's requirements into their regulatory programs, the rule does not require states to adopt the requirements. The initial version of the rule provided for self-implementation by utilities and allows enforcement through citizen suits in federal court. The Water Infrastructure Improvements for the Nation Act ("WIIN Act") subsequently allowed state or federal-based permitting to implement the CCR rule as an alternative to self-implementation and citizen suits. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residuals Facilities in the Annual Report for a discussion of the impact on TVA's operations, including the cost and timing estimates of related projects.

In July 2018, the EPA issued a final CCR rule which provided additional flexibility and an extension of certain deadlines. In March 2019, the D.C. Circuit granted the EPA's request to remand the final rule to allow the EPA to reconsider the amendments. The remand also allowed the EPA time to complete a new rulemaking to establish revised timelines for unlined impoundments to initiate closure and to reexamine the October 2020 deadline for closing some unlined impoundments. In August 2019, the EPA issued a proposed rule to amend portions of the CCR Rule regarding beneficial use, temporary piles, and public access to information.

On November 4, 2019, the EPA announced a proposed rule that will revise portions of the CCR Rule requiring closure of unlined surface impoundments. The final Part A rule was published in the Federal Register on August 28, 2020, and became effective September 28, 2020. Among other things, the final Part A rule requires all unlined CCR surface impoundments to stop receiving CCR and non-CCR wastestreams and to initiate closure or retrofit by no later than April 11, 2021. Additionally, the final rule provides a process for a utility to seek site-specific approval from the EPA to continue to use the unlined CCR surface impoundment until October 15, 2023, and possibly longer under certain circumstances. The final rule also includes requirements that enhance the public's access to groundwater monitoring and corrective action reports. TVA does not currently anticipate the final rule will have a significant impact because TVA is already planning to close its unlined CCR surface impoundments by the regulatory deadline and already makes groundwater monitoring and corrective action reports publicly available. A separate final Part B rule was published in the Federal Register on November 12, 2020. This rule provides an alternative liner demonstration procedure for utilities with clay lined units which are being forced to close under the Part A rule. However, TVA does not have any units which qualify for this demonstration.

In August 2015, the Tennessee Department of Environment and Conservation ("TDEC") issued an order that (1) established a process for TDEC to oversee TVA's implementation of the EPA's CCR rule and to ensure coordination and compliance with Tennessee laws and regulations that govern the management of CCR and (2) required TVA to investigate and

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assess CCR contamination risks at seven of TVA's eight coal-fired plants in Tennessee and to remediate any unacceptable risks. The TDEC order does not allege that TVA is violating any CCR regulatory requirements nor does it assess TVA penalties. The TDEC order sets out an iterative process through which TVA and TDEC will identify and evaluate any CCR contamination risks and, if necessary, respond to such risks. Currently, TVA is conducting environmental investigations of the seven sites in accordance with the TDEC-approved Environmental Investigation Plans for each site. Upon the completion of the investigations, TVA will submit an environmental assessment report for each site.

Groundwater Contamination. Environmental groups and state regulatory agencies are increasing their attention on alleged groundwater contamination associated with CCR management activities. As a result, TVA may have to change how it manages CCR at some of its plants, potentially resulting in higher costs. See Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residuals Facilities and — Regulatory Compliance — Allen Groundwater Investigation and Note 10 — Asset Retirement Obligations.

Environmental Investments

From 1970 to 2020, TVA spent approximately $6.8 billion on controls to reduce emissions from its coal-fired power plants. In addition, TVA has reduced emissions by idling or retiring coal-fired units and relying more on cleaner energy resources including natural gas and nuclear generation.

TVA currently anticipates spending significant amounts on environmental projects in the future, including investments in new clean energy generation including renewables to reduce TVA's overall environmental footprint. TVA environmental project expenditures also result from coal-fired plant decommissioning and from effective ash management modernization. Based on TVA's decisions regarding certain coal-fired units, the amount and timing of expenditures could change.

SO2 Emissions and NOx Emissions. To reduce SO2 emissions, TVA operates scrubbers on 18 of its coal-fired units and switched to lower-sulfur coal at certain coal-fired units. To reduce NOx emissions, TVA operates SCRs on 18 coal-fired units, operates low-NOx burners or low-NOx combustion systems on 21 units, optimized combustion on all 25 units, and operates NOx control equipment year round when units are operating (except during start-up, shutdown, and maintenance periods). TVA has also retired 34 of 59 coal-fired units. Except for seven units at Shawnee, the remaining coal-fired units have scrubbers and SCRs.

Particulate Emissions. To reduce particulate emissions of air pollutants, TVA has equipped all of its coal-fired units with scrubbers, mechanical collectors, electrostatic precipitators, and/or bag houses.

Greenhouse Gas Emissions. There could be additional material costs if further reductions of GHGs, including CO2, are mandated by legislative, regulatory, or judicial actions and if more stringent emission reduction requirements for conventional pollutants are established. These costs cannot reasonably be predicted at this time because of the uncertainty of these actions. The EPA may issue regulations establishing more stringent air, water, and waste requirements, and these requirements could result in significant changes in the structure of the U.S. power industry, especially in the eastern half of the country.

Estimated Required Environmental Expenditures

The following table contains information about TVA's current estimates on projects related to environmental laws and regulations:


Estimated Potential Environmental Expenditures(1)(2) At December 31, 2020 (in millions)
	Remaining 2021		2022		Thereafter(3)(4)		Total
Coal Combustion Residual Conversion Program(5)	$	267	$	224	$	411	$	902
Clean Air Act control projects(6)	21		45		81		147
Clean Water Act requirements(7)	24		78		71		173

Notes

(1) These estimates are subject to change as additional information becomes available and as regulations change.

(2) These estimates include $99 million, $134 million, and $121 million for the remainder of 2021, 2022, and thereafter, respectively, in capital expenditures.

(3) See Note 19 — Contingencies and Legal Proceedings — Contingencies.

(4) These estimates include expenditures expected to be incurred during 2023, 2024, and 2025.

(5) Includes costs associated with pond closures, conversion of wet to dry handling, and landfill activities. TVA is continuing to evaluate the rules and their impact on its operations, including the cost and timing estimates of related projects. See Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — Generation Resources — Coal Combustion Residuals Facilities and Note 10 — Asset Retirement Obligations.

(6) Includes air quality projects that TVA is currently performing to comply with existing air quality regulations, but does not include any projects that may be required to comply with potential GHG regulations or transmission upgrades.

(7) Includes projects that TVA is currently planning to comply with revised rules under the CWA (regarding CWIS and ELGs for steam electric power plants).

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Legal Proceedings

From time to time, TVA is party to or otherwise involved in lawsuits, claims, proceedings, investigations, and other legal matters ("Legal Proceedings") that have arisen in the ordinary course of conducting its activities, as a result of catastrophic events or otherwise. At December 31, 2020, TVA had accrued $14 million with respect to Legal Proceedings. No assurance can be given that TVA will not be subject to significant additional claims and liabilities. If actual liabilities significantly exceed the estimates made, TVA's results of operations, liquidity, and financial condition could be materially adversely affected.

For a discussion of certain current material Legal Proceedings, see Note 19 — Contingencies and Legal Proceedings — Legal Proceedings, which discussions are incorporated into this Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Off-Balance Sheet Arrangements

At December 31, 2020, TVA had no off-balance sheet arrangements.

Critical Accounting Policies and 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 financial statements. Although the financial statements are prepared in conformity with accounting principles generally accepted in the U.S., 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. TVA's critical accounting policies are discussed in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates and Note 1 — Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in the Annual Report.

New Accounting Standards and Interpretations

For a discussion of new accounting standards and interpretations, see Note 2 — Impact of New Accounting Standards and Interpretations, which discussion is incorporated into this Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Legislative and Regulatory Matters

TVA continues to monitor how regulatory agencies are interpreting and implementing the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in July 2010. As a result, TVA has become subject to

recordkeeping, reporting, and reconciliation requirements related to its derivative transactions. In addition, depending on how regulatory agencies interpret and implement the provisions, TVA's hedging costs may increase, and TVA may have to post additional collateral and margin in connection with its derivative transactions.

TVA does not engage, and does not control any entity that is engaged, in any activity listed under Section 13(r) of the Securities Exchange Act of 1934 ("Exchange Act"), which requires certain issuers to disclose certain activities relating to Iran involving the issuer and its affiliates. Based on information supplied by each such person, none of TVA's directors and executive officers are involved in any such activities. While TVA is an agency and instrumentality of the U.S., TVA does not believe its disclosure obligations, if any, under Section 13(r) extend to the activities of any other departments, divisions, or agencies of the U.S.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There are no material changes related to market risks disclosed under Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations — Risk Management Activities in the Annual Report. See Note 13 — Risk Management Activities and Derivative Transactions for additional information regarding TVA's derivative transactions and risk management activities.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

TVA's management, including the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, and members of the Disclosure Control Committee, including the Vice President and Controller (Principal Accounting Officer) (collectively "management"), evaluated the effectiveness of TVA's disclosure controls and procedures (as

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defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2020. Based on this evaluation, management concluded that TVA's disclosure controls and procedures were effective as of December 31, 2020, to ensure that information required to be disclosed by TVA in reports that it files or submits under the Exchange Act, is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by TVA in such reports is accumulated and communicated to TVA's management, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2020, there were no changes in TVA's internal control over financial reporting

that materially affected, or are reasonably likely to materially affect, TVA's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, TVA is party to or otherwise involved in lawsuits, claims, proceedings, investigations, and other legal matters ("Legal Proceedings") that have arisen in the ordinary course of conducting its activities, as a result of catastrophic events or otherwise. While the outcome of the Legal Proceedings to which TVA is a party cannot be predicted with certainty, any adverse outcome to a Legal Proceeding involving TVA may have a material adverse effect on TVA's financial condition, results of operations, and cash flows.

For a discussion of certain current material Legal Proceedings, see Note 19 — Contingencies and Legal Proceedings — Legal Proceedings, which discussions are incorporated by reference into this Part II, Item 1, Legal Proceedings.

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ITEM 1A. RISK FACTORS

The following risk factor describes an update from the risk factors disclosed in Item 1A, Risk Factors of the Annual Report. The following information should be read in conjunction with additional risk factors included in the Annual Report.

The COVID-19 pandemic has and may continue to adversely affect TVA's business, financial condition, and results of operations.

The COVID-19 pandemic has and may continue to adversely affect TVA's business, financial condition, and results of operations. To date, the COVID-19 pandemic has resulted in reduced revenues primarily due to economic conditions surrounding COVID-19, including customers curtailing operations to reduce the spread of the outbreak as a result of quarantines, closures, or reduced operations of businesses or other institutions, among other things. TVA's revenues also decreased due to the deferral of revenues under programs offered by TVA to its LPCs to offset the impact of customers' inability to pay during the outbreak. TVA estimates base revenues were reduced by approximately $185 million for the year ended September 30, 2020, and by approximately $10 million for the quarter ended December 31, 2020. TVA expects the COVID-19 pandemic to continue impacting revenue for 2021 and has planned for $10.0 billion in total operating revenues in 2021. It is uncertain at this time the extent to which TVA's revenues may be impacted beyond 2021 by the above referenced or other reasons. See Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations— Results of Operations — Financial Results — Operating Revenues.

TVA could be further adversely affected by the impact of the COVID-19 pandemic on the economy and financial markets, including a prolonged recession and continued volatility in interest rates, commodity prices, investment performance, and foreign currency exchange rates. TVA has experienced fluctuations related to its pension plan assets and other investment portfolios during the year ended September 30, 2020 and the quarter ended December 31, 2020. The ultimate impact of the COVID-19 pandemic on the pension plan and other investments depends on factors beyond TVA's knowledge or control. A long-term recession could impact access to capital and have other long-term negative effects on TVA's business or results of operations.

In addition, TVA's results of operations could be impacted by, among other things, social distancing to prevent illness from spreading within the workforce; travel restrictions; the availability of the workforce to perform essential functions; and the unavailability of fuel or critical parts, supplies, or services due to transportation restrictions or the shutdown, slowdown, or inability to meet contractual requirements of suppliers or other vendors in TVA's supply chain. In addition, the continued spread of the COVID-19 pandemic could adversely impact TVA's ability to develop, construct, and operate facilities; could delay or prevent the completion of projects; or could lead to impairments of TVA's long-lived assets and accounts or loans receivable.

To address specific aspects of the COVID-19 pandemic, TVA has implemented a company-wide pandemic plan, including limiting non-essential travel and mandatory telework for those who do not have to be physically present at a TVA facility or office building; implementing strong physical and cyber-security measures; keeping certain developed recreation areas closed; actively monitoring generation, transmission, and distribution functions; and maintaining an increased cash reserve. However, it is possible that these measures will not be successful in mitigating the impacts of the pandemic. At this time, operations and delivery of energy to customers have not been materially impacted but there is no guarantee that there will not be a material impact in the future.

The extent to which the COVID-19 pandemic will impact TVA's business, financial condition, and results of operations is uncertain and will depend on numerous evolving factors beyond TVA's knowledge or control including, among other things, the duration and severity of the pandemic, actions taken to contain its spread and mitigate its effects, including vaccination programs, and the broader impact of the COVID-19 pandemic on the country and region's economy. However, TVA reasonably anticipates that a prolonged outbreak could have a material adverse impact on its business, financial condition, and results of operations, and could require TVA to change how it conducts certain operations, takes power under certain agreements, or dispatches its own facilities.

See Part I, Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations — Key Initiatives and Challenges — COVID-19 Pandemic for an expanded discussion of the impact to TVA and related initiatives.

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ITEM 5. OTHER INFORMATION

2021 CEO Compensation

On February 11, 2021, the TVA Board approved compensation adjustments for Mr. Lyash for 2021 based on FW Cook’s independent study and market analysis of CEO compensation, Mr. Lyash's increased tenure with TVA, his 2020 performance, and an intent to narrow the gap to the 50th percentile of CEO market compensation while being mindful of TVA’s federal agency status. The TVA Board determined that the adjustments were merited and consistent with the TVA Act. The following sets forth the components of Mr. Lyash’s 2021 target total direct compensation ("TDC"), effective October 1, 2020.

•Salary increased from $1,058,000 to $1,100,000.

•Long-term performance grant of $2,914,100, which will vest on September 30, 2023.

•Long-term retention grant of $1,248,900, which will vest in three equal increments on September 30, 2021, September 30, 2022, and September 30, 2023.

No adjustments were made to any other existing elements of compensation for Mr. Lyash for 2021.

The TVA Board increased Mr. Lyash's pay closer to the 50th percentile (i.e., median) of market compensation, but his target TDC still remains below the 25th percentile of market TDC, in each case as determined by FW Cook. The approved adjustments position Mr. Lyash’s compensation at 8% below such 25th percentile and 28% below such 50th percentile of TDC for CEO market compensation. The graphic below illustrates the variance between 2021 target TDC for TVA's CEO and the 25th and the 50th percentiles of TDC for CEO market compensation, as determined by FW Cook.

Consistent with TVA’s pay-for-performance philosophy, 66% of Mr. Lyash's TDC is performance-based, up from 65% in 2020. The graphic below illustrates the components of his TDC granted for 2021 and the portion that is performance-based.

See Item 9B and “Compensation Discussion and Analysis” in Item 11 of the TVA Annual Report on Form 10-K for the fiscal year ended September 30, 2020, for more information about the components of executive compensation.

Executive Severance Plan

In 2020, in connection with its review of TVA’s compensation programs, TVA management commissioned Willis Towers Watson to conduct a market review of executive severance arrangements. The study showed that TVA’s approach to executive severance did not reflect best practice among its compensation peers, and indicated that establishing an executive severance plan would be in accordance with the objective of TVA’s Compensation Plan to provide market-based compensation programs in order to attract, retain, and motivate highly competent employees, and to provide consistency of treatment through structured program administration.

On February 10, 2021, TVA’s CEO established the TVA Executive Severance Plan (the “Severance Plan”), including the eligibility of TVA’s named executive officers (other than the CEO) to participate in the Severance Plan. On February 11, 2021, the Board approved the CEO’s participation in the Severance Plan as part of the overall market review of CEO compensation. The Severance Plan provides that if TVA terminates a named executive officer’s employment other than for Gross Misconduct or such participant terminates employment for Good Reason (each term as defined in the Severance Plan), such participant will be eligible to receive the following benefits in addition to his or her accrued compensation:

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•A lump sum severance payment equal to the applicable multiplier times the sum of the employee’s annual base salary and target annual incentive, and continued healthcare benefits for a number of complete or partial years equal to such multiplier. The applicable multiplier is 1.5 for the CEO and 1.0 for the other named executive officers, or, if the qualifying separation occurs within 24 months following a Change in Control (as defined in the Severance Plan) of TVA, then the applicable multiplier is 3.0 for the CEO and 2.0 for the other named executive officers.

•Any earned but unpaid incentive payments, and a prorated annual incentive payment for the year of termination based on actual (or, if the qualifying separation occurs within 24 months following a Change in Control (as defined in the Severance Plan) of TVA, based on target) achievement of performance goals.

•If the qualifying separation occurs within 24 months following a Change in Control of TVA, then a lump sum cash payment equal to the sum of (a) any long-term incentive plan ("LTIP") performance awards the performance cycle of which is in progress on the participant's separation date, non-prorated and calculated based on target achievement of performance goals, and (b) any LTIP retention awards the retention cycle of which is in progress on the participant's separation date, non-prorated and calculated as if all such awards are fully vested.

•If the qualifying separation occurs within 24 months following a Change in Control of TVA, a waiver of the five-year vesting requirement set forth in Section 4.1(a) of the TVA Supplemental Executive Retirement Plan pursuant to its terms.

In order to receive severance benefits under the Severance Plan, participants must timely execute (and not revoke) a release of claims in favor of TVA and comply with all applicable post-separation restrictive covenants. The terms of the Severance Plan will supersede rights and obligations with respect to severance under existing agreements to which Severance Plan participants are a party. A copy of the Severance Plan is attached as an exhibit to this report and is incorporated herein by reference. The foregoing description is qualified in its entirety by reference to such document.

Credit Facility Amendment

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ITEM 6. EXHIBITS


Exhibit No.			Description





10.1			Amended and Restated Long-Term Incentive Plan Dated as of November 12, 2020 (Incorporated by reference to Exhibit 10.34 to TVA's Annual Report on Form 10-K for the year ended September 30, 2020, File No. 000-52313)

10.2			Executive Severance Plan Adopted as of February 10, 2021, and Amended as of February 11, 2021

10.3			Second Amendment Dated as of February 9, 2021, to December Maturity Community Bank Credit Agreement Dated as of December 12, 2016, and Amended as of December 11, 2018

31.1			Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Executive Officer

31.2			Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Financial Officer

32.1			Section 1350 Certification Executed by the Chief Executive Officer

32.2			Section 1350 Certification Executed by the Chief Financial Officer



101.INS			TVA XBRL Instance Document

101.SCH			TVA XBRL Taxonomy Extension Schema

101.CAL			TVA XBRL Taxonomy Extension Calculation Linkbase

101.DEF			TVA XBRL Taxonomy Extension Definition Linkbase

101.LAB			TVA XBRL Taxonomy Extension Label Linkbase

101.PRE			TVA XBRL Taxonomy Extension Presentation Linkbase

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SIGNATURES

Pursuant to the requirements of Section 13, 15(d), or 37 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Date:	February 11, 2021		TENNESSEE VALLEY AUTHORITY
			(Registrant)


		By:	/s/ Jeffrey J. Lyash
			Jeffrey J. Lyash
			President and Chief Executive Officer (Principal Executive Officer)
		By:	/s/ John M. Thomas, III
			John M. Thomas, III
			Executive Vice President and Chief Financial Officer (Principal Financial Officer)

EXHIBIT 10.2

EXECUTIVE SEVERANCE PLAN

Effective February 10, 2021

Prepared by: /s/ Tina Wallace 2/10/2021

Tina Wallace, Vice President Total Rewards Date

Validation Date: 02/03/2021

Review Frequency: 5 years

Validated By: Stephen Gaby


1. PURPOSE AND SCOPE			2
2. DEFINITIONS			2
2.1 “Beneficiary”			2
2.2 “Change in Control”			3
2.3 “CIC Date”			3
2.4 “CIC Period”			4
2.5 “Code”			4
2.6 “EAIP”			4
2.7 “Eligible Employee”			4
2.8 “Good Reason”			4
2.9 “Gross Misconduct”			5
2.10 “Level I Employee”			5
2.11 “Level II Employee”			5
2.12 “Level III Employee”			5
2.13 “LTIP”			6
2.14 “Participant”			6
2.15 “Plan”			6
2.16 “Section 409A”			6
2.17 “Separation from Service”			6
2.18 “Severance Multiple”			6
2.19 “Termination Date”			6
3. ELIGIBILITY AND PARTICIPATION			6
3.1 Eligibility			6
3.2 Participation			7
4. PLAN BENEFITS			7
4.1 Severance			7
4.2 Nonqualified Deferred Compensation Plans			7
4.3 Supplemental Executive Retirement Plan			7
4.4 No Duplication of Severance Benefits			7
5. PAYMENT OF SEVERANCE BENEFITS			7
5.1 In General			7
5.2 Benefits			8
6. PLAN ADMINISTRATION			9
6.1 Authority of Plan Administrator			9
6.2 Determinations by Plan Administrator			10
7. GENERAL PROVISIONS			10
7.1 Amendment or Termination of the Plan			10
7.2 Source of Payments			10
7.3 Severability			10
7.4 Limitation of Rights			11
7.5 Titles			11


7.6 Governing Law			11
7.7 Claims and Appeals Procedures			12
7.8 Authorized Representatives			13
7.9 Compliance with Section 409A			13
7.10 Rehired Employees			15
7.11 Incapacity			15
7.12 Golden Parachute			15
7.13 Successors			16
7.14 Tax Withholding			17

Exhibits

1.PURPOSE AND SCOPE

Establishment. The Tennessee Valley Authority (“TVA” or the “Company”) hereby establishes this Executive Severance Plan (“Plan”). The Plan supports TVA’s compensation philosophy, which is designed to attract, retain, and engage employees needed to accomplish TVA’s broad mission. In addition, the Plan is intended in the event of a Change in Control to minimize risks and uncertainties for TVA and key executives by providing market competitive financial security and encouragement to remain with the Company.

Purpose. The purpose of the Plan is to provide a competitive severance payment (“Severance Payment”) to certain eligible employees in the event of a TVA-initiated separation for reasons other than Gross Misconduct (including in connection with a Change in Control (as defined below)) or in the event an employee terminates his or her employment with TVA for Good Reason as defined below.

2.DEFINITIONS

Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:

2.1 “Beneficiary” means a beneficiary designated in writing by a Participant to receive any payments to be made under the Plan to such Participant, and if no beneficiary is designated by the Participant, then the Participant’s estate shall be deemed to be the Participant’s designated beneficiary.

2.2 “Change in Control” shall be deemed to have occurred on the earliest of the following dates:

(a) the date when the United States ceases to have an ownership interest of at least fifty percent (50%) of the Company;

(b) the date one or more entities acquire (or have acquired during the 12-month period ending on the date of the most recent acquisition by such entity or entities) assets from the Company that have a total gross fair market value (without regard to any debt) equal to or more than thirty percent (30%) of the total gross fair market value of all of the assets of the Company immediately before such most recent acquisition;

(c) the date that a majority of the members of the Board is no longer appointed and confirmed in accordance with the provisions of Section 2(a)(1) of the Tennessee Valley Authority Act of 1933, as amended;

(d) the date a complete liquidation or winding-up of the Company is consummated;

(e) the date that an entity such as an organization, board, commission, authority, department, or agency succeeds to the principal functions of, or powers and duties granted to, the Company; or

(f) the date of enactment or effectiveness of any applicable law, statute, rule, regulation, order, decree, ruling, or writ of a governmental or regulatory agency, entity, or official of competent jurisdiction that materially limits the Board’s authority to establish or renew a Participant’s total direct compensation.

To the extent necessary to prevent the imposition of taxes or penalties under Section 409A, in no event will a Change in Control be deemed to have occurred if such transaction is not also a change in the ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder).

2.3 “CIC Date” means the date on which a Change in Control is consummated.

2.4 “CIC Period” means the period commencing on the CIC Date and ending on the twenty-four (24) month anniversary thereafter.

2.5 “Code” means the Internal Revenue Code of 1986, as amended from time to time.

2.6 “EAIP” means TVA’s Executive Annual Incentive Plan, as amended from time to time.

2.7 “Eligible Employee” means any executive designated as a Level I Employee, Level II Employee, or Level III Employee, in each case as determined by the Plan Administrator from time to time, and each other person specifically designated as an Eligible Employee on the exhibits hereto.

2.8 “Good Reason” means the occurrence of any of the following:

(a)a material adverse change in the Participant’s authority, duties, or responsibilities (excluding during any period of Participant’s physical or mental incapacity) with respect to his or her employment with the Company without the Participant’s prior written consent;

(b)a material reduction in the Participant’s base salary without the Participant’s prior written consent (other than any reduction applicable to management employees generally);

(c)an actual change in the Participant’s principal work location by more than 50 miles and more than 50 miles from the Participant’s principal place of abode as of the date of such change in job location without the Participant’s prior written consent; or

(d)a material breach by the Company of any term or provision of the Plan without the Participant’s prior written consent.

A Participant may be considered to have such “Good Reason” to terminate employment for purposes of the Plan only if the Participant provides written notice to the Company of termination within 30 days of the occurrence of the applicable foregoing event(s) above or, if later, within 30 days of the date the Participant has knowledge that such event(s) occurred.

An event constituting Good Reason shall no longer constitute Good Reason if the circumstances described in the Good Reason notice are cured by the Company within 30 days following receipt of the Good Reason notice. If the Company does not cure the circumstances giving rise to the Good Reason event described in the Good Reason notice within thirty (30) days after receipt of the Good Reason notice, the Participant who provided the Good Reason notice may resign for Good Reason by terminating employment within thirty (30) days following the end of the Company’s thirty (30) day cure period.

2.9 “Gross Misconduct” means:

(a)misconduct involving dishonesty, fraud, or gross negligence that directly results in significant economic or reputational harm to TVA;

(b)insubordination, intentional neglect of duties, or refusal to cooperate with investigations of TVA’s business practices;

(c)conviction of a crime amounting to a felony under the laws of the United States or any of the several states, or a crime of moral turpitude;

(d)a significant violation of TVA’s Code of Ethics or Code of Conduct; or

(e)disclosure without authorization of proprietary or confidential information of TVA.

The Plan Administrator shall determine in his, her, or its sole discretion whether the conduct of an employee constitutes Gross Misconduct.

2.10 “Level I Employee” means an executive serving as a Vice President or above whom the Plan Administrator does not designate as a Level II Employee, excluding the CEO and Level III Employees.

2.11 “Level II Employee” means an executive serving as a Vice President or above whom the Plan Administrator designates as a Level II Employee from time to time, excluding the CEO and Level III Employees; provided that the Plan Administrator shall designate only select roles based on impact of role in the event of CIC as Level II Employees at any time and shall not remove such designation from any Level II Employee during the CIC Period.

2.12 “Level III Employee” means an Executive Vice President of the Company from time to time.

2.13 “LTIP” means TVA’s Long-Term Incentive Plan, as amended from time to time.

2.14 “Participant” means any Eligible Employee whom the Plan Administrator designates as a Participant from time to time.

2.15 “Plan” means this Tennessee Valley Authority Executive Severance Plan as amended from time to time.

2.16 “Section 409A” means Section 409A of the Code, or any successor section under the Code, as amended and as interpreted by final or proposed regulations promulgated thereunder from time to time and by related guidance.

2.17 “Separation from Service” and like phrases have the meaning set forth in 26 C.F.R. §1.409A-1(h) as such provision may be amended from time to time.

2.18 “Severance Multiple” means, with respect to each Participant, the applicable Severance Multiple as set forth on the applicable exhibit hereto.

2.19 “Termination Date means the date a Participant’s employment with TVA is terminated.

3.ELIGIBILITY AND PARTICIPATION

3.1 Eligibility. Eligibility to participate in the Plan shall be limited to employees who meet the following criteria:

3.1.1 Position and Designation. The Participant is an Eligible Employee whom the Plan Administrator has designated to participate in the Plan and has been notified of such designation.

3.1.2 Execution of Release. The Participant must execute a separation agreement and general release, which will include certain covenants such as confidentiality, non-compete, non-solicitation, non-disparagement, and cooperation, in form and substance reasonably satisfactory to TVA (the “Release”), that will be provided to the Participant prior to the effective date of the Participant’s Separation from Service (the “Termination Date”) or as soon as practicable following the Termination Date. A Participant may have up to 21 days (or such longer period as determined by the Plan Administrator) to consider the agreement before signing and may sign it at any time during such period. If the Participant signs the Release, he or she may cancel it within seven days. Any such cancellation must be in writing and signed by the Participant by close of business on the seventh calendar day after he or she signs the Release. If the Participant does not cancel the agreement, the agreement will become effective on the eighth calendar day after the date of signature. If the Participant cancels the agreement, it will become null and void and TVA will not implement any of its terms.

3.2 Participation. A Participant may be eligible to receive Severance Payments following a Separation from Service due to (a) a termination of

services by TVA (other than due to the Participant’s Gross Misconduct or as a result of the death or disability of the Participant); or (b) a resignation by the Participant due to Good Reason.

4.PLAN BENEFITS

4.1 Severance. A Participant who Separates from Service in accordance with Section 3.2 will be entitled to the benefits described in Section 5 or the applicable exhibit hereto, subject to the terms and conditions of payment otherwise set forth herein.

4.2 Nonqualified Deferred Compensation Plans. Each Participant shall be entitled to payment of his or her vested benefit, if any, under any nonqualified deferred compensation plan of TVA (including, but not limited to, the Deferred Compensation Plan) in accordance with the terms of such plan. For the avoidance of doubt, TVA is not modifying the terms of the Deferred Compensation Plan or any rights of Participants under such plan.

4.3 Supplemental Executive Retirement Plan. Each Participant shall be entitled to payment of his or her vested benefit, if any, under TVA’s Supplemental Executive Retirement Plan (“SERP”) in accordance with the terms of such plan. In addition, the five (5) year vesting requirement set forth in Section 4.1(a) of the SERP will be waived pursuant to the terms of such section with respect to each Participant whose Termination Date occurs within the CIC Period.

4.4 No Duplication of Severance Benefits. The Plan is intended to replace any and all provisions providing for severance and/or change in control payments within each existing offer letter, employment agreement, and severance agreement between the Company and any Participant who receives Severance Payments. Accordingly, notwithstanding anything to the contrary in this Plan, a Participant who receives Severance Payments under the Plan will not be entitled to receive severance benefits under any other plan or agreement of the Company.

5.PAYMENT OF SEVERANCE BENEFITS

5.1 In General. Subject to the effectiveness of the Release and except as otherwise expressly set forth below, Severance Payments will be paid as a lump-sum payment as soon as practicable after (and in no event later than sixty (60) days following) a Participant’s Separation from Service. This amount shall be paid in cash after deducting the amount of applicable federal, state, and local withholding taxes of any kind required by law to be withheld by TVA. In the event that the Participant dies before receiving a Severance Payment, the Severance Payment shall be paid to the

Participant’s Beneficiary. All amounts will be approved by the Plan Administrator prior to payment.

5.2 Benefits. Each Participant who experiences a Separation from Service and otherwise meets the terms and conditions of the Plan shall be entitled to the following Severance Payments, in each case as determined by the Plan Administrator in good faith:

5.2.1 Cash Separation Payment. Severance equal to the product of (a) the applicable Severance Multiple times (b) sum of the Participant’s (i) annual base salary and (ii) target annual incentive amount with respect to the year in which the Termination Date occurs, with clauses (i) and (ii) measured in the aggregate as of the highest of, as applicable, (x) the CIC Date, (y) the Participant’s Termination Date or (z) the event(s) constituting Good Reason.

5.2.2 Continued Healthcare Benefits. Continued coverage for healthcare benefits following the Participant’s Separation from Service (at active employee rates with respect to the coverage levels in effect immediately prior to such Separation from Service) until the earlier of (a) the end of that number of months correlating with the applicable Severance Multiple times 12, or (b) the date upon which the Participant and/or the Participant’s eligible dependents become covered under similar plans (the “Continued Healthcare Benefits”). The Continued Healthcare Benefits will be made consistent with the applicable benefit plan(s) of the Company; provided, however, that in the Plan Administrator’s sole discretion, the Continued Healthcare Benefits will be administered through reimbursement in lieu of direct coverage, subject to the Company’s normal expense reimbursement policy, and will in either case be taxable to the extent required to avoid adverse consequences to Participant or the Company.

5.2.3 Unpaid Prior Year Incentive Awards. A lump sum cash payment equal to any EAIP award and/or LTIP award that has already vested at the time the Participant Separates from Service but has not yet been paid. For the avoidance of doubt, this payment is in lieu of any payments to which the Participant is entitled under the EAIP and/or the LTIP with respect to such EAIP and/or LTIP award.

5.2.4 In-Progress Annual Incentive Awards. A lump sum cash payment equal to any EAIP award the performance cycle of which is in progress on the Termination Date, which shall be prorated and calculated as follows: (a) if the Termination Date occurs outside of the CIC Period, based on actual achievement of the applicable performance goals and paid when such awards are paid to similarly

situated employees of the Company, and (b) if the Termination Date occurs within the CIC Period, based on target achievement and paid at such time as set forth in Section 5.1. For the avoidance of doubt, this payment shall be in lieu of any payment to which the Participant is entitled under the EAIP with respect to such EAIP award.

5.2.5 In-Progress Long-Term Incentive Award. If the Termination Date occurs within the CIC Period, a lump sum cash payment equal to the sum of (a) any LTIP performance awards the performance cycle of which is in progress on the Termination Date, which shall be non-prorated and calculated based on target achievement of performance goals, and (b) any LTIP retention awards the retention cycle of which is in progress on the Termination Date, which shall be non-prorated and calculated as if all such awards are fully vested. To the extent exempt under Section 409A, this payment shall be paid at such time as set forth in Section 5.1. For the avoidance of doubt, this payment shall be in lieu of any payments to which the Participant is entitled under the LTIP with respect to such LTIP awards. If the Termination Date occurs outside of the CIC Period and the Participant is eligible for Retirement (as defined in the LTIP), the Participant’s rights shall be unaffected and the Participant shall remain eligible for the benefits, if any, available to the Participant under the LTIP upon Separation from Service due to a Retirement.

6.PLAN ADMINISTRATION

6.1 Authority of Plan Administrator. The Plan shall be administered by the Chief Executive Officer (“CEO”) or designee (the “Plan Administrator”) unless otherwise delegated by the Board. For the avoidance of doubt, when the CEO is a Participant, the Plan Administrator shall be the Board or its designee. Subject to the express provisions of the Plan, the Plan Administrator shall have the power, authority, and sole and exclusive discretion to construe, interpret, and administer the Plan, including without limitation the power and authority to make factual determinations relating to, and correct mistakes in, payments and to take such other action in the administration and operation of the Plan as the Plan Administrator deems appropriate under the circumstances, including but not limited to the following:

6.1.1 The Plan Administrator may, from time to time, prescribe forms and procedures for carrying out the purposes and provisions of the Plan;

6.1.2 The Plan Administrator shall have the authority to prescribe the terms of any communications made under the Plan and to interpret and construe the Plan, any rules and regulations under the Plan, and the terms and conditions of any payment, and answer all questions arising under the Plan, including questions on the proper construction and interpretation of the Plan; and

6.1.3 To the extent permitted by law, the Plan Administrator may at any time delegate such powers and duties to one or more other executives or managers, whether ministerial or discretionary, as the Plan Administrator may deem appropriate, including but not limited to authorizing the Plan Administrator’s delegate to execute documents on the Plan Administrator’s behalf.

6.2 Determinations by Plan Administrator. All decisions, determinations, and interpretations by the Plan Administrator regarding the Plan, any rules and regulations under the Plan, and the terms and conditions of or operation of any Severance Payment shall be final and binding on all Participants.

7.GENERAL PROVISIONS

7.1 Amendment or Termination of the Plan. Subject to compliance with the requirements of Section 409A, the CEO or the Board, as appropriate, may amend or terminate the Plan at any time; provided, however, that neither the CEO nor the Board may amend or terminate the Plan (a) outside of the CIC Period except with the consent of any adversely affected Participant who has, prior thereto, experienced a Separation from Service or (b) within the CIC Period.

7.2 Source of Payments. All Severance Payments shall be payable out of TVA’s general assets. Each Participant’s claim, if any, for payment shall not be superior to that of any general and unsecured creditor of TVA. Nothing contained in the Plan and no action taken pursuant to the provisions of the Plan shall create or be construed to create a trust of any kind or a fiduciary relationship between TVA and any Participant, Beneficiary, or other person. If an error or omission is discovered in any of the determinations, the Plan Administrator, in his, her, or its sole discretion, shall cause an appropriate equitable adjustment to be made in order to remedy such error or omission.

7.3 Severability. In the event that any provision or portion of the Plan shall be determined to be invalid or unenforceable for any reason, the remaining provisions and portions of the Plan shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law.

7.4 Limitation of Rights. Nothing in the Plan shall be construed to give any employee any right to be selected as a Participant or to receive a Severance Payment or to be granted a Severance Payment other than as is provided in this document. Nothing in the Plan or any grant or payment issued pursuant to the Plan shall be construed to limit in any way the right of TVA to terminate a Participant’s employment at any time, without regard to the effect of such termination on any rights such Participant would otherwise have under the Plan, or give any right to a Participant to remain employed by TVA in any particular position or capacity or at any particular rate of remuneration. During the lifetime of the Participant, only the Participant (or the Participant’s legal representative) may exercise the rights and receive the benefits of any payment.

7.5 Titles. The titles of the articles and sections herein are included for convenience of reference only and shall not be construed as part of the Plan or have any effect upon the meaning of the provisions hereof. Unless the context requires otherwise, the singular shall include the plural and the masculine shall include the feminine. Words such as “herein,” “hereafter,” “hereof,” and “hereunder” shall refer to this instrument as a whole and not merely to the subdivision in which such words appear.

7.6 Governing Law. TVA is a corporate agency and instrumentality of the United States, and the Plan shall be governed by and construed under federal law. In the event federal law does not provide a rule of decision for any matter or issue under the Plan, the law of the State of Tennessee shall apply, without taking into account conflict of law principles. By participating in the Plan, each Participant agrees that the jurisdiction for any action with respect to the Plan shall lie in the United States District Court for the Eastern District of Tennessee.

7.7 Claims and Appeals Procedures.

7.7.1 Claims Procedure. Any Participant who feels he or she is entitled to Severance Payments must file a written claim with the Plan Administrator within 90 days following his or her Termination Date, on such applications or forms, if any, required by the Plan Administrator, for the claim to be valid. An initial determination shall be made by the Plan Administrator or such other persons as designated from time to time by the Board. Without limiting the foregoing, a request for Severance Payments will be considered a claim, and it will be subject to a full and fair review.

7.7.2 Denials. If a claim is wholly or partially denied, the Plan Administrator will provide the Participant with a written or electronic notification of the denial. This written or electronic notification will ordinarily be provided to the Participant no later than 90 days after

the receipt of a claim by the Plan Administrator, unless the Plan Administrator determines that special circumstances require an extension of time for processing a claim. If the Plan Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Participant within the initial determination period or as soon as practicable thereafter. The Plan Administrator’s notification of a denial will generally provide the following information: (a) the reason or reasons for the denial; (b) an explanation of the basis on which the determination was made; (c) a description of any additional material or information necessary for a Participant to perfect the claim on appeal; and (d) information as to the steps to be taken if a Participant wants to appeal the denial of a claim.

7.7.3 Appeals Procedures. Upon the denial of a claim, a Participant may file an appeal, in writing, with the Plan Administrator in such form as may be designated by the Plan Administrator as follows: (a) a Participant must file an appeal no later than 60 days after the Participant has received written notification of the denial of the claim; (b) the Participant may submit written comments, documents, records, and other information relating to the appeal; (c) the Participant may review all pertinent documents relating to the denial of the claim and submit any issues and comments, in writing, to the Plan Administrator; (d) the Participant will be provided, upon request, with reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (e) the appeal will be given a full and fair review. This review will take into account comments, documents, records, and other information submitted by the Participant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

7.7.4 Notifications. If the claim is approved on appeal, the Plan Administrator will notify the Participant accordingly. If the appeal is denied, the Plan Administrator will provide a notification that generally sets forth the following: (a) the specific reason or reasons for the denial; (b) an explanation of the basis on which the determination was made; and (c) a statement that the Participant is entitled to receive, upon request, reasonable access to, and copies of, all documents, records, and other information relevant to the claim. The Plan Administrator will ordinarily provide the Participant with written or electronic notification of the determination on appeal within 60 days after the receipt of the Participant’s notice of appeal, unless the Plan Administrator determines that special circumstances require an extension of time for processing the

claim. If the Plan Administrator determines that an extension of time for processing is required, written notice of the extension will be furnished to the Participant prior to the termination of the initial 60-day period or as soon as practicable thereafter.

7.7.5 Further Review. A Participant is required to utilize and exhaust the claims and appeal procedures set forth in these procedures before filing a lawsuit. The scope of review by a court is limited to the administrative record developed as part of the claims and appeal procedures, and such review is further limited as to whether the determination by the Plan Administrator was arbitrary and capricious. Any lawsuit must be filed by the Participant no later than 30 calendar days from the date that the Plan Administrator sends written or electronic notification as required under Section 7.7.4.

7.7.6 Improper Payments. In the event that TVA approves a claim for Severance Payments, but later determines that a Participant engaged in Gross Misconduct, the Participant shall be required to return all Severance Payments received prior to TVA’s determination, and the Participant will no longer be entitled to receive any Severance Payments. TVA may enforce its rights under this Section by bringing a lawsuit in the venue specified in Section 7.6 at any time.

7.8 Authorized Representatives. Whenever TVA under the terms of the Plan is permitted or required to do or to perform any act or matter or thing, it shall be done and performed by a duly authorized representative of TVA.

7.9 Compliance with Section 409A. At all times, to the extent necessary to prevent the imposition of taxes and penalties under Section 409A, (a) the Plan shall be operated in accordance with the requirements of Section 409A; (b) any action that may be taken (and, to the extent possible, any action actually taken) by an authorized representative of TVA and the Participants or their Beneficiaries shall not be taken (or shall be void and without effect), if such action violates the requirements of Section 409A; (c) any provision in the Plan that is determined to violate the requirements of Section 409A shall be void and without effect; and (d) any provision that is required by Section 409A to appear in the Plan that is not expressly set forth shall be deemed to be set forth herein, and the Plan shall be administered in all respects as if such provision were expressly set forth herein. TVA may at any time amend the Plan to cure any defect with respect to Section 409A but is not required to do so. No provision of the Plan is intended or shall be interpreted to create any right with respect to the tax treatment of the amounts paid hereunder, and TVA shall not, under any circumstances, have any liability to a Participant or Beneficiary for any

taxes, penalties, or interest due on amounts paid or payable under the Plan, including taxes, penalties, or interest imposed under Section 409A. To the extent necessary to prevent the imposition of taxes and penalties under Section 409A, to the extent payments under the Plan could, due to the timing of a Release, be paid in either of two calendar years, such payments shall be paid in the later such calendar year.

For purposes of this Plan, all references to “termination of employment” and correlative phrases shall be construed to require a “separation from service” as defined under Section 409A. For purposes of applying the rules under Section 409A, each separately identifiable payment under this Plan shall be treated as a “separate payment,” within the meaning of Section 409A, and the right to a series of installment payments under this Plan is to be treated as a right to a series of “separate payments” under Section 409A. Notwithstanding anything to the contrary in the Plan, if TVA determines (a) that on the date the Participant’s employment with TVA terminates, the Participant is a “specified employee” (within the meaning of Section 409A) of TVA and (b) that any payments to be provided to the Participant pursuant to the Plan are or may become subject to the additional tax under Section 409A(a)(1)(B) or any other taxes or penalties imposed under Section 409A if provided at the time otherwise that would be required under the Plan, then such payments shall be delayed until the date that is six months after the date of the Participant’s “separation from service” (as such term is defined under Section 409A) with TVA, or, if earlier, the date of the Participant’s death. Any such delayed payments instead shall be made in a lump sum on the first day of the seventh month following the Participant’s “separation from service” (as such term is defined under Section 409A), or, if earlier, the date of the Participant’s death. To the extent that any expenses, reimbursement, fringe benefit or other, similar plan or arrangement provides for a “deferral of compensation” within the meaning of Section 409A, then such amount shall be reimbursed in accordance with Section 409A, including (a) the amount eligible for reimbursement or payment under such plan or arrangement in one calendar year may not affect the amount eligible for reimbursement or payment in any other calendar year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid), (b) subject to any shorter time periods provided herein or the applicable plans or arrangements, any reimbursement or payment of an expense under such plan or arrangement must be made on or before the last day of the calendar year following the calendar year in which the expense was incurred, and (c) the right to any reimbursement or in-kind benefit is not subject to liquidation or exchange for another benefit.

7.10 Rehired Employees. Participants who experience a Separation from Service shall have no right to be re-employed by the Company. Each Participant’s right to receive or retain Severance Payments is conditioned upon such Participant not seeking or accepting re-employment from the Company without the written consent of the Plan Administrator. To the extent any Participant accepts re-employment with the Company in violation of this Section 7.10, the Company shall not be obligated to pay, and shall be entitled to the prompt repayment of, Separation Payments with respect to such Participant.

7.11 Incapacity. If a Participant or a Beneficiary experiences a mental incapacity or disability or is unable to care for his or her affairs because he or she is a minor, any payment or benefit due the Participant or Beneficiary may be paid or provided to the Participant’s spouse or to any other person deemed by the Plan Administrator to have incurred expense for such Participant (including a duly appointed guardian, committee, or other legal representative), and any such payment or provision of benefits shall be a complete discharge of the Company’s obligation hereunder.

7.12 Golden Parachute.

7.12.1 Anything in this Plan to the contrary notwithstanding, if any payment or benefit a Participant would receive from the Company or otherwise (“Payment”) would (a) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (b) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax, or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state, and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in such Participant’s receipt, on an after-tax basis, of the greater amount of the Payment. Any reduction made pursuant to this Section 7.12.1 shall be made in accordance with the following order of priority: (i) Full Credit Payments (as defined below) that are payable in cash, (ii) non-cash Full Credit Payments that are taxable, (iii) non-cash Full Credit Payments that are not taxable, (iv) Partial Credit Payments (as defined below), and (v) non-cash employee welfare benefits. In each case, reductions shall be made in reverse chronological order such that the payment or benefit owed on the latest date following the occurrence of the event triggering the excise tax will be the first payment or benefit to be reduced (with

reductions made pro-rata in the event payments or benefits are owed at the same time). “Full Credit Payment” means a payment, distribution, or benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Plan or otherwise, that if reduced in value by one dollar reduces the amount of the parachute payment (as defined in Section 280G of the Code) by one dollar, determined as if such payment, distribution, or benefit had been paid or distributed on the date of the event triggering the excise tax. “Partial Credit Payment” means any payment, distribution, or benefit that is not a Full Credit Payment.

7.12.2 A nationally recognized certified public accounting firm selected by the Company (the “Accounting Firm”) shall perform the foregoing calculations related to the Excise Tax. If a reduction is required pursuant to Section 7.12.1, the Accounting Firm shall administer the ordering of the reduction as set forth in Section 7.12.1. The Company shall bear all expenses with respect to the determinations by such Accounting Firm required to be made hereunder.

7.12.3 The Accounting Firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to each affected Participant and the Company within fifteen (15) calendar days after the date on which each such Participant’s right to a Payment is triggered. Any good faith determinations of the Accounting Firm made hereunder shall be final, binding, and conclusive upon such Participant and the Company.

7.13 Successors. The Company shall assign its obligations under this Plan to any successor thereto, and any failure of the Company to obtain a satisfactory agreement from such successor to assume and agree to perform the obligations under this Plan shall constitute a material breach by the Company of this Plan.

7.14 Tax Withholding. TVA is authorized to withhold from any Severance Payment taxes due or potentially payable in connection with any transactions involving the Plan, and to take any other actions TVA may deem advisable to allow TVA to satisfy obligations for the payment of withholding taxes and other tax obligations related to any Severance Payment.

[Signature Page Follows]

IN WITNESS WHEREOF, this instrument has been executed this 10th day of February, 2021.

TENNESSEE VALLEY AUTHORITY

By: /s/ Jeffrey J. Lyash

Jeffrey J. Lyash

President & Chief Executive Officer

Exhibit A

Benefits

This Exhibit A describes the payments offered to Participants in the TVA Executive Severance Plan (the “Plan”) upon a termination or resignation of employment with the Tennessee Valley Authority (the “Company”) as described in the Plan. Capitalized but undefined terms in this Exhibit A shall have the meanings set forth in the Plan.

The following description is intended only as a summary and is qualified in its entirety by reference to the full text of the Plan. In the event of any conflict between this summary and the Plan, the Plan shall control.

Level I

Level II

Level III

Scenario

Non-CIC

CIC

Non-CIC

CIC

Non-CIC

CIC

Severance Multiple

0.5

1.0

2.0

Cash Separation Payment

Lump Sum: Severance Multiple * (Annual Salary + Target EAIP)

Healthcare Benefits

Continuation for up to Severance Multiple * 12 months

In-Progress EAIP

Prorated Actual

Prorated Target

Prorated Actual

Prorated Target

Prorated Actual

Prorated Target

In-Progress LTIP

Forfeited

Accelerated Target

Forfeited

Accelerated Target

Forfeited

Accelerated Target

Exhibit B*

Benefits (CEO)

This Exhibit B describes the payments offered to the Chief Executive Officer (“CEO”) in the TVA Executive Severance Plan (the “Plan”) upon a termination or resignation of employment with the Tennessee Valley Authority (the “Company”) as described in the Plan. Capitalized but undefined terms in this Exhibit B shall have the meanings set forth in the Plan.

If the CEO (who, for the avoidance of doubt, is an Eligible Employee and a Participant) experiences a Separation from Service and otherwise meets the terms and conditions of the Plan, he or she shall be entitled to the following Severance Payments in accordance with the principles of Section 5 as if specifically set forth therein, in each case as determined by the Plan Administrator in good faith:


Scenario	Non-CIC	CIC
Severance Multiple	1.5	3.0
Cash Separation Payment	Lump Sum: Severance Multiple * (Annual Salary + Target EAIP)
Healthcare Benefits	Continuation for up to Severance Multiple * 12 months
In-Progress EAIP	Prorated Actual	Prorated Target
In-Progress LTIP	Forfeited	Accelerated Target

* Approved by the TVA Board of Directors on February 11, 2021

EXHIBIT 10.3

Execution Version

SECOND AMENDMENT TO DECEMBER MATURITY COMMUNITY BANK CREDIT AGREEMENT

THIS SECOND AMENDMENT TO DECEMBER MATURITY COMMUNITY BANK CREDIT AGREEMENT (this “Amendment”), is made and entered into as of February 9, 2021, by and among TENNESSEE VALLEY AUTHORITY, a wholly-owned corporate agency and instrumentality of the United States (the “Borrower”), the several banks and other financial institutions from time to time party hereto (collectively, the “Lenders”) and TRUIST BANK (as successor by merger to SUNTRUST BANK), in its capacity as Administrative Agent for the Lenders (the “Administrative Agent”). Capitalized terms used, but not defined, in this Amendment shall have the meanings ascribed in the Credit Agreement (as defined below).

W I T N E S S E T H:

WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to that certain December Maturity Community Bank Credit Agreement dated as of December 12, 2016 (as amended by that certain First Amendment to December Maturity Community Bank Credit

Agreement, dated as of December 11, 2018, and as further amended, modified, extended, restated, replaced, or supplemented from time to time, the “Credit Agreement”) pursuant to which the Lenders have made certain financial accommodations available to the Borrower;

WHEREAS, the Borrower has requested that the Lenders and the Administrative Agent amend certain provisions of the Credit Agreement, and subject to the terms and conditions hereof, the Lenders are willing to do so;

NOW, THEREFORE, for good and valuable consideration, the sufficiency and receipt of all of which are acknowledged, the Borrower, the Lenders and the Administrative Agent agree as follows:

1.Amendments to the Credit Agreement.

(a)Title of Credit Agreement. The title of the Credit Agreement is hereby amended from “December Maturity Community Bank Credit Agreement” to “February Maturity Community Bank Credit Agreement”. The references to “December Maturity Community Bank Credit Agreement” in the cover page, the title, the preamble, the definition of “Agreement”, the signature page, and Exhibits 2.02, 2.10, 2.15, 2.16, 4.01A-1, 4.01A-2, and 10.06 of the Credit Agreement shall hereby be amended to refer to “February Maturity Community Bank Credit Agreement”.

(b)Amendments to Sections 1.01 – Additional Definitions. Section 1.01 of the Credit Agreement is hereby amended by adding the following new definitions in the correct alphabetical order:

Execution Version

“Benchmark Replacement” means the sum of: (a) the alternate benchmark rate (which may include Term SOFR or another rate based on SOFR) that has been selected by the Administrative Agent and the Borrower giving due consideration to (i) any selection or recommendation of a replacement rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a rate of interest as a replacement to the LIBOR Rate for Dollar-denominated syndicated credit facilities and (b) the Benchmark Replacement Adjustment; provided that, if the Benchmark Replacement as so determined would be less than zero percent, the Benchmark Replacement will be deemed to be zero percent for the purposes of this Agreement.

“Benchmark Replacement Adjustment” means, with respect to any replacement of the LIBOR Rate for Loans denominated in Dollars with an Unadjusted Benchmark Replacement for each applicable Interest Period, the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower giving due consideration to: (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the LIBOR Rate for Loans denominated in Dollars with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of the LIBOR Rate for Loans denominated in Dollars with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities at such time.

“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest and other administrative matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of the Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement).

“Benchmark Replacement Date” means the earlier to occur of the following events with respect to the LIBOR Rate for Loans denominated in Dollars:

(1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of

Execution Version

the LIBOR Rate for Loans denominated in Dollars permanently or indefinitely ceases to provide the LIBOR Rate for Loans denominated in Dollars; or

(2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein.

“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the LIBOR Rate for Loans denominated in Dollars:

(1) a public statement or publication of information by or on behalf of the administrator of the LIBOR Rate for Loans denominated in Dollars announcing that such administrator has ceased or will cease to provide the LIBOR Rate for Loans denominated in Dollars, permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the LIBOR Rate for Loans denominated in Dollars;

(2) a public statement or publication of information by the regulatory supervisor for the administrator of the LIBOR Rate, the U.S. Federal Reserve System, an insolvency official with jurisdiction over the administrator for the LIBOR Rate, a resolution authority with jurisdiction over the administrator for the LIBOR Rate or a court or an entity with similar insolvency or resolution authority over the administrator for the LIBOR Rate, which states that the administrator of the LIBOR Rate has ceased or will cease to provide the LIBOR Rate for Loans denominated in Dollars permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide the LIBOR Rate for Loans denominated in Dollars; or

(3) a public statement or publication of information by the regulatory supervisor for the administrator of the LIBOR Rate in effect announcing that the LIBOR Rate for Loans denominated in Dollars is no longer representative.

“Benchmark Transition Start Date” means (a) in the case of a Benchmark Transition Event, the earlier of (i) the applicable Benchmark Replacement Date and (ii) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication) and (b) in the case of an Early Opt-in Election, the date specified by the Administrative Agent or the Required Lenders, as applicable, by notice to the Borrower, the Administrative Agent (in the case of such notice by the Required Lenders) and the Lenders.

“Benchmark Unavailability Period” means, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to the LIBOR Rate

Execution Version

for Loans denominated in Dollars and solely to the extent that the LIBOR Rate has not been replaced with a Benchmark Replacement, the period (x) beginning at the time that such Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the LIBOR Rate for Loans denominated in Dollars for all purposes hereunder in accordance with Section 3.03(a) and (y) ending at the time that a Benchmark Replacement has replaced the LIBOR Rate for Loans denominated in Dollars for all purposes hereunder pursuant to Section 3.03(a).

“BHC Act Affiliate” has the meaning specified in Section 10.22.

“Covered Entity” has the meaning specified in Section 10.22.

“Covered Party” has the meaning specified in Section 10.22.

“Default Right” has the meaning specified in Section 10.22.

“Early Opt-in Election” means the occurrence of:

(a)(1)(a) a determination by the Administrative Agent or (b) a notification by the Required Lenders to the Administrative Agent (with a copy to the Borrower) that the Required Lenders have determined that U.S. dollar-denominated syndicated credit facilities being executed at such time, or that include language similar to that contained in Section 2.13(b), are being executed or amended, as applicable, to incorporate or adopt a new benchmark interest rate to replace the LIBOR Rate for Loans denominated in Dollars, and

(2)(a) the election by the Administrative Agent or (b) the election by the Required Lenders to declare that an Early Opt-in Election has occurred and the provision, as applicable, by the Administrative Agent of written notice of such election to the Borrower and the Lenders or by the Required Lenders of written notice of such election to the Administrative Agent.

“QFC” has the meaning specified in Section 10.22.

“QFC Credit Support” has the meaning specified in Section 10.22.

“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.

“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.

“SOFR” means with respect to any day the secured overnight financing rate published for such day by the Federal Reserve Bank of New York, as the administrator of

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the benchmark, (or a successor administrator) on the Federal Reserve Bank of New York’s Website.

“Supported QFC” has the meaning specified in Section 10.22.

“Term SOFR” means the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.

“Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding the Benchmark Replacement Adjustment.

“U.S. Special Resolution Regimes” has the meaning specified in Section 10.22.

(c)Amendment to Definition of “Maturity Date”. The definition of “Maturity Date” contained in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“Maturity Date” means February 9, 2024; provided, however, that if such date is not a Business Day, the Maturity Date shall be the preceding Business Day.

(d)Amendment to Section 3.03. Section 3.03 of the Credit Agreement is hereby amended by adding a new clause (a) to the end of such Section to read as follows:

(a) Successor LIBOR Rate.

(i) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, the Administrative Agent and the Borrower may amend this Agreement to replace the LIBOR Rate for Loans denominated in Dollars with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. on the fifth (5th) Business Day after the Administrative Agent has posted such proposed amendment to all Lenders and the Borrower so long as the Administrative Agent has not received, by such time, written notice of objection to such amendment from Lenders comprising the Required Lenders. Any such amendment with respect to an Early Opt-in Election will become effective on the date that Lenders comprising the Required Lenders have delivered to the Administrative Agent written notice that such Required Lenders accept such amendment. No replacement of the LIBOR Rate for Loans denominated in Dollars with a Benchmark Replacement pursuant to this Section 3.03(a) will occur prior to the applicable Benchmark Transition Start Date.

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(ii) Benchmark Replacement Conforming Changes. In connection with the implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement.

(iii) Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date and Benchmark Transition Start Date, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes and (iv) the commencement or conclusion of any Benchmark Unavailability Period, provided that the failure to give such notice under this clause (iii) shall not affect the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or Lenders pursuant to this Section 3.03(a), including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party hereto, except, in each case, as expressly required pursuant to this Section 3.03(a).

(iv) Benchmark Unavailability Period. Upon the commencement of a Benchmark Unavailability Period, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of LIBOR Rate Loans denominated in Dollars to be made, converted or continued during such Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for a Borrowing of or conversion to Base Rate Loans. During any Benchmark Unavailability Period, (i) the obligation of the Lenders to make or maintain LIBOR Rate Loans denominated in Dollars shall be suspended, (ii) any request for a Borrowing of, conversion to or continuation of LIBOR Rate Loans denominated in Dollars shall be ineffective and will be deemed to have been a request for a Borrowing of or conversion to Base Rate Loans, and (iii) the component of the adjusted LIBOR Rate based upon the LIBOR Rate will not be used in any determination of the Base Rate.

(e)Amendment to Article X. A new section 10.22 is hereby added to the Credit Agreement to read as follows:

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Section 10.22. QFC Provisions.

To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any swap contract or any other agreement or instrument that is a QFC (such support, “QFC Credit Support”, and each such QFC, a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):

(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.

(b) As used in this Section 10.22, the following terms have the following meanings:

“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.

“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12

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C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).

“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.

“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).

2.Commitment Increase.

(a) Each of the undersigned Lenders acknowledges and agrees that the “Commitment, Post Amendment” column on Schedule 2.01 sets forth its Commitment under the Credit Agreement immediately after giving effect to this Amendment and agrees to any increase in its Commitment (if any) in connection with this Amendment from its Commitment immediately prior to the effectiveness of this Amendment.

(b) On the date hereof, (i) all applicable Obligations shall be amended and modified as provided herein, (ii) the Commitments of each of the Lenders shall be reallocated among the Lenders in accordance with their respective Commitments, as set forth opposite such Lender’s name on Schedule 2.01 attached hereto under the heading “Commitment, Post Amendment”, and in order to effect such reallocations, all requisite assignments shall be deemed to be made in amounts from each Lender to each Lender, with the same force and effect as if such assignments were evidenced by an Assignment and Acceptance but without the payment of any related assignment fee, and no other documents or instruments shall be, or shall be required to be, executed in connection with such assignments (all of which such requirements are hereby waived), and (iii) each assignee Lender shall make full cash settlement with each corresponding assignor Lender, through the Administrative Agent, as the Administrative Agent may direct (after giving effect to any netting effected by the Administrative Agent) with respect to all such assignments and reallocations.

3.Certain Other Agreements.

The increase in the Commitments of any Lender under this Amendment is made pursuant to Section 2.15 of the Credit Agreement.

4.Conditions to Effectiveness of this Amendment. Notwithstanding any other provision of this Amendment and without affecting in any manner the rights of the Lenders hereunder, it is understood and agreed that this Amendment shall not become effective, and the Borrower shall have no rights under this Amendment, until the following condition precedents are satisfied:

(a)The Administrative Agent shall have received:

(i) (A) Executed counterparts to this Amendment from the Borrower and the Lenders and (B) in the case of any Joining New Lender (as defined below), any

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additional documents required to be delivered by such Joining New Lender pursuant to Section 14 of this Amendment;

(ii) a promissory note executed by the Borrower in favor of each Lender that has requested a Note;

(iii) A certificate of the Secretary or an Assistant Secretary of the Borrower certifying (A) the names and true signatures of each employee of the Borrower who has been authorized to execute and deliver any Loan Document or other document required hereunder to be executed and delivered by or on behalf of the Borrower, (B) the bylaws (or equivalent organizational document) of the Borrower as in effect on the date of such certification, and (C) all resolutions of the Borrower approving and authorizing the execution, delivery and performance of the Loan Documents to which it is a party; and

(iv) Written opinions (addressed to the Administrative Agent and the Lenders and dated the date hereof) of counsel for the Borrower, substantially in the form of the opinions originally delivered in connection with the Credit Agreement;

(b)The representations and warranties contained in Article V of the Credit Agreement or any other Loan Document shall be true and correct;

(c)No Default or Event of Default shall have occurred and be continuing;

(d)The Administrative Agent, the L/C Issuer and each of the Arrangers, as the case may be, shall have received all costs, fees, expenses and other compensation then payable to the Administrative Agent, the applicable Arranger and the Lenders;

(e)The Borrower shall have paid all reasonable fees, charges and disbursements of counsel to the Administrative Agent to the extent invoiced (in reasonable detail) prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent); and

(f)Each Joining New Lender shall have received all documentation and other information it requires with respect to the Borrower and the Guarantors that is required by regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the PATRIOT Act.

5.Representations and Warranties. To induce the Lenders and the Administrative Agent to enter into this Amendment, the Borrower hereby represents and warrants to the Lenders and the Administrative Agent:

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(a) The Borrower (i) is duly organized, validly existing and in good standing as a corporation under the laws of the jurisdiction of its organization, (ii) has all requisite power and authority to carry on its business as now conducted, and (iii) is duly qualified to do business, and is in good standing, in each jurisdiction where such qualification is required, except where a failure to be so qualified would not reasonably be expected to result in a Material Adverse Effect;

(b) The execution, delivery and performance by the Borrower of the Loan Documents to which it is a party are within its organizational powers and have been duly authorized by all necessary organizational action;

(c) The execution, delivery and performance by the Borrower of each Loan Document have been duly authorized by all necessary action, and do not (a) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which the Borrower is a party or affecting the Borrower or any of its properties or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which the Borrower or its property is subject; or (b) violate any Law (including, without limitation, the TVA Act and Regulation U or Regulation X issued by the FRB);

(d) This Amendment has been duly executed and delivered for the benefit of or on behalf of the Borrower and constitutes a legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights and remedies in general; and

(e) After giving effect to this Amendment, the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct in all material respects, and no Default or Event of Default has occurred and is continuing as of the date hereof.

6.Effect of Amendment. Except as set forth expressly herein, all terms of the Credit Agreement, as amended hereby, and the other Loan Documents shall be and remain in full force and effect and shall constitute the legal, valid, binding and enforceable obligations of the Borrower to the Lenders and the Administrative Agent. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of the Lenders under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement. This Amendment shall constitute a Loan Document for all purposes of the Credit Agreement.

7.Governing Law. This Amendment shall be governed by, and construed in accordance with, the internal laws of the State of New York and all applicable federal laws of the United States of America. The foregoing notwithstanding, to the extent the following defenses would be available to the Borrower under federal law, then such defenses shall be available to the Borrower in connection with this Amendment: (i) non-liability for punitive damages, (ii)

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exemption from anti-trust laws, (iii) the Borrower cannot be contractually bound by representation of an employee made without actual authority, (iv) presumption that government officials have acted in good faith and (v) limitation on the application of the doctrine of equitable estoppel to the government. For the avoidance of doubt, the Credit Agreement, as amended by this Amendment, shall continue to be governed by Section 10.15, Governing Law; Jurisdiction; Etc., and not by Section 7, Governing Law, of this Amendment.

8.No Novation. This Amendment is not intended by the parties to be, and shall not be construed to be, a novation of the Credit Agreement or an accord and satisfaction in regard thereto.

9.Costs and Expenses. The Borrower agrees to pay on demand all costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of outside counsel for the Administrative Agent with respect thereto.

10.Counterparts. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile transmission or by electronic mail in pdf form shall be as effective as delivery of a manually executed counterpart hereof.

11.Binding Nature. This Amendment shall be binding upon and inure to the benefit of the parties hereto, their respective successors, successors-in-titles, and assigns.

12.Entire Understanding. This Amendment sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto.

13.Commitment Schedule. As of the date hereof, Schedule 2.01 of the Credit Agreement is as set forth in Exhibit A attached hereto.

14.Joining New Lenders.

(a)Each Lender not party to the Credit Agreement prior to the date hereof (each, a “Joining New Lender”) that executes and delivers a signature page to this Amendment hereby consents to the matters set forth in this Amendment and agrees to be bound by the provisions of this Amendment and the Credit Agreement in its capacity as a Lender as if originally a party thereto.

(b)By executing and delivering this Amendment, each Joining New Lender: (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Amendment and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) from and after the date hereof, it shall be bound by the provisions of the Credit Agreement and the other Loan

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Documents as a Lender and, to the extent of its commitment, shall have the obligations of a Lender thereunder, (iii) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01 thereof, as applicable, and such other Loan Documents, documents and information as it has deemed appropriate, to make its own credit analysis and decision to enter into this Amendment, (iv) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Amendment, (v) it has provided to the Administrative Agent and Borrower any tax documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by it, and (vi) it has delivered to the Administrative Agent and the Borrower any other documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by such Joining New Lender; (b) agrees that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (c) appoints and authorizes the Administrative Agent to take such action on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to or otherwise conferred upon the Administrative Agent, by the terms thereof, together with such powers as are reasonably incidental thereto; and (d) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

(c)Upon (i) the execution of a counterpart of this Amendment by any Joining New Lender, the Administrative Agent, the Borrower and the other Loan Parties and (ii) the delivery to the Administrative Agent of a fully executed counterpart (including by way of telecopy or other electronic transmission) hereof, such Joining New Lender shall become a Lender under the Credit Agreement, effective as of the date hereof.

[Signature Pages To Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by its authorized representative as of the day and year first above written.

BORROWER:

TENNESSEE VALLEY AUTHORITY

By: /s/ Mary Nell Pruitt

Name: Mary Nell Pruitt

Title: Director, Treasury Management

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LENDERS:

TRUIST BANK, as successor by merger to SUNTRUST BANK, individually and as Administrative Agent

By: /s/ Eric M. Anderson

Name: Eric M. Anderson

Title: Sr. Vice President

TRUIST BANK, formerly known as BRANCH BANKING & TRUST COMPANY, as L/C Issuer and as a Lender

By: /s/ R. Andrew Beam

Name: R. Andrew Beam

Title: Senior Vice President

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FIRST NATIONAL BANK,

as a Lender

By: /s/ Jim Tompkins

Name: Jim Tompkins

Title: Vice President

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FIRST HORIZON BANK,

as a Lender

By: /s/ Tiffany E. Gardner

Name: Tiffany E. Gardner

Title: Senior Vice President

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SMARTBANK,

as a Lender

By: /s/ Andy Carey

Name: Andy Carey

Title: 1st VP & Relationship Mgr

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REGIONS BANK,

as a Lender

By: /s/ Tedrick Tarver

Name: Tedrick Tarver

Title: Director

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PINNACLE BANK,

as a Lender

By: /s/ Rob Masengill

Name: Rob Masengill

Title: Senior Vice President

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HOMETRUST BANK,

as a Lender

By: /s/ William R. Coleman III

Name: William R. Coleman III

Title: Senior Vice President

UNITED COMMUNITY BANK,

as a Lender

By: /s/ Jeff Wilson

Name: Jeff Wilson

Title: Vice President

WORKAMER\37658728.v8

SCHEDULE 2.01

COMMITMENTS AMOUNTS


Lender	Commitment, Post Amendment	Commitment Percentage, Post Amendment
Truist Bank (as successor by merger to SunTrust Bank)	$15,500,000.00	10.3%
Truist Bank (fka Branch Banking & Trust Company)	$37,500,000.00	25.0%
United Community Bank	$25,000,000.00	16.7%
Regions Bank	$20,000,000.00	13.3%
Pinnacle Bank	$20,000,000.00	13.3%
First Horizon Bank	$10,000,000.00	6.7%
SmartBank	$10,000,000.00	6.7%
HomeTrust Bank	$10,000,000.00	6.7%
First National Bank	$2,000,000.00	1.3%
Total	$150,000,000.00	100.0%

EXHIBIT 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, Jeffrey J. Lyash, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of the Tennessee Valley Authority;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:	February 11, 2021	/s/ Jeffrey J. Lyash
		Jeffrey J. Lyash
		President and Chief Executive Officer

EXHIBIT 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION

I, John M. Thomas, III, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of the Tennessee Valley Authority;

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:	February 11, 2021	/s/ John M. Thomas, III
		John M. Thomas, III
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT 32.1

CERTIFICATION FURNISHED PURSUANT TO

SECURITIES EXCHANGE ACT RULE 13a-14(b)

OR RULE 15d-14(b) AND 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of the Tennessee Valley Authority (the “Company”) for the quarter ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey J. Lyash, President and Chief Executive Officer of the Company, certify, for the purposes of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ Jeffrey J. Lyash
Jeffrey J. Lyash
President and Chief Executive Officer
February 11, 2021

EXHIBIT 32.2

CERTIFICATION FURNISHED PURSUANT TO

SECURITIES EXCHANGE ACT RULE 13a-14(b)

OR RULE 15d-14(b) AND 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of the Tennessee Valley Authority (the “Company”) for the quarter ended December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John M. Thomas, III, Executive Vice President and Chief Financial Officer of the Company, certify, for the purposes of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


/s/ John M. Thomas, III
John M. Thomas, III
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
February 11, 2021