Proprietary Capital

Appropriation Investment

TVA’s power program and stewardship (nonpower) programs were originally funded primarily by appropriations from Congress. In 1959, Congress passed an amendment to the TVA Act that required TVA’s power program to be self-financing from power revenues and proceeds from power program financings. While TVA’s power program did not directly receive appropriated funds after it became self-financing, TVA continued to receive appropriations for certain multipurpose and other nonpower mission-related activities as well as for its stewardship activities. TVA has not received any appropriations from Congress for any activities since 1999, and since that time, TVA has funded stewardship program activities primarily with power revenues.

The 1959 amendment to the TVA Act also required TVA, beginning in 1961, to make annual payments to the U.S. Treasury from net power proceeds as a repayment of and as a return on the Power Program Appropriation Investment until an additional $1.0 billion of the Power Program Appropriation Investment has been repaid. Of this $1.0 billion amount, $50 million remained unpaid at September 30, 2011. Once the $1.0 billion has been repaid, the TVA Act requires TVA to continue making payments to the U.S. Treasury as a return on the remaining Power Program Appropriation Investment. The remaining Power Program Appropriation Investment will be $258 million if TVA receives no additional appropriations from Congress for its power program.

The table below summarizes TVA's activities related to appropriated funds.



Summary of Proprietary Capital Activity At September 30
	2011						2010
Appropriation Investment	Power Program			Nonpower Programs			Power Program			Nonpower Programs
Balance at beginning of year	$	328		$	4,351		$	348		$	4,355
Return of power program appropriation investment	(20		)	—			(20		)	(4		)
Balance at end of year	308			4,351			328			4,351
Retained Earnings
Balance at beginning of year	4,264			(3,711		)	3,291			(3,701		)
Net income (expense) for year	172			(10		)	982			(10		)
Return on power program appropriation investment	(7		)	—			(9		)	—
Balance at end of year	4,429			(3,721		)	4,264			(3,711		)
Net proprietary capital at September 30	$	4,737		$	630		$	4,592		$	640

Payments to the U.S. Treasury

TVA paid $20 million each year for 2011, 2010, and 2009 as a repayment of the Power Program Appropriation Investment. In addition, TVA paid the U.S. Treasury $7 million in 2011, $9 million in 2010, and $13 million in 2009 as a return on the Power Program Appropriation Investment. The amount of the return on the Power Program Appropriation Investment is based on the Power Program Appropriation Investment balance at the beginning of that year and the computed average interest rate payable by the U.S. Treasury on its total marketable public obligations at the same date. The interest rates payable by TVA on the Power Program Appropriation Investment were 2.40 percent, 2.58 percent, and 3.67 percent for 2011, 2010, and 2009, respectively.

Accumulated Other Comprehensive Income (Loss)

The items included in Accumulated other comprehensive income (loss) consist of market valuation adjustments for certain derivative instruments. See Note 14.



Accumulated Other Comprehensive Income (Loss) Activity For the years ended September 30
Accumulated other comprehensive loss, September 30, 2008	$	(37	)
Changes in fair value
Foreign currency swaps	(38		)
Accumulated other comprehensive loss, September 30, 2009	(75		)
Changes in fair value
Foreign currency swaps	(20		)
Accumulated other comprehensive loss, September 30, 2010	(95		)
Changes in fair value
Foreign currency swaps	(43		)
Accumulated other comprehensive loss, September 30, 2011	$	(138	)
Note Foreign currency swap changes are shown net of reclassifications from Other comprehensive income (loss) to earnings.

TVA records exchange rate gains and losses on debt in net income and marks its currency swap assets and liabilities to market through other comprehensive income. TVA then reclassifies an amount out of other comprehensive income into earnings, offsetting the earnings gain/loss from recording the exchange gain/loss on the debt. The amounts reclassified from other comprehensive income into earnings were a decrease to earnings of $7 million in 2011, a decrease to earnings of $17 million in 2010, and a decrease to earnings of $108 million in 2009. These reclassifications, coupled with the recording of the exchange gain/loss on the debt, resulted in a net effect on earnings of zero for 2011, 2010, and 2009. Due to the number of variables affecting the future gains/losses on these instruments, TVA is unable to reasonably estimate the amount to be reclassified from other comprehensive income to earnings in future years.

Unrealized Losses on Swap/Swaption Contracts

TVA uses regulatory accounting treatment to defer the unrealized mark-to-market gains and losses on certain swap and swaption contracts to reflect that the gain or loss is included in the ratemaking formula when these transactions actually settle. The value of the swaps and swaption is still recorded on TVA’s balance sheet with realized gains or losses on these contracts recorded in TVA's statement of operations. The deferred unrealized losses on the value of the swaps and swaption were $365 million for 2011 and $299 million for 2010, and are included as a Regulatory asset on TVA’s balance sheets. See Note 7 — Unrealized Losses on Swaps and Swaption.