Regulatory Assets and Liabilities

9 Months Ended

Jun. 30, 2011

Regulatory Assets and Liabilities [Abstract]

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 June 30, 2011		At September 30, 2010
Current regulatory assets
Deferred nuclear generating units	$	391	$	391
Unrealized losses on commodity derivatives		218		184
Environmental cleanup costs – Kingston ash spill		74		76
Fuel cost adjustment receivable		69		84
Deferred outage costs		4		42
Deferred capital lease		1		14
Total current regulatory assets		757		791

Non-current regulatory assets
Deferred pension costs		4,254		4,456
Deferred nuclear generating units		1,271		1,565
Environmental cleanup costs – Kingston ash spill		892		987
Nuclear decommissioning costs		857		898
Other non-current regulatory assets		577		499
Unrealized losses on swaps and swaptions		512		797
Non-nuclear decommissioning costs		481		410
EPA agreement		350		—
Unrealized losses related to commodity derivatives		222		144
Total non-current regulatory assets		9,416		9,756

Total regulatory assets	$	10,173	$	10,547
Current regulatory liabilities
Unrealized gains on commodity contracts	$	147	$	57
Fuel cost adjustment tax equivalents		68		—
Capital leases		—		6
Total current regulatory liabilities		215		63
Non-current regulatory liabilities
Unrealized gains on commodity contracts		261		106

Total regulatory liabilities	$	476	$	169

Preconstruction Costs. Certain preliminary work and costs associated with engineering, design, and licensing activities, as well as the procurement of long lead-time components for the partially completed Bellefonte Nuclear Plant (“Bellefonte”) Unit 1, have been deferred as a regulatory asset pending the TVA Board’s decision on the completion of the project. If the TVA Board decides to complete Bellefonte Unit 1, the costs will be moved to construction in progress and amortized over a cost recovery period equivalent to the expected useful life of the future operating nuclear unit. If the TVA Board decides not to complete the unit, the costs will be expensed at the time of the decision. The preconstruction costs were $103 million as of June 30, 2011, and are included in other non-current regulatory assets. At September 30, 2010, no such preconstruction asset had been established.

Environmental Agreement. In conjunction with the agreements with the Environmental Protection Agency (“EPA”) and others (see Note 16 — EPA Settlement), TVA recorded certain liabilities totaling $360 million ($290 million investment in energy efficiency projects, demand response projects, renewable energy projects, and other TVA projects; $60 million to be provided to Alabama, Kentucky, North Carolina, and Tennessee to fund environmental projects [with preference for projects in the TVA watershed]; and $10 million in civil penalties). The TVA Board determined that these costs would be collected in customer rates in the future and, accordingly, the amounts were deferred as a regulatory asset. During the three months ended June 30, 2011, the civil penalties of $10 million were expensed, and they were subsequently paid in July 2011. The remaining amounts will be charged to expense and recovered in rates over future periods as payments are made.