Fair Value Measurements (Tables)

9 Months Ended

Jun. 30, 2012

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.

Unrealized Investments Gains (Losses)



	Unrealized Investment Gains (Losses)
		For the Three Months Ended June 30						For the Nine Months Ended June 30
	Financial Statement Presentation	2012			2011			2012		2011

SERP	Other income (expense)	$	(1	)	$	—		$	2	$	4
NDT	Regulatory asset	(21		)	(8		)	97		34
ART	Regulatory asset	(8		)	(1		)	17		(1		)

Fair Value Measurements



Fair Value Measurements At June 30, 2012
Assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting⁽¹⁾			Total

Investments
Equity securities	$	174	$	—	$	—	$	—		$	174
Debt securities
U.S. government corporations and agencies	40		132		—		—			172
Corporate debt securities	—		173		—		—			173
Residential mortgage-backed securities	—		18		—		—			18
Commercial mortgage-backed securities	—		5		—		—			5
Collateralized debt obligations	—		12		—		—			12
Private partnerships	—		—		45		—			45
Commingled funds⁽²⁾
Equity security commingled funds	—		623		—		—			623
Debt security commingled funds	—		122		—		—			122
Other commingled funds	—		—		—		—			—
Total investments	214		1,085		45		—			1,344
Commodity contract derivatives	—		—		121		—			121
Commodity derivatives under FTP
Swap contracts	—		166		—		(162		)	4
Total commodity derivatives under FTP	—		166		—		(162		)	4

Total	$	214	$	1,251	$	166	$	(162	)	$	1,469

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

Currency swaps	$	—	$	104	$	—	$	—		$	104
Interest rate swaps	—		1,741		—		—			1,741
Commodity contract derivatives	—		—		452		—			452
Commodity derivatives under FTP
Futures contracts	—		—		—		—			—
Swap contracts	—		556		—		(162		)	394
Option contracts	1		—		—		—			1
Total commodity derivatives under FTP	1		556		—		(162		)	395

Total	$	1	$	2,401	$	452	$	(162	)	$	2,692

Notes

(1) Due to the right of setoff and method of settlement, TVA elects to record commodity derivatives under the FTP based on its net commodity position with the counterparty or broker.

(2) Commingled funds represent investment funds comprising multiple individual financial instruments and are classified in the table based on their existing investment portfolio as of the measurement date. Commingled funds exclusively composed of one class of security are classified in that category. Commingled funds comprising multiple classes of securities are classified as “other commingled funds.”



Fair Value Measurements At September 30, 2011
Assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Netting⁽¹⁾			Total

Investments
Equity securities	$	73	$	—	$	—	$	—		$	73
Debt securities
U.S. government corporations and agencies	117		79		—		—			196
Corporate debt securities	—		164		—		—			164
Residential mortgage-backed securities	—		17		—		—			17
Commercial mortgage-backed securities	—		3		—		—			3
Collateralized debt obligations	—		3		—		—			3
Private partnerships	—		—		22		—			22
Commingled funds⁽²⁾
Equity security commingled funds	—		467		—		—			467
Debt security commingled funds	—		221		—		—			221
Foreign currency commingled funds	—		—		—		—			—
Other commingled funds	—		—		—		—			—
Total investments	190		954		22		—			1,166
Commodity contract derivatives	—		—		436		—			436
Commodity derivatives under FTP
Swap contracts	—		15		—		(14		)	1
Total commodity derivatives under FTP	—		15		—		(14		)	1

Total	$	190	$	969	$	458	$	(14	)	$	1,603

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

Currency swaps	$	—	$	131	$	—	$	—		$	131
Interest rate swaps	—		463		—		—			463
Swaption	—		—		1,077		—			1,077
Commodity contract derivatives	—		—		197		—			197
Commodity derivatives under FTP
Futures contracts	4		—		—		—			4
Swap contracts	—		244		—		(14		)	230
Option contracts	1		—		—		—			1
Total commodity derivatives under FTP	5		244		—		(14		)	235

Total	$	5	$	838	$	1,274	$	(14	)	$	2,103

Notes

(1) Due to the right of setoff and method of settlement, TVA elects to record commodity derivatives under the FTP based on its net commodity position with the counterparty or broker.

Fair Value Measurements Using Significant Unobservable Inputs

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



Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at June 30, 2012		Valuation Technique(s)	Unobservable Inputs	Range

Assets
Commodity contract derivatives	$	121	Discounted cash flow	Credit risk	28.6	%

			Pricing model	Coal supply and demand	1.0 - 1.1 billion tons/year
				Long-term market prices	$13.50 - $93.00/ton
Liabilities
Commodity contract derivatives	452		Pricing model	Coal supply and demand	1.0 - 1.1 billion tons/year
				Long-term market prices	$13.50 - $93.00/ton

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



Fair Value Measurements Using Significant Unobservable Inputs
	For the Three Months Ended June 30								For the Nine Months Ended June 30
	Private Partnerships		Commodity Contract Derivatives			Swaption			Private Partnerships			Commodity Contract Derivatives			Swaption
Balances at beginning of period	$	14	$	73		$	(554	)	$	13		$	103		$	(804	)
Purchases	4		—			—			13			—			—
Issuances	—		—			—			—			—			—
Sales	—		—			—			—			—			—
Settlements	—		—			—			(7		)	—			—
Total gains or losses (realized or unrealized)
Net unrealized gains (losses) deferred as regulatory assets and liabilities	—		51			(75		)	(1		)	21			175
Balances at June 30, 2011	$	18	$	124		$	(629	)	$	18		$	124		$	(629	)

Balances at beginning of period	$	36	$	(311	)	$	(993	)	$	22		$	239		$	(1,077	)
Purchases	9		—			—			21			—			—
Issuances	—		—			—			—			—			—
Sales	—		—			—			(2		)	—			—
Settlements⁽¹⁾	—		—			993			—			—			1,077
Net realized (gains) losses recognized in income	—		—			—			—			—			—
Net unrealized gains (losses) recognized in OCI	—		—			—			—			—			—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	—		(20		)	—			4			(570		)	—
Balances at June 30, 2012	$	45	$	(331	)	$	—		$	45		$	(331	)	$	—

Note

(1) The swaption was converted to an interest rate swap in April 2012. See Note 13.

Estimated Values of Financial Instruments Not Recorded at Fair Value

The estimated values of TVA's financial instruments not recorded at fair value at June 30, 2012, and September 30, 2011, were as follows:



Estimated Values of Financial Instruments Not Recorded at Fair Value
		At June 30, 2012				At September 30, 2011
	Valuation Classification	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Loans and other long-term receivables, net	Level 2	$	200	$	195	$	74	$	68

Long-term outstanding power bonds (including current maturities), net	Level 2	21,584		27,078		23,949		29,190

Long-term debt of variable interest entities (including current maturities)	Level 2	1,000		1,124		—		—

- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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