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Fair Value Measurements (Tables)

3 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

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.

Unrealized Investments Gains (Losses)

TVA recorded unrealized gains and losses related to its trading securities held as of the end of each period as follows:

	Unrealized Investment Gains (Losses)
			For the Three Months Ended December 31
	Financial Statement Presentation		2013				2012
SERP	Other income (expense)		$	1			$	—
NDT	Regulatory asset		30				13
ART	Regulatory asset		15				4

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 as of December 31, 2013, and September 30, 2013.

Fair Value Measurements At December 31, 2013
Assets	Quoted Prices in Active  Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Netting(1)				Total
Investments
Equity securities	$	169			$	—			$	—			$	—			$	169
Debt securities
U.S. government corporations and agencies	53				64				—				—				117
Corporate debt securities	—				314				—				—				314
Residential mortgage-backed securities	—				25				—				—				25
Commercial mortgage-backed securities	—				3				—				—				3
Collateralized debt obligations	—				8				—				—				8
Private partnerships	—				—				169				—				169
Commingled funds(2)
Equity security commingled funds	—				883				—				—				883
Debt security commingled funds	—				104				—				—				104
Total investments	222				1,401				169				—				1,792
Currency swaps	—				78				—				(74		)		4
Commodity contract derivatives	—				—				4				—				4
Commodity derivatives under FTP
Swap contracts	—				70				—				(69		)		1
Total	$	222			$	1,549			$	173			$	(143	)		$	1,801
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	$	—			$	12			$	—			$	—			$	12
Interest rate swaps	—				1,060				—				—				1,060
Commodity contract derivatives	—				1				149				—				150
Commodity derivatives under FTP
Swap contracts	—				202				—				(152		)		50
Total	$	—			$	1,275			$	149			$	(152	)		$	1,272

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 FCM. Deposits are made to TVA's margin cash accounts held with each FCM to offset any net liability positions in full for derivatives that are transacted with FCMs. TVA records currency swaps net of cash collateral received from or paid to the counterparty.

(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 primarily composed of one class of security are classified in that category.

Fair Value Measurements At September 30, 2013
Assets	Quoted Prices in Active  Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Netting(1)				Total
Investments
Equity securities	$	151			$	—			$	—			$	—			$	151
Debt securities
U.S. government corporations and agencies	38				67				—				—				105
Corporate debt securities	—				255				—				—				255
Residential mortgage-backed securities	—				25				—				—				25
Commercial mortgage-backed securities	—				7				—				—				7
Collateralized debt obligations	—				10				—				—				10
Private partnerships	—				—				159				—				159
Commingled funds(2)
Equity security commingled funds	—				741				—				—				741
Debt security commingled funds	—				248				—				—				248
Total investments	189				1,353				159				—				1,701
Currency swaps	—				61				—				(33		)		28
Commodity contract derivatives	—				—				3				—				3
Commodity derivatives under FTP
Swap contracts	—				101				—				(98		)		3
Total	$	189			$	1,515			$	162			$	(131	)		$	1,735
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	$	—			$	15			$	—			$	—			$	15
Interest rate swaps	—				1,199				—				—				1,199
Commodity contract derivatives	—				1				143				—				144
Commodity derivatives under FTP
Swap contracts	—				267				—				(198		)		69
Total	$	—			$	1,482			$	143			$	(198	)		$	1,427

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 FCM. Deposits are made to TVA's margin cash accounts held with each FCM to offset any net liability positions in full for derivatives that are transacted with FCMs. TVA records currency swaps net of cash collateral received from or paid to the counterparty.

(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 primarily composed of one class of security are classified in that category.

Fair Value Measurements Using Significant Unobservable Inputs

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 December 31
	Private Partnerships				Commodity Contract Derivatives
Balance at September 30, 2012	$	53			$	(267	)
Purchases	12				—
Issuances	—				—
Sales	(1		)		—
Settlements	—				—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	2				43
Balance at December 31, 2012	$	66			$	(224	)
Balance at September 30, 2013	$	159			$	(140	)
Purchases	8				—
Issuances	—				—
Sales	(2		)		—
Settlements	—				—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	4				(5		)
Balance at December 31, 2013	$	169			$	(145	)

Quantitative Information about Level 3 Fair Value Measurements

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 December 31, 2013				Valuation Technique(s)		Unobservable Inputs		Range
Assets
Commodity contract derivatives	$	4			Discounted cash flow		Credit risk		18	%	*
					Pricing model		Coal supply and demand		.9 - 1.0 billion tons/year
							Long-term market prices		$11.90 - $85.25/ton
Liabilities
Commodity contract derivatives	$	149			Pricing model		Coal supply and demand		.9 - 1.0 billion tons/year
							Long-term market prices		$11.90 - $85.25/ton

* Applies to only one contract.

Estimated Values of Financial Instruments Not Recorded at Fair Value

The estimated values of TVA's financial instruments not recorded at fair value at December 31, 2013, and September 30, 2013, were as follows:

Estimated Values of Financial Instruments Not Recorded at Fair Value
			At December 31, 2013								At September 30, 2013
	Valuation Classification		Carrying Amount				Fair Value				Carrying Amount				Fair Value
EnergyRight® receivables (including current portion)	Level 2		$	151			$	151			$	150			$	150
Loans and other long-term receivables, net	Level 2		$	79			$	71			$	73			$	67
EnergyRight® purchase obligation (including current portion)	Level 2		$	186			$	205			$	186			$	210
Membership interest of variable interest entity subject to mandatory redemption (including current portion)	Level 2		$	40			$	50			$	40			$	50
Long-term outstanding power bonds (including current maturities), net	Level 2		$	22,364			$	22,983			$	22,347			$	24,603
Long-term debt of variable interest entities (including current maturities)	Level 2		$	1,341			$	1,381			$	1,341			$	1,386

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The tabular disclosure of the estimated values of financial instruments not recorded at fair value. This disclosure includes the class of financial instrument, valuation classification, carrying amount, and fair value.

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Tabular disclosure of assets and liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

+ References

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-Topic 820

-SubTopic 10

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