Risk Management Activities and Derivative Transactions (Tables)

6 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of Derivative Instruments That Receive Hedge Accounting Treatment

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 OCI
			Three Months Ended March 31					Six Months Ended March 31
Derivatives in Cash Flow Hedging Relationship	Objective of Hedge Transaction	Accounting for Derivative Hedging Instrument	2015			2014		2015			2014
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	$	(59	)	$	2	$	(74	)	$	22



Summary of Derivative Instruments That Receive Hedge Accounting Treatment (part 2) Amount of Gain (Loss) Reclassified from OCI to Interest Expense
	Three Months Ended March 31					Six Months Ended March 31
Derivatives in Cash Flow Hedging Relationship	2015			2014		2015			2014
Currency swaps	$	(46	)	$	7	$	(84	)	$	29

Note

There were no ineffective portions or amounts excluded from effectiveness testing for any of the periods presented. Based on forecasted foreign currency exchange rates, TVA expects to reclassify approximately $49 million of losses from AOCI to interest expense within the next twelve 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



Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment Amount of Gain (Loss) Recognized in Income on Derivatives
			Three Months Ended March 31⁽¹⁾						Six Months Ended March 31⁽¹⁾
Derivative Type	Objective of Derivative	Accounting for Derivative Instrument	2015			2014			2015			2014
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 until settlement, at which time the gains/losses are recognized in gain/loss on derivative contracts. ⁽²⁾	$	—		$	—		$	—		$	—

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.	—			—			—			—

Commodity derivatives under financial trading program ("FTP")	To protect against fluctuations in market prices of purchased commodities (price risk)	Mark-to-market gains and losses are recorded as regulatory assets or liabilities. Realized gains and losses are recognized in fuel expense or purchased power expense when the related commodity is used in production.	(26		)	(4		)	(39		)	(24		)

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 was no related gain (loss) recognized in income for these unrealized gains (losses) for the three and six months ended March 31, 2015 and 2014.

(2) Generally, TVA maintains a level of outstanding discount notes equal to or greater than the notional amount of the interest rate swaps. However, in September 2014, TVA issued long-term Bonds in anticipation of the maturity of other long-term debt, and used the proceeds to pay down discount notes, which caused the balance of discount notes outstanding at March 31, 2015, to fall below the notional amount of the interest rate swaps. There is no impact on the consolidated statements of operations due to the use of regulatory accounting for these items.

Mark-to-Market Values of TVA Derivatives



Fair Values of TVA Derivatives
	At March 31, 2015				At September 30, 2014
Derivatives that Receive Hedge Accounting Treatment
	Balance			Balance Sheet Presentation	Balance			Balance Sheet Presentation
Currency swaps
£200 million Sterling	$	(43	)	Other long-term liabilities	$	(15	)	Other long-term liabilities
£250 million Sterling	27			Other long-term assets	56			Other long-term assets
£150 million Sterling	(9		)	Other long-term liabilities	8			Other long-term assets

Derivatives that Do Not Receive Hedge Accounting Treatment
	Balance			Balance Sheet Presentation	Balance			Balance Sheet Presentation
Interest rate swaps
$1.0 billion notional	(1,225		)	Other long-term liabilities	(987		)	Other long-term liabilities
$476 million notional	(460		)	Other long-term liabilities	(349		)	Other long-term liabilities
$42 million notional	(12		)	Other long-term liabilities	(12		)	Other long-term liabilities
Commodity contract derivatives	(149		)	Other current assets $4; Other long-term assets $1; Other long-term liabilities $(41); Accounts payable and accrued liabilities $(113)	(96		)	Other current assets $1; Other long-term liabilities $(17); Accounts payable and accrued liabilities $(80)
FTP
Derivatives under FTP⁽¹⁾	(157		)	Other current assets $(112); Other long-term liabilities $(14); Accounts payable and accrued liabilities $(31)	(103		)	Other current assets $(69); Other long-term liabilities $(14); Accounts payable and accrued liabilities $(20)

Note

(1) Fair values of certain derivatives under the FTP that were in net liability positions totaling $112 million and $69 million at March 31, 2015 and September 30, 2014, respectively, are recorded in TVA's margin cash accounts in Other current assets. These derivatives are transacted with futures commission merchants, and cash deposits have been posted to the margin cash accounts held with each futures commission merchant to offset the net liability positions in full.

Currency Swaps Outstanding

TVA had the following currency swaps outstanding as of March 31, 2015:



Currency Swaps Outstanding At March 31, 2015
Effective Date of Currency Swap Contract	Associated TVA Bond Issues Currency Exposure	Expiration Date of Swap	Overall Effective Cost to TVA
1999	£200 million	2021	5.81%
2001	£250 million	2032	6.59%
2003	£150 million	2043	4.96%

Commodity Contract Derivatives



Commodity Contract Derivatives
	At March 31, 2015					At September 30, 2014
	Number of Contracts	Notional Amount	Fair Value (MtM)			Number of Contracts	Notional Amount	Fair Value (MtM)
Coal contract derivatives	18	27 million tons	$	(154	)	24	31 million tons	$	(86	)
Natural gas contract derivatives	33	114 million mmBtu	$	5		46	62 million mmBtu	$	(10	)

Derivatives Under Financial Trading Program



Derivatives Under Financial Trading Program
	At March 31, 2015				At September 30, 2014
	Notional Amount	Fair Value (MtM) (in millions)			Notional Amount	Fair Value (MtM) (in millions)
Natural gas (in mmBtu)
Swap contracts	76,175,000	$	(157	)	102,227,500	$	(103	)

Note

Fair value amounts presented are based on the net commodity position with the counterparty. Notional amounts disclosed represent the net absolute value of contractual amounts.

Financial Trading Program Unrealized Gains (Losses)



Financial Trading Program Unrealized Gains (Losses)
	At March 31, 2015			At September 30, 2014
FTP unrealized gains (losses) deferred as regulatory liabilities (assets)
Natural gas	$	(157	)	$	(103	)

Financial Trading Program Realized Gains (Losses)



Financial Trading Program Realized Gains (Losses)
	For the Three Months Ended March 31						For the Six Months Ended March 31
	2015			2014			2015			2014
Decrease (increase) in fuel expense
Natural gas	$	(21	)	$	(3	)	$	(32	)	$	(18	)
Fuel oil/crude oil	—			—			1			1



Financial Trading Program Realized Gains (Losses)
	For the Three Months Ended March 31						For the Six Months Ended March 31
	2015			2014			2015			2014
Decrease (increase) in purchased power expense
Natural gas	$	(5	)	$	(1	)	$	(8	)	$	(7	)

Offsetting of Derivative Assets and Liabilities

The amounts of TVA's derivative instruments as reported in the Consolidated Balance Sheets as of March 31, 2015, and September 30, 2014, are shown in the table below:



	As of March 31, 2015
	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Balance Sheet ⁽¹⁾			Net Amounts of Assets/Liabilities Presented in the Balance Sheet ⁽²⁾
Assets
Currency swap⁽³⁾	$	27	$	(3	)	$	24
Commodity derivatives under FTP	72		(72		)	—
Total derivatives subject to master netting or similar arrangement	99		(75		)	24
Total derivatives not subject to master netting or similar arrangement	5		—			5

Total	$	104	$	(75	)	$	29

Liabilities
Currency swaps ⁽⁴⁾	$	52	$	—		$	52
Interest rate swaps ⁽⁴⁾	1,697		—			1,697
Commodity derivatives under FTP	230		(184		)	46
Total derivatives subject to master netting or similar arrangement	1,979		(184		)	1,795
Total derivatives not subject to master netting or similar arrangement	154		—			154

Total	$	2,133	$	(184	)	$	1,949

	As of September 30, 2014
	Gross Amounts of Recognized Assets/Liabilities		Gross Amounts Offset in the Balance Sheet ⁽¹⁾			Net Amounts of Assets/Liabilities Presented in the Balance Sheet ⁽²⁾
Assets
Currency swaps	$	64	$	(64	)	$	—
Commodity derivatives under FTP	51		(51		)	—
Total derivatives subject to master netting or similar arrangement	115		(115		)	—
Total derivatives not subject to master netting or similar arrangement	1		—			1

Total	$	116	$	(115	)	$	1

Liabilities
Currency swap ⁽⁴⁾	$	15	$	—		$	15
Interest rate swaps ⁽⁴⁾	1,348		—			1,348
Commodity derivatives under FTP	154		(120		)	34
Total derivatives subject to master netting or similar arrangement	1,517		(120		)	1,397
Total derivatives not subject to master netting or similar arrangement	97		—			97

Total	$	1,614	$	(120	)	$	1,494

Notes

(1) 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.

(2) There are no derivative contracts subject to a master netting arrangement or similar agreement which are not offset in the Consolidated Balance Sheets.

(3) At March 31, 2015, securities of approximately $14 million were posted by a counterparty on TVA's behalf to partially secure the asset position of one of the currency swaps in accordance with the collateral requirements for these derivatives.

(4) Letters of credit of approximately $1.2 billion and $1.0 billion were posted as collateral at March 31, 2015 and September 30, 2014, 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.