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Fair Value Measurements (Tables)

6 Months Ended

Mar. 31, 2015

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 March 31								For the Six Months Ended March 31
	Financial Statement Presentation		2015				2014				2015				2014
SERP	Other income (expense)		$	1			$	—			$	—			$	1
LTDCP	Other income (expense)		—				—				(1		)		—
NDT	Regulatory asset		11				6				34				36
ART	Regulatory asset		9				2				15				18

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 March 31, 2015, and September 30, 2014.

Fair Value Measurements At March 31, 2015
	Quoted Prices in Active  Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Assets
Investments
Equity securities	$	189			$	—			$	—			$	189
Debt securities
U.S. government corporations and agencies	79				9				—				88
Corporate debt securities	—				291				—				291
Residential mortgage-backed securities	—				14				—				14
Commercial mortgage-backed securities	—				6				—				6
Collateralized debt obligations	—				30				—				30
Private partnerships	—				—				223				223
Commingled funds(1)
Equity security commingled funds	44				944				—				988
Debt security commingled funds	44				198				—				242
Total investments	356				1,492				223				2,071
Currency swaps(2)	—				24				—				24
Commodity contract derivatives	—				—				5				5
Commodity derivatives under FTP(2)
Swap contracts	—				—				—				—
Total	$	356			$	1,516			$	228			$	2,100
	Quoted Prices in Active Markets for Identical Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Liabilities
Currency swaps(2)	$	—			$	52			$	—			$	52
Interest rate swaps	—				1,697				—				1,697
Commodity contract derivatives	—				—				154				154
Commodity derivatives under FTP(2)
Swap contracts	—				46				—				46
Total	$	—			$	1,795			$	154			$	1,949

Notes

(1) 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.

(2)  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, to the extent such amount is not recorded in Accounts payable and accrued liabilities. See Note 14 — Offsetting of Derivative Assets and Liabilities.

Fair Value Measurements At September 30, 2014
	Quoted Prices in Active  Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Assets
Investments
Equity securities	$	162			$	—			$	—			$	162
Debt securities
U.S. government corporations and agencies	46				39				—				85
Corporate debt securities	—				290				—				290
Residential mortgage-backed securities	—				14				—				14
Commercial mortgage-backed securities	—				7				—				7
Collateralized debt obligations	—				29				—				29
Private partnerships	—				—				214				214
Commingled funds(1)
Equity security commingled funds	40				903				—				943
Debt security commingled funds	61				176				—				237
Total investments	309				1,458				214				1,981
Currency swaps(2)	—				—				—				—
Commodity contract derivatives	—				—				1				1
Commodity derivatives under FTP(2)
Swap contracts	—				—				—				—
Total	$	309			$	1,458			$	215			$	1,982
	Quoted Prices in Active Markets for Identical Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Total
Liabilities
Currency swaps(2)	$	—			$	15			$	—			$	15
Interest rate swaps	—				1,348				—				1,348
Commodity contract derivatives	—				—				97				97
Commodity derivatives under FTP(2)
Swap contracts	—				34				—				34
Total	$	—			$	1,397			$	97			$	1,494

Notes

(1) 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.

(2)  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. See Note 14 — Offsetting of Derivative Assets and Liabilities.

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 March 31								For the Six Months Ended March 31
	Private Partnerships				Commodity Contract Derivatives				Private Partnerships				Commodity Contract Derivatives
Balance at beginning of period	$	169			$	(145	)		$	159			$	(140	)
Purchases	6				—				14				—
Issuances	—				—				—				—
Sales	(2		)		—				(5		)		—
Settlements	—				—				—				—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	7				14				12				9
Balance at March 31, 2014	$	180			$	(131	)		$	180			$	(131	)
Balance at beginning of period	$	220			$	(133	)		$	214			$	(96	)
Purchases	4				—				10				—
Issuances	—				—				—				—
Sales	(3		)		—				(7		)		—
Settlements	—				—				—				—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	2				(16		)		6				(53		)
Balance at March 31, 2015	$	223			$	(149	)		$	223			$	(149	)

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 March 31 2015				Valuation Technique(s)		Unobservable Inputs		Range
Assets
Commodity contract derivatives	$	5			Discounted cash flow		Credit risk		0.25	%	(1)
					Pricing model		Coal supply and demand		0.8 - 1.0 billion tons/year
							Long-term market prices		$10.74 - $103.41/ton
Liabilities
Commodity contract derivatives	$	154			Pricing model		Coal supply and demand		0.8 - 1.0 billion tons/year
							Long-term market prices		$10.74 - $103.41/ton

Note

(1) Applies to only one contract.

Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at September 30 2014				Valuation Technique(s)		Unobservable Inputs		Range
Assets
Commodity contract derivatives	$	1			Discounted cash flow		Credit risk		2 - 5 %	(1)
					Pricing model		Coal supply and demand		1.0 - 1.1 billion tons/year
							Long-term market prices		$11.24 - $67.07/ton
Liabilities
Commodity contract derivatives	$	97			Pricing model		Coal supply and demand		1.0 - 1.1 billion tons/year
							Long-term market prices		$11.24 - $67.07/ton

Note

(1) Applies to two contracts.

Estimated Values of Financial Instruments Not Recorded at Fair Value

The estimated fair values of TVA's financial instruments not recorded at fair value at March 31, 2015, and September 30, 2014, were as follows:

Estimated Values of Financial Instruments Not Recorded at Fair Value
			At March 31, 2015								At September 30, 2014
	Valuation Classification		Carrying Amount				Fair Value				Carrying Amount				Fair Value
EnergyRight® receivables (including current portion)	Level 2		$	157			$	165			$	156			$	166
Loans and other long-term receivables, net (including current portion)	Level 2		$	121			$	110			$	92			$	81
EnergyRight® financing obligation (including current portion)	Level 2		$	189			$	213			$	190			$	215
Unfunded loan commitments	Level 2		$	—			$	—			$	—			$	18
Membership interest of variable interest entity subject to mandatory redemption (including current portion)	Level 2		$	38			$	50			$	39			$	50
Long-term outstanding power bonds (including current maturities), net	Level 2		$	22,854			$	27,697			$	22,980			$	26,889
Long-term debt of variable interest entities (including current maturities)	Level 2		$	1,296			$	1,490			$	1,311			$	1,425

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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 the fair value measurement of assets or liabilities 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 or liability.

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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).

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