Fair Value Measurements (Tables)

9 Months Ended

Jun. 30, 2014

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 June 30					For the Nine Months Ended June 30
	Financial Statement Presentation	2014		2013			2014		2013

SERP	Other income (expense)	$	1	$	(1	)	$	2	$	—
NDT	Regulatory asset	36		(42		)	72		16
ART	Regulatory asset	9		(6		)	27		16

Fair Value Measurements



Fair Value Measurements At June 30, 2014
Assets	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total

Investments
Equity securities	$	177	$	—	$	—	$	177
Debt securities
U.S. government corporations and agencies	58		42		—		100
Corporate debt securities	—		313		—		313
Residential mortgage-backed securities	—		13		—		13
Commercial mortgage-backed securities	—		7		—		7
Collateralized debt obligations	—		26		—		26
Private partnerships	—		—		188		188
Commingled funds⁽²⁾
Equity security commingled funds	—		931		—		931
Debt security commingled funds	—		147		—		147
Total investments	235		1,479		188		1,902
Currency swaps	—		15		—		15
Commodity contract derivatives	—		—		5		5
Commodity derivatives under FTP
Swap contracts	—		1		—		1

Total	$	235	$	1,495	$	193	$	1,923

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

Currency swaps	$	—	$	2	$	—	2
Interest rate swaps	—		1,289		—		1,289
Commodity contract derivatives	—		4		151		155
Commodity derivatives under FTP
Swap contracts	—		34		—		34

Total	$	—	$	1,329	$	151	$	1,480

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. See Note 14 — Offsetting of Derivative Assets and Liabilities.

(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)⁽¹⁾		Significant Unobservable Inputs (Level 3)		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	—		28		—		28
Commodity contract derivatives	—		—		3		3
Commodity derivatives under FTP
Swap contracts	—		3		—		3

Total	$	189	$	1,384	$	162	$	1,735

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

Currency swaps	$	—	$	15	$	—	15
Interest rate swaps	—		1,199		—		1,199
Commodity contract derivatives	—		1		143		144
Commodity derivatives under FTP
Swap contracts	—		69		—		69

Total	$	—	$	1,284	$	143	$	1,427

Notes

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 June 30, 2014, and September 30, 2013.

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 June 30						For the Nine Months Ended June 30
	Private Partnerships			Commodity Contract Derivatives			Private Partnerships			Commodity Contract Derivatives
Balance at beginning of period	$	137		$	(148	)	$	53		$	(267	)
Purchases	9			—			93			—
Issuances	—			—			—			—
Sales	(1		)	—			(3		)	—
Settlements	—			—			—			—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	5			39			7			158
Balance at June 30, 2013	$	150		$	(109	)	$	150		$	(109	)

Balance at beginning of period	$	180		$	(131	)	$	159		$	(140	)
Purchases	7			—			23			—
Issuances	—			—			—			—
Sales	(6		)	—			(7		)	—
Settlements	—			—			—			—
Net unrealized gains (losses) deferred as regulatory assets and liabilities	7			(15		)	13			(6		)
Balance at June 30, 2014	$	188		$	(146	)	$	188		$	(146	)

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 June 30, 2014		Valuation Technique(s)	Unobservable Inputs	Range

Assets
Commodity contract derivatives	$	5	Discounted cash flow	Credit risk	26	%	*

			Pricing model	Coal supply and demand	0.9 - 1.1 billion tons/year
				Long-term market prices	$12.00 - $67.07/ton
Liabilities
Commodity contract derivatives	$	151	Pricing model	Coal supply and demand	0.9 - 1.1 billion tons/year
				Long-term market prices	$12.00 - $67.07/ton

* Applies to only one contract.

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 June 30, 2014, and September 30, 2013, were as follows:



Estimated Values of Financial Instruments Not Recorded at Fair Value
		At June 30, 2014				At September 30, 2013
	Valuation Classification	Carrying Amount		Fair Value		Carrying Amount		Fair Value
EnergyRight^®receivables (including current portion)	Level 2	$	152	$	152	$	150	$	150

Loans and other long-term receivables, net	Level 2	$	105	$	96	$	73	$	67

EnergyRight^®purchase obligation (including current portion)	Level 2	$	187	$	204	$	186	$	210

Membership interest of variable interest entity subject to mandatory redemption (including current portion)	Level 2	$	39	$	50	$	40	$	50

Long-term outstanding power bonds (including current maturities), net	Level 2	$	22,044	$	25,603	$	22,347	$	24,603

Long-term debt of variable interest entities (including current maturities)	Level 2	$	1,326	$	1,441	$	1,341	$	1,386