Tennessee Valley Authority

Results of Operations

Sales of Electricity

Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 40,636 million and 37,653 million kilowatt hours ("kWh") for the three months ended March 31, 2024 and the three months ended March 31, 2023, respectively. Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 77,971 million and 75,659 million kWh for the six months ended March 31, 2024 and the six months ended March 31, 2023, respectively. The total sales of electricity of 77,971 million kWh include 137 million kWh of pre-commercial generation at Paradise CTs 5-7, all of which was recognized in the three months ended December 31, 2023. TVA sells power at wholesale rates to local power company customers ("LPCs") that then resell the power to their customers at retail rates. TVA also sells power to directly served customers, consisting primarily of federal agencies and customers with large or nonstandard loads. In addition, power exceeding TVA's system needs is sold under exchange power arrangements with certain other power systems.

The following charts compare TVA's sales of electricity by customer type for the periods indicated:

The following charts show a breakdown of TVA's energy load:

Note

Information included in the charts above was derived from energy usage of directly served customers and customers served by LPCs during calendar

year ("CY") 2023, and these graphs will continue to be updated on a CY basis.

Weather affects both the demand for TVA power and the price for that power. TVA uses degree days to measure the impact of weather on its power operations. Degree days measure the extent to which the TVA system 23-station average temperatures vary from 65 degrees Fahrenheit.

Sales of electricity increased eight percent for the three months ended March 31, 2024, as compared to the same period of the prior year. The increased sales volume for LPCs was primarily driven by an increase in heating degree days of 20 percent. On January 17, 2024, TVA reached an all-time record high peak power demand of approximately 34,577 MW. On January 21, 2024, TVA reached a second highest all-time record high peak power demand of approximately 34,284 MW. For the remainder of the three-month period, TVA experienced overall milder weather, although the heating degree days were closer to normal than the prior year three-month period. For industries directly served, sales of electricity increased primarily within the data processing, hosting, and related services sector due to business-specific factors.

Sales of electricity increased three percent for the six months ended March 31, 2024, as compared to the same period of the prior year. The increased sales volume for LPCs was primarily driven by an increase in heating degree days of four percent. TVA's peak power demand in January 2024 was over 1,100 MW greater than TVA's peak power demand in December 2022. For the remainder of the six-month period, TVA experienced overall milder weather, although the heating degree days were closer to normal than the prior year six-month period. For industries directly served, sales of electricity increased primarily within the data processing, hosting, and related services sector due to business-specific factors.

Financial Results

The following table compares operating results for the three and six months ended March 31, 2024 and 2023:

Operating Revenues. Operating revenues for the three months ended March 31, 2024 and the three months ended March 31, 2023, were $3.2 billion and $3.0 billion, respectively. Operating revenues for the six months ended March 31, 2024 and the six months ended March 31, 2023, were $5.9 billion and $6.0 billion, respectively. The following table compares TVA's operating revenues for the periods indicated:

Note

TVA's two largest LPCs — Memphis Light, Gas and Water Division ("MLGW") and Nashville Electric Service ("NES") — have contracts with a five-year and a 20-year termination notice period, respectively. Sales to MLGW and NES accounted for seven percent and eight percent, respectively, for the six months ended March 31, 2024. Sales to MLGW and NES each accounted for eight percent of TVA's total operating revenues for the six months ended March 31, 2023.

TVA's rate structure uses pricing signals to indicate seasons and hours of higher cost to serve its customers and to capture a portion of TVA's fixed costs in fixed charges. The structure includes three base revenue components: time of use demand charges, time of use energy charges, and a grid access charge ("GAC"). The demand charges are based upon the customer's peak monthly usage. The energy charges are based on time differentiated kWh used by the customer. Both of these components can be significantly impacted by weather. The GAC captures a portion of fixed costs and is offset by a corresponding reduction to the energy rates. The GAC also reduces the impact of weather variability to the overall rate structure.

TVA has a Partnership Agreement option that better aligns the length of LPC power contracts with TVA's long-term commitments. Under the partnership arrangement, the LPC power contracts automatically renew each year and have a 20-year termination notice. The partnership arrangements can be terminated under certain circumstances, including TVA's failure to limit rate increases as provided for in the agreements going forward. Participating LPCs receive benefits including a 3.1 percent wholesale bill credit in exchange for their long-term commitment, which enables TVA to recover its long-term financial commitments over a commensurate period. As of March 31, 2024, 147 LPCs had signed the 20-year Partnership Agreement with TVA.

In addition to base revenues, the rate structure includes a separate fuel rate that includes the costs of natural gas, fuel oil, purchased power, coal, emission allowances, nuclear fuel, and other fuel-related commodities; realized gains and losses on derivatives purchased to hedge the costs of such commodities; and payments to states and counties in lieu of taxes ("tax equivalents") associated with the fuel cost adjustments.

TVA is required to charge rates for power that will produce gross revenues sufficient to cover various costs as discussed in Part I, Item I, Business —Rates of the Annual Report. In August 2023, the TVA Board approved a 4.5 percent wholesale base rate increase (excluding fuel) effective October 1, 2023 primarily due to additional capacity needs and rising costs. This rate adjustment is estimated to produce an additional $405 million of revenue during 2024.

The changes in revenue components are summarized below:

Notes

(2) The pandemic credits ended September 30, 2023.

(3) Includes economic development credits to promote growth in the Tennessee Valley, hydro preference credits for residential customers of LPCs, and demand response credits allowing TVA to reduce industrial customer usage in periods of peak demand to balance system demand. See Note 15 —Revenue.

Operating revenues increased $195 million for the three months ended March 31, 2024, as compared to the same period of the prior year, primarily due to a $309 million increase in base revenue. The $309 million increase in base revenue was driven by a $172 million increase attributable to higher sales volume and a $137 million increase attributable to higher effective base rates. The higher sales volume was primarily due to an increase in heating degree days of twenty percent. The increase in effective base rates was primarily due to the TVA Board action to approve a 4.5 percent wholesale base rate increase beginning in 2024 and the pandemic credits ending on September 30, 2023. Partially offsetting the increase in base revenue was a $139 million decrease in fuel cost recovery revenue. The $139 million decrease in fuel cost recovery revenue was driven by a $227 million decrease attributable to lower fuel rates partially offset by an $88 million increase attributable to higher sales volume. The lower fuel rates were primarily due to lower coal and natural gas prices.

Operating revenues decreased $55 million for the six months ended March 31, 2024, as compared to the same period the prior year, primarily due to a $437 million decrease in fuel cost recovery revenue. The $437 million decrease in fuel cost recovery revenue was driven by a $503 million decrease attributable to lower fuel rates partially offset by a $66 million increase attributable to higher sales volume. The lower fuel rates were primarily due to lower coal, natural gas, and purchased power prices. The higher sales volume was primarily due to an increase in heating degree days of four percent. Partially offsetting the decrease in fuel cost recovery revenue was a $377 million increase in base revenue. The $377 million increase in base revenue was driven by a $315 million increase attributable to higher effective base rates and a $62 million increase attributable to higher sales volume. The increase in effective base rates was primarily due to the TVA Board action to approve a 4.5 percent wholesale base rate increase beginning in 2024 and the pandemic credits ending on September 30, 2023.

See Sales of Electricity above for further discussion of the change in the volume of sales of electricity and Operating Expenses below for further discussion of the change in fuel expense.

Operating Expenses. Operating expense components as a percentage of total operating expenses for the three and six months ended March 31, 2024 and March 31, 2023, consisted of the following:

Three Months Ended March 31, 2024, Compared to Three Months Ended March 31, 2023

Fuel expense decreased $59 million for the three months ended March 31, 2024, as compared to the same period of the prior year. This decrease was primarily due to a decrease in effective fuel rates due to lower coal and natural gas prices, resulting in a $72 million decrease in fuel expense. Additionally, fuel expense decreased $24 million due to recovery of deferred fuel costs associated with Winter Storm Elliott during the same period of the prior year. Partially offsetting this decrease was a $37 million increase in fuel expense due to higher coal and natural gas volume primarily due to unseasonably cold temperatures during January 2024.

Purchased power expense decreased $21 million for the three months ended March 31, 2024, as compared to the same period of the prior year. This decrease was primarily due to recovery of $125 million of deferred purchased power costs associated with Winter Storm Elliott during the same period of the prior year. Partially offsetting this decrease was an increase of $61 million due to higher demand for energy and an increase of $43 million in purchased power expense from higher purchased power market prices, both due to unseasonably cold temperatures in January 2024.

Operating and maintenance expense increased $66 million for the three months ended March 31, 2024, as compared to the same period of the prior year. This increase was primarily due to $36 million of increased payroll and benefit costs primarily due to labor escalation for cost of living increases and additional headcount to support operational needs and $16 million of increased contract labor costs primarily related to power operations performance improvement activities and other natural gas project work, strategic project work, and TVA's New Nuclear Program. Partially offsetting these increases was a $13 million decrease in outage expense primarily due to the scope and timing of coal outages during the three months ended March 31, 2024, as compared to the same period of the prior year.

Depreciation and amortization expense decreased $20 million for the three months ended March 31, 2024, as compared to the same period of the prior year. The decrease was primarily driven by a decrease in depreciation expense of $44 million related to the decision to retire Bull Run, as Bull Run became fully depreciated in the fourth quarter of 2023. Partially offsetting this decrease was an increase due to depreciation of additions to net completed plant.

Tax equivalents expense decreased $6 million for the three months ended March 31, 2024, as compared to the same period of the prior year. The change was primarily driven by a decrease in the tax equivalents collected in the fuel cost recovery.

Six Months Ended March 31, 2024, Compared to Six Months Ended March 31, 2023

Fuel expense decreased $178 million for the six months ended March 31, 2024, as compared to the same period of the prior year. This decrease was primarily due to a decrease in effective fuel rates due to lower coal and natural gas prices, resulting in a $252 million decrease in fuel expense. Partially offsetting this decrease was an increase of $36 million due to higher demand for energy, as well as an increase of $38 million primarily due to the recovery of lower than expected coal and natural gas costs.

Purchased power expense decreased $153 million for the six months ended March 31, 2024, as compared to the same period of the prior year. This decrease was primarily due to high purchased power market prices during the same period of the prior year from Winter Storm Elliott, resulting in a decrease of $108 million. Additionally, purchased power expense decreased $62 million due to recovery of deferred purchased power costs during the same period of the prior year from significant price volatility during the summer of 2022. Partially offsetting these decreases was an increase of $17 million due to higher demand for energy.

Operating and maintenance expense increased $106 million for the six months ended March 31, 2024, as compared to the same period of the prior year. This increase was primarily due to $69 million of increased payroll and benefit costs primarily due to labor escalation for cost of living increases and additional headcount to support operational needs and $41 million of increased contract labor costs primarily related to power operations performance improvement activities and other natural gas project work, strategic project work, and TVA's New Nuclear Program. Partially offsetting these increases was a $46 million decrease in outage expense primarily due to a decrease in nuclear outage days and the scope and timing of coal outages during the six months ended March 31, 2024, as compared to the same period of the prior year.

Depreciation and amortization expense decreased $32 million for the six months ended March 31, 2024, as compared to the same period of the prior year. The decrease was primarily driven by a decrease in depreciation expense of $88 million related to the decision to retire Bull Run, as Bull Run became fully depreciated in the fourth quarter of 2023. Partially offsetting this decrease was a $16 million increase in additional depreciation related to TVA's decision to retire Cumberland Fossil Plant ("Cumberland"). Additionally, there was an increase due to depreciation of additions to net completed plant.

Tax equivalents expense decreased $24 million for the six months ended March 31, 2024, as compared to the same period of the prior year. The change was primarily driven by a decrease in the tax equivalents collected in the fuel cost recovery.

Generating Sources. The following tables show TVA's generation and purchased power by generating source as a percentage of all electrical power generated and purchased (based on kWh) for the periods indicated:

Notes

(1) Generation from TVA-owned renewable resources (non-hydroelectric) is less than one percent for all periods shown and therefore is not represented in the table above.

(2) Raccoon Mountain Pumped-Storage Plant net generation is allocated against each TVA-operated generation facility and purchased power type for both the three months ended March 31, 2024, and the three months ended March 31, 2023. See Part I, Item 1, Business —Power Supply and Load Management Resources —Hydroelectric Pumped-Storagein the Annual Report for a discussion of Raccoon Mountain Pumped-Storage Plant.

(3) Purchased power (natural gas and/or oil-fired) includes generation from Caledonia Combined Cycle Plant ("Caledonia CC"), which is currently a leased facility operated by TVA. Generation from Caledonia CC was 966 million kWh and 520 million kWh for the three months ended March 31, 2024 and the three months ended March 31, 2023, respectively.

(4) Purchased power (other renewables) includes purchased power from the following renewable sources: solar, wind, biomass, and renewable cogeneration. TVA sells the Renewable Energy Certificates resulting from some of this purchased power to certain customers.

Notes

(1) Generation from TVA-owned renewable resources (non-hydroelectric) is less than one percent for all periods shown and therefore is not represented in the table above.

(2) Raccoon Mountain Pumped-Storage Plant net generation is allocated against each TVA-operated generation facility and purchased power type for both the six months ended March 31, 2024, and the six months ended March 31, 2023. See Part I, Item 1, Business —Power Supply and Load Management Resources —Hydroelectric Pumped-Storage in the Annual Report for a discussion of Raccoon Mountain Pumped-Storage Plant.

(3) Purchased power (natural gas and/or oil-fired) includes generation from Caledonia CC, which is currently a leased facility operated by TVA. Generation from Caledonia CC was 1,876 million kWh and 1,561 million kWh for the six months ended March 31, 2024 and six months ended March 31, 2023, respectively.

(4) Purchased power (other renewables) includes purchased power from the following renewable sources: solar, wind, biomass, and renewable cogeneration. TVA sells the Renewable Energy Certificates resulting from some of this purchased power to certain customers.

In addition to power supply sources included here, TVA offers energy efficiency programs that effectively reduce energy needs. In 2024, TVA expects to invest $90 million on its energy efficiency programs and anticipates approximately 250 gigawatt hours of net incremental energy efficiency savings.

Interest Expense. Interest expense and interest rates for the three and six months ended March 31, 2024 and the three and six months ended March 31, 2023, were as follows:

Notes

(1) Includes amortization of debt discounts, issuance, and reacquisition costs, net.

(2) Includes average balances of long-term power bonds, debt of variable interest entities ("VIEs"), and discount notes.

(3) Includes interest on long-term power bonds, debt of VIE, and discount notes.

Total interest expense decreased $2 million for both the three and six months ended March 31, 2024, as compared to the same periods of the prior year primarily driven by lower other interest expense related to finance leases.