Tennessee Valley Authority

Results of Operations

Sales of Electricity

Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 39,342 million and 37,026 million kilowatt hours ("kWh") for the three months ended June 30, 2024 and the three months ended June 30, 2023, respectively. Sales of electricity, which accounted for nearly all of TVA's operating revenues, were 117,313 million and 112,685 million kWh for the nine months ended June 30, 2024 and the nine months ended June 30, 2023, respectively. The total sales of electricity of 117,313 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 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 six percent for the three months ended June 30, 2024, as compared to the same period of the prior year. The increased sales volume for LPCs was primarily driven by an increase in cooling degree days of 42 percent. 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 four percent for the nine months ended June 30, 2024, as compared to the same period of the prior year. The increased sales volume for LPCs was primarily driven by an increase in cooling degree days of 50 percent. 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 nine months ended June 30, 2024 and 2023:

Operating Revenues. Operating revenues for the three months ended June 30, 2024 and the three months ended June 30, 2023, were $2.9 billion and $2.7 billion, respectively. Operating revenues for the nine months ended June 30, 2024 and the nine months ended June 30, 2023, were $8.8 billion and $8.7 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 each accounted for eight percent of TVA's total operating revenues for the nine months ended June 30, 2024 and for the nine months ended June 30, 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 June 30, 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 $181 million for the three months ended June 30, 2024, as compared to the same period of the prior year, primarily due to a $262 million increase in base revenue. The $262 million increase in base revenue was driven by a $141 million increase attributable to higher effective base rates and a $121 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. The higher sales volume was primarily due to an increase in cooling degree days of 42 percent. Partially offsetting the increase in base revenue was a $96 million decrease in fuel cost recovery revenue. The $96 million decrease in fuel cost recovery revenue was driven by a $149 million decrease attributable to lower fuel rates partially offset by a $53 million increase attributable to higher sales volume. The lower fuel rates were primarily due to lower coal, natural gas, and purchased power prices.

Operating revenues increased $126 million for the nine months ended June 30, 2024, as compared to the same period the prior year, primarily due to a $639 million increase in base revenue. The $639 million increase in base revenue was driven by a $459 million increase attributable to higher effective base rates and a $180 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. The higher sales volume was primarily due to an increase in cooling degree days of 50 percent. Partially offsetting the increase in base revenue was a $533 million decrease in fuel cost recovery revenue. The $533 million decrease in fuel cost recovery revenue was driven by a $657 million decrease attributable to lower fuel rates partially offset by a $124 million increase attributable to higher sales volume. The lower fuel rates were primarily due to lower coal, natural gas, and purchased power prices.

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 nine months ended June 30, 2024 and June 30, 2023, consisted of the following:

Three Months Ended June 30, 2024, Compared to Three Months Ended June 30, 2023

Fuel expense decreased $106 million for the three months ended June 30, 2024, as compared to the same period of the prior year. This was primarily due to a decrease in effective fuel rates due to lower coal and natural gas prices, resulting in a $61 million decrease in fuel expense. Additionally, the deferral of higher than expected costs in June 2024 decreased fuel expense by $68 million. Partially offsetting these decreases was a $23 million increase in fuel expense due to higher demand for energy.

Purchased power expense increased $58 million for the three months ended June 30, 2024, as compared to the same period of the prior year. This increase was primarily due to higher demand for energy resulting in an increase of $82 million.

Additionally, purchased power expense increased $28 million primarily as a result of the recovery of deferred purchased power costs driven by unseasonably cold temperatures during January 2024. Partially offsetting this increase was a $52 million decrease in purchased power expense from lower purchased power market prices.

Operating and maintenance expense increased $19 million for the three months ended June 30, 2024, as compared to the same period of the prior year. This increase was primarily due to $30 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 a $5 million increase in expenditures related to TVA's New Nuclear Program. Partially offsetting these increases was $9 million of decreased contract labor costs primarily related to natural gas project work and an $8 million decrease in outage expense primarily due to a decrease in nuclear outage days during the three months ended June 30, 2024, as compared to the same period of the prior year.

Depreciation and amortization expense decreased $6 million for the three months ended June 30, 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 Fossil Plant ("Bull Run"), as Bull Run became fully depreciated in the fourth quarter of 2023. Partially offsetting this decrease was an $9 million increase in additional depreciation related to TVA's decision to retire Kingston and an increase due to depreciation of additions to net completed plant.

Tax equivalents expense decreased $6 million for the three months ended June 30, 2024, as compared to the same period of the prior year. The decrease was primarily driven by a decrease in the tax equivalents collected in the fuel cost recovery.

Nine Months Ended June 30, 2024, Compared to Nine Months Ended June 30, 2023

Fuel expense decreased $284 million for the nine months ended June 30, 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 $314 million decrease in fuel expense. Additionally, fuel expense decreased $30 million due to recovery of fuel costs in the same period of the prior year as a result of significant unplanned price volatility during the summer of 2022. Partially offsetting these decreases was an increase of $60 million in fuel expense due to higher demand for energy.

Purchased power expense decreased $95 million for the nine months ended June 30, 2024, as compared to the same period of the prior year. This decrease was primarily due to lower purchased power market prices compared to the same period of the prior year, resulting in a decrease of $183 million. Additionally, purchased power expense decreased $34 million due to recovery of purchased power costs in the same period of the prior year as a result of significant unplanned price volatility during the summer of 2022. Partially offsetting these decreases was an increase of $122 million in purchased power expense due to higher demand for energy.

Operating and maintenance expense increased $125 million for the nine months ended June 30, 2024, as compared to the same period of the prior year. This increase was primarily due to $99 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 $28 million of increased contract labor costs primarily related to strategic project work and power operations performance improvement activities. In addition, there was a $10 million increase in expenditures related to TVA's New Nuclear Program and a $9 million increase in materials and supplies related to power operations performance improvement activities and other natural gas project work. Partially offsetting these increases was a $54 million decrease in outage expense primarily due to a decrease in nuclear outage days during the nine months ended June 30, 2024, as compared to the same period of the prior year.

Depreciation and amortization expense decreased $38 million for the nine months ended June 30, 2024, as compared to the same period of the prior year. The decrease was primarily driven by a decrease in depreciation expense of $132 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 $24 million increase in additional depreciation related to TVA's decision to retire Cumberland Fossil Plant ("Cumberland") and Kingston. There was also a $15 million increase due to Colbert CTs 9-11 and Paradise CTs 5-7 being placed into service in the fourth quarter of 2023 and the first quarter of 2024, respectively. The remainder of the increase was primarily due to depreciation of other additions to net completed plant.

Tax equivalents expense decreased $30 million for the nine months ended June 30, 2024, as compared to the same period of the prior year. The decrease 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 June 30, 2024, and 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 1,364 million kWh and 1,053 million kWh for the three months ended June 30, 2024, and the three months ended June 30, 2023, respectively.

(4) Purchased power (other renewables) includes purchased power from the following renewable sources: solar, wind, biomass, and renewable cogeneration. TVA acquires Renewable Energy Certificates ("RECs") in connection with certain purchased power transactions and sells some of these RECs to 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 nine months ended June 30, 2024, and 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 3,240 million kWh and 2,614 million kWh for the nine months ended June 30, 2024, and nine months ended June 30, 2023, respectively.

(4) Purchased power (other renewables) includes purchased power from the following renewable sources: solar, wind, biomass, and renewable cogeneration. TVA acquires Renewable Energy Certificates ("RECs") in connection with certain purchased power transactions and sells some of these RECs to 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 $82 million on its energy efficiency programs and anticipates approximately 200 gigawatt hours of net incremental energy efficiency savings.

Interest Expense. Interest expense and interest rates for the three and nine months ended June 30, 2024, and the three and nine months ended June 30, 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 increased $3 million for the three months ended June 30, 2024, as compared to the same period of the prior year. The increase was primarily driven by a $7 million increase from higher average rates and balances on short-term debt, partially offset by a $2 million decrease from lower average rates and balances of long‐term debt, and a $2 million decrease due to lower interest expense related to finance leases.

Total interest expense increased $1 million for the nine months ended June 30, 2024, as compared to the same period of the prior year. The increase was primarily driven by a $20 million increase from higher average balances on long-term debt and a $7 million increase from higher average rates on short-term debt, partially offset by a $13 million decrease from lower average rates on long-term debt, a $9 million decrease from lower average balances on short-term debt, and a $4 million decrease due to lower interest expense related to finance leases.