Tennessee Valley Authority
For the period ended Sep 30, 2025. Filed Nov 13, 2025.
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FY2025 · Filed Nov 13, 2025
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Report of Independent Registered Public Accounting Firm
To the Board of Directors of Tennessee Valley Authority
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tennessee Valley Authority (the Company) as of September 30, 2025, and 2024, the related consolidated statements of operations, comprehensive income (loss), changes in proprietary capital and cash flows for each of the three years in the period ended September 30, 2025, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2025, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 12, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the Audit, Risk, and Cybersecurity Committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. | |
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| Valuation of Pension Benefit Obligation | |
| Description of the Matter | At September 30, 2025, the Company’s pension benefit obligation was $10.3 billion. The Company utilizes certain actuarial assumptions to measure the pension benefit obligation at September 30, as more fully described in Note 21 to the consolidated financial statements. Auditing the pension benefit obligation was complex due to the judgmental nature of the actuarial assumptions used in the Company’s measurement process, including the discount rates, mortality rates, and cost of living adjustments. These assumptions have a significant effect on the projected pension benefit obligation. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the pension benefit obligation valuation process. For example, we tested controls over management’s review of the pension benefit obligation calculation, the relevant data inputs, and the significant actuarial assumptions described above. |
To test the valuation of the pension benefit obligation, our audit procedures included, with the assistance of actuarial specialists, evaluating the methodologies used, the significant actuarial assumptions described above, and the underlying data used by the Company, among other procedures. We evaluated the Company’s methodology for determining the discount rates that reflect the maturity and duration of the benefit payments and that are used to estimate the pension benefit obligation. To evaluate the mortality rates and cost of living adjustments, we assessed whether the information was consistent with publicly available information, and whether appropriate market data adjusted for entity-specific adjustments was applied. We also tested the completeness and accuracy of the underlying data, including the participant data, used in the determination of the projected pension benefit obligation.
| Valuation of Alternative Investments | |
| Description of the Matter | At September 30, 2025, the Company had $5.6 billion in investment funds and $8.6 billion in plan investments related to the defined benefit pension plan. Approximately 56% and 68% of investment funds and plan investments, respectively, are invested in private equity funds, private real asset funds, private credit funds, and commingled funds. These types of investments are referred to as “alternative investments”. These alternative investments are measured at fair value using the net asset value (or its equivalent) as more fully described in Note 17, for investment funds, and Note 21, for plan investments, to the consolidated financial statements.Auditing the valuation of alternative investments was challenging because of the higher estimation uncertainty of the inputs to the fair value measurements, including the underlying net asset values, discounted cash flow valuations, comparable market valuations, estimated benchmark yields, and adjustments for currency, credit, liquidity, and other risks. Additionally, certain information regarding the fair value of these alternative investments was based on unaudited information available to management at the time of valuation. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s alternative investments’ valuation process. For example, we tested controls over management's review of the alternative investment valuation, which included a comparison of returns to benchmarks and monitoring of investment managers’ valuation policies and procedures, as well as portfolio performance. To test the valuation of the alternative investments, our audit procedures included, among others, comparing fund returns to selected relevant benchmarks and understanding variations as well as comparing fair values from the most recent audited financial statements to the Company's estimated fair values. We obtained an understanding of the changes to the holdings in the investment portfolio and changes in investment strategies. We assessed the historical accuracy of management's estimates by comparing actual fair values to previous estimates. We evaluated for contrary evidence by confirming the fair values of the investments and ownership interest directly with the trustee and with a sample of investment managers. |
| Valuation of Non-Nuclear Asset Retirement Obligations | |
| Description of the Matter | At September 30, 2025, the Company’s non-nuclear asset retirement obligations (ARO) totaled $6.4 billion. As more fully described in Note 11 and Note 14 to the consolidated financial statements, the Company’s initial obligation associated with the retirement of non-nuclear generating sites, ash impoundments, transmission substation and distribution assets, and certain general facilities is recognized at fair value at the time the obligation is incurred using various judgments and assumptions. Revisions to the obligation are made whenever factors indicate that the timing or amounts of estimated cash flows have changed materially.Auditing the valuation of non-nuclear ARO was challenging because of the judgmental nature of the assumptions used in the Company’s measurement process. In particular, the obligation’s fair value is determined using a discounted cash flow technique which includes significant estimations and assumptions, including the costs of decommissioning, the method of decommissioning, and the timing of related cash flows. |
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| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s valuation of its non-nuclear ARO. For example, we tested controls over management’s review of the significant estimations and assumptions described above and the relevant data inputs used in the calculations. To test the valuation of the non-nuclear ARO, our audit procedures included, among others, with the assistance of engineering specialists, evaluating the methodology used and testing the significant assumptions described above and the underlying data used by the Company in its estimates. To assess the costs of decommissioning, the method of decommissioning, and the timing of related cash flows, we evaluated changes from the prior estimate, if one existed, compared the consistency between timing of activities and the corresponding closure dates, evaluated the reasonableness of the selected method of decommissioning, assessed the estimated costs based on the method of decommissioning, and recalculated the Company’s estimate. |
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/s/Ernst & Young LLP
We have served as the Company’s auditor since 2007.
Chattanooga, Tennessee
November 12, 2025
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