Company: TVC
Filing Date: 2025-02-05
Form Type: 10-Q
Source: 0001376986-25-000011
Chunk: 122

Company: Tennessee Valley Authority
Filing Date: 2025-02-05
Form: 10-Q
Item: Part I, Item 1
Chunk 122
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 to nonperformance risk outside of the exit price.  These contracts are classified as Level 2 valuations.See Note 13 — Risk Management Activities and Derivative Transactions — Derivatives Not Receiving Hedge Accounting Treatment — Commodity Derivatives and — Commodity Derivatives under the FHP.Nonperformance RiskThe assessment of nonperformance risk, which includes credit risk, considers changes in current market conditions, readily available information on nonperformance risk, letters of credit, collateral, other arrangements available, and the nature of master netting arrangements.  TVA is a counterparty to currency swaps, interest rate swaps, commodity contracts, and other derivatives which subject TVA to nonperformance risk.  Nonperformance risk on the majority of investments and certain exchange-traded instruments held by TVA is incorporated into the exit price that is derived from quoted market data that is used to mark the investment to market.Nonperformance risk for most of TVA's derivative instruments is an adjustment to the initial asset/liability fair value.  TVA adjusts for nonperformance risk, both of TVA (for liabilities) and the counterparty (for assets), by applying credit valuation adjustments ("CVAs").  TVA determines an appropriate CVA for each applicable financial instrument based on the term of the instrument and TVA's or the counterparty's credit rating as obtained from Moody's.  For companies that do not have an observable credit rating, TVA uses internal analysis to assign a comparable rating to the counterparty.  TVA discounts each financial instrument using the historical default rate (as reported by Moody's for CY 1983 to CY 2023) for companies with a similar credit rating over a time period consistent with the remaining term of the contract.  The application of CVAs resulted in a less than $1 million decrease in the fair value of assets and a less than $1 million decrease in the fair value of liabilities at December 31, 2024.

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Fair Value MeasurementsThe 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 at December 31, 2024, and September 30, 2024.  Financial assets and liabilities have been classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  TVA's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the determination of the fair value of the assets and liabilities and their classification