Company: TVC
Filing Date: 2025-07-29
Form Type: 10-Q
Source: 0001376986-25-000044
Chunk: 188

Company: Tennessee Valley Authority
Filing Date: 2025-07-29
Form: 10-Q
Item: Part I, Item 1
Chunk 188
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Currency and Interest Rate Swap DerivativesSee Note 14 — Risk Management Activities and Derivative Transactions — Cash Flow Hedging Strategy for Currency Swaps and Derivatives Not Receiving Hedge Accounting Treatment for a discussion of the nature, purpose, and contingent features of TVA's currency swaps and interest rate swaps.  These swaps are classified as Level 2 valuations and are valued based on income approaches using observable market inputs for similar instruments.Commodity Contract Derivatives and Commodity Derivatives under the FHPCommodity Contract Derivatives.  Most of these derivative contracts are valued based on market approaches, which utilize short-term and mid-term market-quoted prices from an external industry brokerage service.  These contracts are classified as Level 2 valuations.  Commodity Derivatives under the FHP.  Swap contracts are valued using a pricing model based on New York Mercantile Exchange inputs and are subject to nonperformance risk outside of the exit price.  These contracts are classified as Level 2 valuations.See Note 14 — 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