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|                                                                                                                                                     |   |                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------|
| A      corporate agency of the United States created by an act of      Congress (State      or other jurisdiction of incorporation or organization) |   | 62-0474417 (IRS      Employer Identification No.) |
| 400      W. Summit Hill DriveKnoxville,      Tennessee (Address      of principal executive offices)                                                |   | 37902 (Zip      Code)                             |

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Tableof Contents

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Tableof Contents

Table of Contents

| Forward-Looking      Information | 7                                                                                                                       |   |
|----------------------------------|-------------------------------------------------------------------------------------------------------------------------|--------|
| General      Information         | 8                                                                                                                       |   |
|                             |                                                                                                                    |   |   |
| Part      I                      |
| Item      1.                     | Business                                                                                                                | 9      |   |
|                             | The      Corporation                                                                                                    | 9      |   |
|                             | Governance                                                                                                              | 9      |   |
|                             | Service      Area                                                                                                       | 11     |   |
|                             | Customers                                                                                                               | 12     |   |
|                             | Rate      Authority                                                                                                     | 14     |   |
|                             | Rate      Actions                                                                                                       | 15     |   |
|                             | Load      and Energy Forecasts                                                                                          | 16     |   |
|                             | Power      Supply                                                                                                       | 16     |   |
|                             | Nuclear                                                                                                                 | 21     |   |
|                             | Fuel      Supply                                                                                                        | 24     |   |
|                             | Transmission                                                                                                            | 25     |   |
|                             | Stewardship                                                                                                             | 27     |   |
|                             | Weather      and Seasonality                                                                                            | 27     |   |
|                             | Competition                                                                                                             | 28     |   |
|                             | Regulation                                                                                                              | 28     |   |
|                             | Payments      in Lieu of Taxes                                                                                          | 30     |   |
|                             | Environmental      Matters                                                                                              | 30     |   |
|                             | Employee      Relations                                                                                                 | 35     |   |
|                             |                                                                                                                    |   |   |
| Item      1A.                    | Risk      Factors                                                                                                       | 35     |   |
|                             | Strategic      Risks                                                                                                    | 36     |   |
|                             | Operational      Risks                                                                                                  | 37     |   |
|                             | Financial      Risks                                                                                                    | 40     |   |
|                             | Risks      Related to TVA Securities                                                                                    | 43     |   |
|                             |                                                                                                                    |   |   |
| Item      1B.                    | Unresolved      Staff Comments                                                                                          | 43     |   |
|                             |                                                                                                                    |   |   |
| Item      2.                     | Properties                                                                                                              | 43     |   |
|                             | Generating      Properties                                                                                              | 43     |   |
|                             | Transmission      Properties                                                                                            | 44     |   |
|                             | Natural      Resource Stewardship Properties                                                                            | 44     |   |
|                             | Buildings                                                                                                               | 44     |   |
|                             | Disposal      of Property                                                                                               | 44     |   |
|                             |                                                                                                                    |   |   |
| Item      3.                     | Legal      Proceedings                                                                                                  | 45     |   |
|                             |                                                                                                                    |   |   |
| Item      4.                     | Submission      of Matters to a Vote of Security Holders                                                                | 49     |   |
|                             |                                                                                                                    |   |   |
| Part II                          |
| Item 5.                          | Market for Registrant’s Common Equity, Related Stockholder      Matters and Issuer Purchases of Equity Securities | 50     |   |
|                             |                                                                                                                    |   |   |
| Item 6.                          | Selected Financial Data                                                                                                 | 50     |   |
|                             | Statements of Income Data                                                                                               | 50     |   |
|                             | Balance Sheets Data                                                                                                     | 51     |   |
|                             | Financial Obligations                                                                                                   | 51     |   |
|                             |                                                                                                                    |   |   |
| Item 7.                          | Management’s Discussion and Analysis of Financial Condition      and Results of Operations                        | 52     |   |
|                             | Business Overview                                                                                                       | 52     |   |
|                             | Executive Summary                                                                                                       | 53     |   |
|                             | Liquidity and Capital Resources                                                                                         | 56     |   |
|                             | Results of Operations                                                                                                   | 65     |   |
|                             | Off-Balance Sheet Arrangements                                                                                          | 73     |   |
|                             | Asset Retirement Trust                                                                                                  | 73     |   |
|                             | Critical Accounting Policies and      Estimates                                                                         | 74     |   |
|                             | Changes in Accounting                                                                                                   | 78     |   |
|                             | New Accounting Standards and      Interpretations                                                                       | 79     |   |
|                             | Legislative and Regulatory    Matters                                                                                   | 80     |   |
|                             | Environmental Matters                                                                                                   | 82     |   |
|                             | Legal Proceedings                                                                                                       | 87     |   |
|                             | Risk Management Activities                                                                                              | 87     |   |
|                             | Subsequent Events                                                                                                       | 92     |   |

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| Item      7A. | Quantitative      and Qualitative Disclosures About Market Risk                                          | 92     |   |
|---------------|----------------------------------------------------------------------------------------------------------|--------|--------|
|          |                                                                                                     |   |   |
| Item      8.  | Financial      Statements and Supplementary Data                                                         | 93     |   |
|          | Statements      of Income                                                                                | 93     |   |
|          | Balance      Sheets                                                                                      | 94     |   |
|          | Statements      of Cash Flows                                                                            | 95     |   |
|          | Statements      of Changes in Proprietary Capital                                                        | 96     |   |
|          | Notes      to Financial Statements                                                                       | 97     |   |
|          | Report      of Independent Registered Public Accounting Firm                                             | 154    |   |
|          |                                                                                                     |   |   |
| Item      9.  | Changes      in and Disagreements with Accountants on Accounting and Financial      Disclosure           | 155    |   |
|          |                                                                                                     |   |   |
| Item      9A. | Controls      and Procedures                                                                             | 155    |   |
| Item      9B. | Other      Information                                                                                   | 156    |   |
|          |                                                                                                     |   |   |
|          |                                                                                                     |   |   |
| Part      III |
| Item      10. | Directors,      Executive Officers and Corporate Governance                                              | 157    |   |
|          | Directors                                                                                                | 157    |   |
|          | Executive      Officers                                                                                  | 158    |   |
|          | Disclosure      and Financial Code of Ethics                                                             | 160    |   |
|          | Committees      of the TVA Board                                                                         | 161    |   |
|          |                                                                                                     |   |   |
| Item      11. | Executive      Compensation                                                                              | 161    |   |
|          | Compensation      Discussion and Analysis                                                                | 161    |   |
|          | Executive      Compensation Tables and Narrative Disclosures                                             | 169    |   |
|          | Severance      Agreements                                                                                | 179    |   |
|          | Other      Agreements                                                                                    | 180    |   |
|          | Director      Compensation                                                                               | 181    |   |
|          | Compensation      Committee Interlocks and Insider Participation                                         | 182    |   |
|          | Compensation      Committee Report                                                                       | 183    |   |
|          |                                                                                                     |   |   |
| Item      12. | Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholder Matters | 183    |   |
|          |                                                                                                     |   |   |
| Item      13. | Certain      Relationships and Related Transactions, and Director      Independence                      | 183    |   |
|          | Director      Independence                                                                               | 183    |   |
|          | Related      Party Transactions                                                                          | 183    |   |
|          |                                                                                                     |   |   |
| Item      14. | Principal      Accountant Fees and Services                                                              | 185    |   |
|          |                                                                                                     |   |   |
| Part IV       |
| Item 15.      | Exhibits and Financial Statement    Schedules                                                            | 187    |   |
|          |                                                                                                     |   |   |
| Signatures    |                                                                                                     | 191    |   |
| Exhibit Index |                                                                                                     | 192    |   |

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FORWARD-LOOKING INFORMATION

| •   | Statements      regarding strategic objectives; |
|---------------------|-------------------------------------------------|

| •   | Projections      regarding potential rate actions; |
|---------------------|----------------------------------------------------|

| •   | Estimates      of costs of certain asset retirement  obligations; |
|---------------------|-------------------------------------------------------------------|

| •   | Estimates      regarding power and energyforecasts; |
|---------------------|-----------------------------------------------------|

| •   | Expectations      about the adequacy of TVA’s pension plans, nuclear decommissioning trust,      and asset retirement trust; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------|

| •   | Estimates      regarding the reduction of bonds, notes, and other evidences of      indebtedness, lease/leaseback commitments, and power prepayment      obligations; |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Estimates      of amounts to be reclassified from other comprehensive income to earnings      over the next year; |
|---------------------|-------------------------------------------------------------------------------------------------------------------|

| •   | TVA’s      plans to continue using short-term debt to meet current obligations;      and |
|---------------------|------------------------------------------------------------------------------------------------|

| •   | The      anticipated cost and timetable for placing Watts Bar Unit 2 in      service. |
|---------------------|---------------------------------------------------------------------------------------|

| •   | New      laws, regulations, and administrative orders, especially those related      to: |
|---------------------|------------------------------------------------------------------------------------------|

| –   | TVA’s      protected service area, |
|---------------------|------------------------------------------|

| –   | The      sole authority of the TVA Board to set power  rates, |
|---------------------|---------------------------------------------------------------|

| –   | Various      environmental and nuclear matters, |
|---------------------|-------------------------------------------------|

| –   | TVA’s      management of the Tennessee Riversystem, |
|---------------------|-----------------------------------------------------------|

| –   | TVA’s      credit rating, and |
|---------------------|-------------------------------------|

| –   | TVA’s      debt ceiling; |
|---------------------|--------------------------------|

| •   | Loss      of customers; |
|---------------------|-------------------------|

| •   | Performance      of TVA’s generation and transmissionassets; |
|---------------------|--------------------------------------------------------------------|

| •   | Availability      of fuel supplies; |
|---------------------|-------------------------------------|

| •   | Purchased      power price volatility; |
|---------------------|----------------------------------------|

| •   | Events      at facilities not owned by TVA that affect the supply of water to TVA’s      generation facilities; |
|---------------------|-----------------------------------------------------------------------------------------------------------------------|

| •   | Compliance      with existing environmental laws and  regulations; |
|---------------------|--------------------------------------------------------------------|

| •   | Significant      delays or cost overruns in construction of generation and transmission      assets; |
|---------------------|------------------------------------------------------------------------------------------------------|

| •   | Significant      changes in demand for electricity; |
|---------------------|-----------------------------------------------------|

| •   | Legal      and administrative proceedings; |
|---------------------|--------------------------------------------|

| •   | Weather      conditions including drought; |
|---------------------|--------------------------------------------|

| •   | Failure      of transmission facilities; |
|---------------------|------------------------------------------|

| •   | Events      at any nuclear facility, even one that is not owned by or licensed to      TVA; |
|---------------------|---------------------------------------------------------------------------------------------|

| •   | Catastrophic      events such as fires, earthquakes, floods, tornadoes, pandemics, wars,      terrorist activities, and other similar events, especially if these events      occur in or near TVA’s servicearea; |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Reliability      of purchased power providers, fuel suppliers, and other      counterparties; |
|---------------------|-----------------------------------------------------------------------------------------------|

| •   | Changes      in the market price of commodities such as coal, uranium, natural gas,      fuel oil, electricity, and emissionallowances; |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| •   | Changes      in the prices of equity securities, debt securities, and other      investments; |
|---------------------|-----------------------------------------------------------------------------------------------|

| •   | Changes      in interest rates; |
|---------------------|---------------------------------|

| •   | Creditworthiness      of TVA, its counterparties, or itscustomers; |
|---------------------|--------------------------------------------------------------------|

| •   | Rising      pension costs and health careexpenses; |
|---------------------|----------------------------------------------------|

| •   | Increases      in TVA’s financial liability for decommissioning its nuclear facilities      and retiring other assets; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------|

| •   | Limitations      on TVA’s ability to borrow money; |
|---------------------|----------------------------------------------------------|

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| •   | Changes      in the economy; |
|---------------------|------------------------------|

| •   | Ineffectiveness      of TVA’s disclosure controls and procedures, and its internal control over      financial reporting; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------|

| •   | Changes      in accounting standards; |
|---------------------|---------------------------------------|

| •   | The      loss of TVA’s ability to use regulatory  accounting; |
|---------------------|---------------------------------------------------------------------|

| •   | Problems      attracting and retaining skilledworkers; |
|---------------------|--------------------------------------------------------|

| •   | Changes      in technology; |
|---------------------|-----------------------------|

| •   | Changes      in the market for TVA securities;and |
|---------------------|---------------------------------------------------|

| •   | Unforeseeable      events. |
|---------------------|----------------------------|

GENERAL INFORMATION

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PART I

ITEM 1.  BUSINESS

The Corporation

| •   | TVA      was created by an act of the U.S. Congress and is a wholly-owned corporate      agency of the United States. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------|

| •   | Each      member of TVA’s board of directors (the “TVA Board”) is appointed by the      President of the United States with the advice and consent of the U.S.      Senate. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      does not own real property; it holds real property as an agent for the      United States.  (Any reference in this Annual Report on Form      10-K (“Annual Report”) to TVA facilities or the ownership by TVA of      facilities or real property refers to property held by TVA but owned by      the United States.) |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      is required to make payments to the U.S. Treasury as a repayment of and a      return on the appropriation investment that the United States provided TVA      for its power facilities (the “Power Facilities Appropriation      Investment”). |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      is not authorized to issue equity securities such as common or preferred      stock.  Accordingly, TVA finances its operations primarily with      cash flows from operations and proceeds from issuing debt      securities. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      TVA Board sets the rates TVA charges for power.  In setting      rates, the TVA Board must have due regard for the objective that power be      sold at rates as low as are feasible. These rates are not subject to      judicial review or review by any regulatory  body. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      is exempt from paying federal income taxes and state and local taxes, but      it must pay certain states and counties an amount in lieu of taxes equal      to five percent of TVA’s gross revenues from the sale of power during the      preceding year, excluding sales or deliveries to other federal agencies      and off-system sales with other utilities, with a provision for minimum      payments under certaincircumstances. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      performs stewardship activities in connection with the Tennessee River and      its tributaries and is required by federal law to fund these activities      primarily with revenues from the power system and to a lesser extent with      revenues from other sources. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Governance

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| •   | CUSTOMERS:  Maintain      power reliability, provide competitive rates, and build trust with TVA’s      customers; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------|

| •   | PEOPLE:  Build      pride in TVA’s performance andreputation; |
|---------------------|-------------------------------------------------------------------------------|

| •   | FINANCIAL:  Adhere      to a set of sound financial guiding principles to improve TVA’s fiscal      performance; |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------|

| •   | ASSETS: Use TVA’s assets      to meet market demand and deliver public value;  and |
|---------------------|------------------------------------------------------------------------------------------|

| •   | OPERATIONS: Improve      performance to be recognized as an industry  leader. |
|---------------------|-------------------------------------------------------------------------------|

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Service Area

|                       |   |             |   |             |   |     |   |
|----------------------------|--------|------------------|--------|------------------|--------|----------|--------|
|                       |   | 2007             |   |             | 2006*  |     |   | 2005* |   |
|                       |   | As      Restated |   | As      Restated |   |     |   |   |
| Alabama                    |   | $                | 1,264  |             | $      | 1,239    |   | $ | 1,051 |   |
| Georgia                    |   |             | 206    |             |   | 226      |   |   | 186 |   |
| Kentucky                   |   |             | 1,084  |             |   | 902      |   |   | 830 |   |
| Mississippi                |   |             | 804    |             |   | 798      |   |   | 671 |   |
| North      Carolina        |   |             | 58     |             |   | 36       |   |   | 38 |   |
| Tennessee                  |   |             | 5,740  |             |   | 5,621    |   |   | 4,806 |   |
| Virginia                   |   |             | 7      |             |   | 5        |   |   | 4 |   |
|    Subtotal |   |             | 9,163  |             |   | 8,827    |   |   | 7,586 |   |
| Sale      for resale       |   |             | 17     |             |   |  13 |   |   | 95 |   |
|    Subtotal |   |             | 9,180  |             |   | 8,840    |   |   | 7,681 |   |
| Other      revenues        |   |             | 146    |             |   | 143      |   |   | 111 |   |
| Operating      revenues    |   | $                | 9,326  |             | $      | 8,983    |   | $ | 7,792 |   |

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Customers

| Operating      Revenues by Customer TypeFor      the years ended September 30 |   |
|-------------------------------------------------------------------------------|--------|
| (in      millions)                                                            |   |
|                                                                          |   |   |   |   |   |   |   |
|                                                                          |   | 2007 |   |   | 2006* |   |   | 2005* |   |
|                                                                          |   | As      Restated |   | As      Restated |   |   |   |   |
| Municipalities      and cooperatives                                          |   | $ | 7,847 |   | $ | 7,659 |   | $ | 6,539 |   |
| Industries      directly served                                               |   |   | 1,221 |   |   | 1,065 |   |   | 961 |   |
| Federal      agencies and other                                               |   |   |   |   |   |   |   |   |   |   |
|      Federal      agencies directly served           |   |   | 95 |   |   | 103 |   |   | 86 |   |
|      Off-system      sales                           |   |   | 17 |   |   | 13 |   |   | 95 |   |
| Subtotal                                                                      |   |   | 9,180 |   |   | 8,840 |   |   | 7,681 |   |
| Other      revenues                                                           |   |   | 146 |   |   | 143 |   |   | 111 |   |
| Operating      revenues                                                       |   | $ | 9,326 |   | $ | 8,983 |   | $ | 7,792 |   |

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| •   | Contracts      that require five years’ notice toterminate; |
|---------------------|-------------------------------------------------------------------|

| •   | Contracts      that require 10 years’ notice to terminate;and |
|---------------------|---------------------------------------------------------------------|

| •   | Contracts      that require 15 years’ notice toterminate. |
|---------------------|-----------------------------------------------------------------|

| TVA      Distributor Customer ContractsAs      of September 30, 2007 |   |
|----------------------------------------------------------------------|--------|
|    Contract      Arrangement                          |   | Number      of Distributor Customers |   |   |  Sales      to Distributor Customers in 2007 |   |   | Percentage      of Total Operating Revenues in 2007 |   |
|                                                                 |   |   |   |   | (in      millions) |   |   |   |   |
|                                                                 |   |   |   |   | As      Restated |   |   | As      Restated |   |
| 15-Year      termination notice                                      |   |   | 5 |   |   | $ | 87 |   |   |   | 0.9 | % |
| 10-Year      termination notice                                      |   |   | 48 |   |   |   | 2,597 |   |   |   | 27.8 | % |
| 5-Year      termination notice *                                     |   |   | 102 |   |   |   | 5,112 |   |   |   | 54.8 | % |
| Notice      given - less than 5 years remaining *                    |   |   | 3 |   |   |   | 51 |   |   |   | 0.6 | % |
|     Total                                        |   |   | 158 |   |   | $ | 7,847 |   |   |   | 84.1 | % |

|   | * | Ordinarily      the distributor customer and TVA have the same termination notice period;      however, in contracts with six of the distributor customers with five-year      termination notices, TVA has a 10-year termination notice (which becomes a      five-year termination notice if TVA loses its discretionary wholesale      rate-setting authority). |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|    Distributor      Customer |    Location |   Date      of Termination of Power Contract |   | TVA      Sales to Distributor Customerin      2007 |   |   | Percentageof      TVA Operating Revenues in 2007 |   |
|---------------------------------------------|----------------------------|--------------------------------------------------------|--------|----------------------------------------------------|--------|--------|--------------------------------------------------|--------|
|                                        |                       |                                                   |   | As      Restated                                   |   |   | As      Restated                                 |   |
| Monticello      Electric Plant Board        | Kentucky                   | November      2008                                     |   | $                                                  | 6      |   |                                             |   | 0.1 | % |
| Paducah      Power System                   | Kentucky                   | December      2009                                     |   |                                               | 39     |   |                                             |   | 0.4 | % |
| Princeton      Electric Plant Board         | Kentucky                   | January      2010                                      |   |                                               | 6      |   |                                             |   | 0.1 | % |
|     Total               |                       |                                                   |   | $                                                  | 51     |   |                                             |   | 0.6 | % |

Rate Authority

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| •   | Operation,      maintenance, and administration of its power  system; |
|---------------------|-----------------------------------------------------------------------|

| •   | Payments      to states and counties in lieu oftaxes; |
|---------------------|-------------------------------------------------------|

| •   | Debt      service on outstandingindebtedness; |
|---------------------|-----------------------------------------------|

| •   | Payments      to the U.S. Treasury in repayment of and as a return on the Power      Facilities Appropriation Investment;and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------|

| •   | Such      additional margin as the TVA Board may consider desirable for investment      in power system assets, retirement of outstanding bonds, notes, or other      evidences of indebtedness (“Bonds”) in advance of maturity, additional      reduction of the Power Facilities Appropriation Investment, and other      purposes connected with TVA’s powerbusiness. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Fuel      and purchased power costs; |
|---------------------|--------------------------------------|

| •   | Operating      and maintenance costs; |
|---------------------|---------------------------------------|

| •   | Tax      equivalents; and |
|---------------------|---------------------------|

| •   | Debt      service coverage. |
|---------------------|-----------------------------|

Rate Actions

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Load and Energy Forecasts

Power Supply

|                                           |   | 2007   |    |   | 2006   |   |   | 2005   |   |    | 2004   |   |   | 2003   |   |
|------------------------------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|--------|
|                                           |   |   |    |   |   |   |   |   |   |    |   |   |   |   |   |
| Coal-fired                                     |   |   | 100,169 |   |   | 64     | %      |   |   | 99,598  |   |   | 64     | %      |   |   | 98,361 |   |   | 62 | % |   |   | 94,618 |   |   | 61 | % |   |   | 90,958 |   |   | 60 | % |
| Nuclear                                        |   |   | 46,441  |   |   | 30     | %      |   |   | 45,313  |   |   | 29     | %      |   |   | 45,156 |   |   | 28 | % |   |   | 46,003 |   |   | 30 | % |   |   | 43,167 |   |   | 29 | % |
| Hydroelectric                                  |   |   | 9,047   |   |   | 6      | %      |   |   | 9,961   |   |   | 6      | %      |   |   | 15,723 |   |   | 10 | % |   |   | 13,916 |   |   | 9 | % |   |   | 16,103 |   |   | 11 | % |
| CCombustion      turbine and diesel generators |   |   | 705     |   | <1  | %      |   |   | 613    |    | <1  | %      |   |   | 595    |   | <1 | % |   |   | 278 |   | <1 | % |   |   | 817 |   | <1 | % |
| Renewable      resources *                     |   |   | 27      |   | <1  | %      |   |   | 36     |    | <1  | %      |   |   | 47     |   | <1 | % |   |   | 35 |   | <1 | % |   |   | 21 |   | <1 | % |
| Total                                          |   |   | 156,389 |   |   | 100    | %      |   |   | 155,521 |   |   | 100    | %      |   |   | 159,882 |   |   | 100 | % |   |   | 154,850 |   |   | 100 | % |   |   | 151,066 |   |   | 100 | % |

|   | * | Renewable      resources for years 2003 through 2006 have been adjusted to remove      renewable resources amounts that were acquired under purchased power      agreements and included in this table in TVA’s 2006 Annual Reports on      Forms 10-K and 10-K/A.  These adjustments resulted in reductions      in the amount of renewable resources by 11 million kWh for 2003, 13      million kWh for 2004, 14 million kWh for 2005, and 15 million kWh for      2006.  Also, for years 2003 through 2006 the following amounts      related to TVA’s digester gas cofiring site have been reclassified from      Coal-fired to Renewable resources: 17 million kWh for 2003, 30 million kWh      for 2004, 43 million kWh for 2005, and 32 million kWh for      2006.  Renewable resource facilities include a digester gas      cofiring site, a wind energy site, and solar energy  sites. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                                             |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |   | 2003   |   |
|----------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Coal                                                                             |   |   | 2.13   |   |   |   | 2.02   |   |   |   | 1.65   |   |   |   | 1.48   |   |   |   | 1.43 |   |
| Natural      gas and fuel oil                                                    |   |   | 7.00   |   |   |   | 10.65  |   |   |   | 11.44  |   |   |   | 9.01   |   |   |   | 7.61 |   |
| Nuclear                                                                          |   |   | 0.41   |   |   |   | 0.38   |   |   |   | 0.39   |   |   |   | 0.39   |   |   |   | 0.39 |   |
| Average      fuel cost per kWh net thermal generation      from all sources |   |   | 1.61   |   |   |   | 1.54   |   |   |   | 1.30   |   |   |   | 1.14   |   |   |   | 1.14 |   |

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| •   | Caledonia Combined Cycle      Facility.  During the third quarter of 2007, TVA entered      into an operating lease agreement and various related contracts for the      Caledonia combined cycle facility located near Columbus, Mississippi, with      a commencement date of July 1, 2007.  The lease agreement has a      15-year term expiring on February 28, 2022.  The Caledonia      facility consists of three combined cycle units with a winter net      dependable capacity of 892 megawatts.  A conversion services      agreement providing for power purchases from the Caledonia facility was      terminated as of July 1, 2007, the lease commencement date, and dispatch      control was shifted to TVA on July 3, 2007.  Under the lease,      TVA will assume plant operations no later than January 1,      2008.  The lease agreement further provides for an end-of-term      purchase option. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Choctaw Generation,      L.P.  TVA has contracted with Choctaw Generation L.P.      (“Choctaw”) for 440 megawatts of winter net dependable capacity from a      lignite-fired generating plant in Chester, Mississippi.  TVA’s      contract with Choctaw expires on March 31, 2032.  On October 9,      2007, Moody's Investors Service downgraded Choctaw to      'Ba1.'  Choctaw has continued to perform under the contract and      has provided credit assurance to TVA, per the terms of the      contract. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Alcoa Power Generating,      Inc.  Four hydroelectric plants owned by Alcoa Power      Generating, Inc. (“APGI”), formerly known as Tapoco, Inc, are operated in      coordination with the TVA system. Under contractual arrangements with APGI      which terminate on June 20, 2010, TVA dispatches the electric power      generated at these facilities and uses it to partially supply Alcoa’s      energy needs.  TVA’s arrangement with APGI provides 348      megawatts of winter net dependablecapacity. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Invenergy TN      LLC.  TVA has contracted with Invenergy TN LLC for 27      megawatts of wind energy generation from 15 wind turbine generators      located on Buffalo Mountain near Oak Ridge, Tennessee.  Because of      the nature of wind conditions in the TVA service area, these generators      provide energy benefits but are not included in TVA’s net dependable      capacity total.  TVA's contract with Invenergy TN LLC expires on      December 31, 2024. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •   | Southeastern Power      Administration.  TVA, along with others, contracted with      the Southeastern Power Administration (“SEPA”) to obtain power from eight      U.S. Army Corps of Engineers hydroelectric facilities on the Cumberland      River system.  The agreement with SEPA can be terminated upon      three years’ notice, but this notice of termination may not become      effective prior to June 30, 2017.  The contract originally      required SEPA to provide TVA an annual minimum of 1,500 hours of power for      each megawatt of TVA’s 405 megawatt allocation, and all surplus power from      the Cumberland River system.  Because hydroelectric production      has been reduced at two of the hydroelectric facilities on the Cumberland      River system (Wolf Creek and Center Hill Dams) and because of reductions      in the summer stream flow on the Cumberland River, SEPA declared “force      majeure” on February 25, 2007.  SEPA then instituted an      emergency operating plan that: |
|--------|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | Eliminates      its obligation to provide any affected customer (including TVA) with a      minimum amount of power; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

|   | – | Provides      for all affected customers (except TVA) to receive a pro rata share of a      portion of the gross hourly generation from the eight Cumberland River      hydroelectric facilities; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | Provides      for TVA to receive all of the remaining hourly generation (minus station      service for those facilities); |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------|

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|   | – | Eliminates      the payment of demand charges by customers (including TVA) since there is      significantly reduced dependable capacity on the Cumberland River system;      and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | Increases      the rate charged per kilowatt-hour of energy received by SEPA’s customers      (including TVA), because SEPA is legally required to charge rates that      cover its costs. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                           |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |   | 2003   |   |
|------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Millions      of kWh                           |   |   | 22,141 |   |   |   | 19,019 |   |   |   | 14,892 |   |   |   | 14,025 |   |   |   | 15,181 |   |
| Percent      of TVA’s Total Power Supply |   |   | 12.4   |   |   |   | 10.9   |   |   |   | 8.5    |   |   |   | 8.3    |   |   |   | 9.1 |   |

|   | * | Purchased      power amounts for years 2004, 2005, and 2006 have been adjusted to remove      APGI purchases and include them as a credit to Industries directly      served. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | TVA      purchased two additional combustion turbine facilities in December 2006      that together provide approximately 1,296 megawatts of winter net      dependable capacity.  See Item 1, Business — Power Supply — Combustion Turbines and Future      Combined Cycle Facility. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Browns      Ferry Nuclear Plant Unit 1 (“Browns Ferry Unit 1”) began commercial      operation on August 1, 2007.  Browns Ferry Unit 1 is initially      providing additional generating capacity of approximately 1,150 megawatts      and is expected eventually to provide approximately 1,280 megawatts of      capacity.  See Item 1, Business —    Nuclear. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | On      August 1, 2007, the TVA Board approved the completion of Watts Bar Nuclear      Plant Unit 2 (“Watts Bar Unit 2”) upon which construction was halted in      1985.  Completing Watts Bar Unit 2 is expected to take 60 months      and cost approximately $2.5 billion, excluding allowance for funds used      during construction and initial nuclear fuel core costs. When completed,      the nuclear unit is expected to provide 1,180 megawatts of      capacity.  See Item 1, Business — Nuclear. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | In      September 2007, the TVA Board approved proceeding with the construction of      a combined cycle facility at a former combustion turbine site of      approximately 80 acres located in southwest Tennessee.  See Item      1, Business — Power      Supply — Combustion Turbines and Future      Combined Cycle Facility. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   Source      of Capacity                          |   Location |   | Number      of Units |   |   | Winter Net Dependable Capacity      1 (MW) |   |   | Summer Net Dependable Capacity      1      (MW) |   | Date      First Unit Placed in Service | Date      Last Unit Placed in Service |
|--------------------------------------------------------------|----------------------|--------|----------------------|--------|--------|--------------------------------------------|--------|--------|-------------------------------------------------|--------|----------------------------------------|---------------------------------------|
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |
| TVA-OWNED GENERATING    FACILITIES                           |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |
| Coal-Fired                                                   |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |
|     Allen                                | Tennessee            |   |                 | 3      |   |                                       |   | 744    |                                            |   |                                   | 735                                   |   | 1959 | 1959 |
|     Bull      Run                        | Tennessee            |   |                 | 1      |   |                                       |   | 889    |                                            |   |                                   | 889                                   |   | 1967 | 1967 |
|     Colbert                              | Alabama              |   |                 | 5      |   |                                       |   | 1,197  |                                            |   |                                   | 1,180                                 |   | 1955 | 1965 |
|     Cumberland                           | Tennessee            |   |                 | 2      |   |                                       |   | 2,532  |                                            |   |                                   | 2,478                                 |   | 1973 | 1973 |
|     Gallatin                             | Tennessee            |   |                 | 4      |   |                                       |   | 976    |                                            |   |                                   | 964                                   |   | 1956 | 1959 |
|     John      Sevier                     | Tennessee            |   |                 | 4      |   |                                       |   | 712    |                                            |   |                                   | 704                                   |   | 1955 | 1957 |
|     Johnsonville                         | Tennessee            |   |                 | 10     |   |                                       |   | 1,248  |                                            |   |                                   | 1,200                                 |   | 1951 | 1959 |
|     Kingston                             | Tennessee            |   |                 | 9      |   |                                       |   | 1,433  |                                            |   |                                   | 1,411                                 |   | 1954 | 1955 |
|     Paradise                             | Kentucky             |   |                 | 3      |   |                                       |   | 2,324  |                                            |   |                                   | 2,201                                 |   | 1963 | 1970 |
|     Shawnee                              | Kentucky             |   |                 | 10     |   |                                       |   | 1,369  |                                            |   |                                   | 1,329                                 |   | 1953 | 1956 |
|     Widows      Creek                    | Alabama              |   |                 | 8      |   |                                       |   | 1,628  |                                            |   |                                   | 1,604                                 |   | 1952 | 1965 |
| Total      Coal-Fired                                        |                 |   |                 | 59     |   |                                       |   | 15,052 |                                            |   |                                   | 14,695                                |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| Nuclear                                                      |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
|     Browns      Ferry                    | Alabama              |   |                 | 3      |   |                                       |   | 3,383  |                                            |   |                                   | 3,280                                 |   | 1974 | 1977 |
|     Sequoyah                             | Tennessee            |   |                 | 2      |   |                                       |   | 2,333  |                                            |   |                                   | 2,282                                 |   | 1981 | 1982 |
|     Watts      Bar                       | Tennessee            |   |                 | 1      |   |                                       |   | 1,182  |                                            |   |                                   | 1,109                                 |   | 1996 | 1996 |
| Total      Nuclear                                           |                 |   |                 | 6      |   |                                       |   | 6,898  |                                            |   |                                   | 6,671                                 |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| Hydroelectric                                                |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
|     Conventional      Plants             | Alabama              |   |                 | 36     |   |                                       |   | 1,146  |                                            |   |                                   | 1,188                                 |   | 1925 | 1962 |
|                                                         | Georgia              |   |                 | 2      |   |                                       |   | 32     |                                            |   |                                   | 35                                    |   | 1931 | 1956 |
|                                                         | Kentucky             |   |                 | 5      |   |                                       |   | 165    |                                            |   |                                   | 218                                   |   | 1944 | 1948 |
|                                                         | North      Carolina  |   |                 | 6      |   |                                       |   | 455    |                                            |   |                                   | 489                                   |   | 1940 | 1956 |
|                                                         | Tennessee            |   |                 | 60     |   |                                       |   | 1,735  |                                            |   |                                   | 1,918                                 |   | 1912 | 1972 |
|     Pumped      Storage                  | Tennessee            |   |                 | 4      |   |                                       |   | 1,653  |                                            |   |                                   | 1,653                                 |   | 1978 | 1979 |
| Total      Hydroelectric                                     |                 |   |                 | 113    |   |                                       |   | 5,186  |                                            |   |                                   | 5,501                                 |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| Combustion Turbine2                                          |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
|     Allen                                | Tennessee            |   |                 | 20     |   |                                       |   | 597    |                                            |   |                                   | 478                                   |   | 1971 | 1972 |
|     Colbert                              | Alabama              |   |                 | 8      |   |                                       |   | 480    |                                            |   |                                   | 384                                   |   | 1972 | 1972 |
|     Gallatin                             | Tennessee            |   |                 | 8      |   |                                       |   | 790    |                                            |   |                                   | 636                                   |   | 1975 | 2000 |
|     Gleason      3                       | Tennessee            |   |                 | 3      |   |                                       |   | 540    |                                            |   |                                   | 519                                   |   | 2007 | 2007 |
|     Johnsonville                         | Tennessee            |   |                 | 20     |   |                                       |   | 1,509  |                                            |   |                                   | 1,218                                 |   | 1975 | 2000 |
|     Kemper                               | Mississippi          |   |                 | 4      |   |                                       |   | 390    |                                            |   |                                   | 329                                   |   | 2001 | 2001 |
|     Lagoon      Creek                    | Tennessee            |   |                 | 12     |   |                                       |   | 1,196  |                                            |   |                                   | 1,009                                 |   | 2002 | 2002 |
|     Marshall      County                 | Kentucky             |   |                 | 8      |   |                                       |   | 756    |                                            |   |                                   | 659                                   |   | 2007 | 2007 |
| Total      Combustion Turbine                                |                 |   |                 | 83     |   |                                       |   | 6,258  |                                            |   |                                   | 5,232                                 |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| Diesel Generator                                             |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
|     Meridian                             | Mississippi          |   |                 | 5      |   |                                       |   | 9      |                                            |   |                                   | 9                                     |   | 1998 | 1998 |
|     Albertville                          | Alabama              |   |                 | 4      |   |                                       |   | 4      |                                            |   |                                   | 4                                     |   | 2000 | 2000 |
| Total      Diesel Generators                                 |                 |   |                 | 9      |   |                                       |   | 13     |                                            |   |                                   | 13                                    |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| Renewable      Resources                                     |                 |   |                 |   |   |                                       |   | 3      |                                            |   |                                   | 3                                     |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| Total      TVA-Owned Generation Facilities                   |                 |   |                 |   |   |                                       |   | 33,410 |                                            |   |                                   | 32,115                                |   |   |   |
|                                                         |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |   |
| POWER PURCHASE AND OTHER      AGREEMENTS                     |                 |   |                 |   |   |                                       |   |   |                                            |   |                                   |                                  |   |   |
|     APGI                                 |                 |   |                 |   |   |                                       |   | 348    |                                            |   |                                   | 347                                   |   |   |   |
|     Caledonia                            |                 |   |                 |   |   |                                       |   | 892    |                                            |   |                                   | 768                                   |   |   |   |
|     Choctaw                              |                 |   |                 |   |   |                                       |   | 440    |                                            |   |                                   | 440                                   |   |   |   |
|     Other      Power Purchase Agreements |                 |   |                 |   |   |                                       |   | 1,824  |                                            |   |                                   | 1,872                                 |   |   |   |
| Total      Power Purchase Agreements                         |                 |   |                 |   |   |                                       |   | 3,504  |                                            |   |                                   | 3,427                                 |   |   |   |
| Total      Net Dependable Capacity                           |                 |   |                 |   |   |                                       |   | 36,914 |                                            |   |                                   |  35,542                          |   |   |   |

|   | Notes     |
|--------|-------------------------------|

|   | (1) | Net      dependable capacity is defined as the ability of an electric system,      generating unit, or other system component to carry or generate power for      a specified time period excluding any fluctuations in capacity that may      occur due to planned outages, unplanned outages, and      deratings. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | As      of September 30, 2007, 24 of TVA’s combustion turbine units were leased to      private entities and leased back to TVA under long-term      leases. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Plant      does not have firm gas transportation or the ability to burn oil as a      back-up fuel; however, TVA forecasts available gas supply for Gleason      throughout the fiscal year. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Nuclear

|   Nuclear      Unit  |   Status                           |   | Installed Capacity (MW) |    |   | Net      Capacity Factor for 2007 |   |    | Date      of Expiration of Operating License |   |    | Date      of Expiration of Construction License |   |
|--------------------------------|----------------------------------------------|--------|-------------------------|---------|--------|-----------------------------------|--------|---------|----------------------------------------------|--------|---------|-------------------------------------------------|--------|
|                           |                                         |   |                    |    |   |                              |   |    |                                         |   |    |                                            |   |
| Sequoyah      Unit 1           | Operating                                    |   |                    | 1,221   |   |                              |   | 98.5    |                                         |   | 2020    |                                            |   | – |   |
| Sequoyah      Unit 2           | Operating                                    |   |                    | 1,221   |   |                              |   | 89.5    |                                         |   | 2021    |                                            |   | – |   |
| Browns      Ferry Unit 1       | Operating                                    |   |                    | 1,150   |   |                              |   | 85.6    | (1)                                          |   | 2033    |                                            |   | – |   |
| Browns      Ferry Unit 2       | Operating                                    |   |                    | 1,190   |   |                              |   | 74.0    |                                         |   | 2034    |                                            |   | – |   |
| Browns      Ferry Unit 3       | Operating                                    |   |                    | 1,190   |   |                              |   | 94.1    |                                         |   | 2036    |                                            |   | – |   |
| Watts      Bar Unit 1          | Operating                                    |   |                    | 1,230   |   |                              |   | 82.3    |                                         |   | 2035    |                                            |   | – |   |
| Watts      Bar Unit 2      (2) | Construction      to resume in December 2007 |   |                    | – |   |                              |   | – |                                         |   | – |                                            |   | 2010 |   |
|                           |                                         |   |                    |    |   |                              |   |    |                                         |   |    |                                            |   |   |   |

|   | Notes     |
|--------|-------------------------------|

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Fuel Supply

|                    |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |   | 2003   |   |
|-------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Coal                    |   | $      | 1,922  |   |   | $      | 1,835  |   |   | $      | 1,495  |   |   | $      | 1,254  |   |   | $ | 1,242 |   |
| Natural      gas        |   |   | 62     |   |   |   | 60     |   |   |   | 63     |   |   |   | 22     |   |   |   | 42 |   |
| Fuel      oil           |   |   | 22     |   |   |   | 46     |   |   |   | 28     |   |   |   | 17     |   |   |   | 40 |   |
| Uranium                 |   |   | 121    |   |   |   | 71     |   |   |   | 44     |   |   |   | 16     |   |   |   | 42 |   |
|    Total |   | $      | 2,127  |   |   | $      | 2,012  |   |   | $      | 1,630  |   |   | $      | 1,309  |   |   | $ | 1,366 |   |

|                                        |   | 2007    |      | 2006   |    | 2005      |   | 2004    |      | 2003   |    |
|---------------------------------------------|--------|---------|-----------|--------|---------|-----------|--------|---------|-----------|--------|---------|
|                                        |   |    |      |   |    |      |   |    |      |   |    |
|        Cost      of Fuel (in millions) |   |  $ | 430  |   |  $ | 288  |   |  $ | 159  |   |  $ | 10  |   |  $ | <1  |   |
| Average      Fuel Expense (cents/kWh)       |   |    | 5.51      |   |    | 6.07      |   |    | 6.21      |   |    | 4.71 |   |   | 0.00 |   |

| •   | 37      percent from the Illinois Basin; |
|---------------------|------------------------------------------|

| •   | 24      percent from the Powder River Basin inWyoming; |
|---------------------|--------------------------------------------------------|

| •   | 23      percent from the Uinta Basin of Utah and Colorado;  and |
|---------------------|-----------------------------------------------------------------|

| •   | 16      percent from the Appalachian Basin of Kentucky, Pennsylvania, Tennessee,      Virginia, and West Virginia. |
|---------------------|--------------------------------------------------------------------------------------------------------------------|

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Transmission

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Stewardship

Weather and Seasonality

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Competition

Regulation

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| •   | Under      section 210 of the FPA, TVA can be ordered to interconnect its      transmission facilities with the electrical facilities of qualified      generators and other electric utilities that meet certain      requirements.  It must be found that the requested      interconnection is in the public interest and would either encourage      conservation of energy or capital, optimize efficiency of facilities or      resources, or improve reliability.  The requirements of      section 212 concerning the terms and conditions of interconnection,      including reimbursement of costs, must also be  met. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Under      section 211 of the FPA, TVA can be ordered to transmit power at      wholesale provided that the order does not impair the reliability of the      TVA or surrounding systems and likewise meets the applicable requirements      of section 212 concerning terms, conditions, and rates for      service.  Under section 211A of the FPA, TVA is subject to FERC      review of the transmission rates and the terms and conditions of service      that TVA provides others to ensure comparability of treatment of such      service with TVA’s own use of its transmission system.  With the      exception of wheeling power to Bristol, Virginia, the anti-cherrypicking      provision of the FPA precludes TVA from being ordered to wheel another      supplier’s power to a customer if the power would be consumed within TVA’s      defined service territory. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Sections      221 and 222 of the FPA, applicable to all market participants, including      TVA, prohibit (i) using manipulative or deceptive devices or      contrivances in connection with the purchase or sale of power or      transmission services subject to FERC’s jurisdiction and (ii) reporting      false information on the price of electricity sold at wholesale or the      availability of transmission capacity to a federal agency with intent to      fraudulently affect the data being compiled by the  agency. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Section      206(e) of the FPA provides FERC with authority to order refunds of      excessive prices on short-term sales (transactions lasting 31 days or      less) by all market participants, including TVA, in market manipulation      and price gouging situations if such sales are under a FERC-approved      tariff. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Section      220 of the FPA provides FERC with authority to issue regulations requiring      the reporting, on a timely basis, of information about the availability      and prices of wholesale power and transmission service by all market      participants, including TVA. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Under      sections 306 and 307 of the FPA, FERC may investigate electric      industry practices, including TVA’s operations previously mentioned that      are subject to FERC’s jurisdiction. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Under      sections 316 and 316A of the FPA, FERC has authority to impose      criminal penalties and civil penalties of up to $1 million a day for      each violation on entities subject to the provisions of Part II of      the FPA, which includes the above provisions applicable to      TVA. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Payments in Lieu of Taxes

Environmental Matters

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Employee Relations

ITEM 1A.  RISK FACTORS

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Strategic Risks

| •   | TVA      could lose its protected serviceterritory. |
|---------------------|-----------------------------------------------------|

| –   | The      TVA Act provides that, subject to certain minor exceptions, neither TVA      nor its distributor customers may be a source of power supply outside of      TVA’s defined service area.  This provision is often called the      “fence” since it limits TVA’s sales activities to a specified service      area. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | The      Federal Power Act prevents FERC from ordering TVA to provide access to      others to its transmission lines for the purpose of delivering power to      customers within TVA’s defined service area, except to those customers      residing in Bristol, Virginia.  This provision is often called      the “anti-cherrypicking provision” since it prevents competitors from      “cherrypicking” TVA’s customers. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The TVA Board could lose its      sole authority to set rates for  electricity. |
|---------------------|---------------------------------------------------------------------------------|

| –   | TVA      might be unable to set rates at a level sufficient to generate adequate      revenues to service its financial obligations, properly operate and      maintain its power assets, and provide for reinvestment in its power      program; and |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | TVA      might become subject to additional regulatory oversight that could impede      TVA’s ability to manage itsbusiness. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA could become subject to      increased environmentalregulation. |
|---------------------|---------------------------------------------------------------------|

| •   | The      NRC could impose significant restrictions or requirements on      TVA. |
|---------------------|---------------------------------------------------------------------------------|

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| •   | TVA could lose responsibility      for managing the Tennessee Riversystem. |
|---------------------|----------------------------------------------------------------------------|

| •   | Congress      could take actions that lead to a downgrade of TVA’s credit      rating. |
|---------------------|----------------------------------------------------------------------------------------------|

| •   | TVA’s debt ceiling could      become more restrictive. |
|---------------------|--------------------------------------------------------------|

Operational Risks

| •   | Might      have to invest a significant amount of resources to repair or replace the      assets; |
|---------------------|---------------------------------------------------------------------------------------------------|

| •   | Might      be unable to operate the assets for a significant period of      time; |
|---------------------|-----------------------------------------------------------------------------------|

| •   | Might      have to purchase replacement power on the open  market; |
|---------------------|--------------------------------------------------------------------|

| •   | Might      not be able to meet its contractual obligations to deliver power;      and |
|---------------------|---------------------------------------------------------------------------------------|

| •   | Might      have to remediate collateral damage caused by a failure of the      assets. |
|---------------------|----------------------------------------------------------------------------------------|

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| •   | Compliance      with existing environmental laws and regulations may cost TVA more than it      anticipates. |
|---------------------|--------------------------------------------------------------------------------------------------------------|

| •   | At      some of TVA’s older facilities, it may be uneconomical for TVA to install      the necessary equipment to comply with future environmental laws, which      may cause TVA to shut down thosefacilities. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      may be responsible for on-site liabilities associated with the      environmental condition of facilities that it has acquired or developed,      regardless of when the liabilities arose and whether they are known or      unknown. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      may be unable to obtain or maintain all required environmental regulatory      approvals.  If there is a delay in obtaining any required      environmental regulatory approvals or if TVA fails to obtain, maintain, or      comply with any such approval, TVA may be unable to operate its facilities      or may have to pay fines orpenalties. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Financial Risks

| •   | Commodity Price      Risk.  Prices of commodities critical to TVA’s      operations, including coal, uranium, natural gas, fuel oil, emission      allowances, and electricity, have been extremely volatile in recent      years.  If TVA fails to effectively manage its commodity price      risk, TVA’s rates could increase and thereby cause customers to look for      alternative power suppliers. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Investment Price      Risk.  TVA is exposed to investment price risk in its      nuclear decommissioning trust, its asset retirement trust, and its pension      fund.  If the value of the investments held in the nuclear      decommissioning trust or the pension fund decreases significantly, TVA      could be required to make substantial unplanned contributions to these      funds, which would negatively affect TVA’s cash flows, results of      operations, and financialcondition. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Interest Rate      Risk.  Changes in interest rates could negatively affect      TVA’s cash flows, results of operations, and financial condition by      increasing the amount of interest that TVA pays on new bonds that it      issues, decreasing the return that TVA receives on its short-term      investments, decreasing the value of the investments in TVA’s pension fund      and trusts, and increasing the losses on the mark-to-market valuation of      certain derivative transactions into which TVA has  entered. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Credit      Risk.  TVA is exposed to the risk that its counterparties      will not be able to perform their contractual obligations.  If      TVA’s counterparties fail to perform their obligations, TVA’s cash flows,      results of operations, and financial condition could be adversely      affected.  In addition, the failure of a counterparty to perform      could make it difficult for TVA to perform its obligations, particularly      if the counterparty is a supplier of electricity or fuel to      TVA. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      downgrade would increase TVA’s interest expense by increasing the interest      rates that TVA pays on new Bonds that it issues.  An increase in      TVA’s interest expense would reduce the amount of cash available for other      purposes, which could result in the need to increase borrowings, to reduce      other expenses or capital investments, or to increase power      rates. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      significant downgrade could result in TVA’s having to post collateral      under certain physical and financial contracts that contain rating      triggers. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | A      downgrade below a contractual threshold could prevent TVA from borrowing      under two credit facilities totaling $2.5  billion. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      downgrade could lower the price of TVA securities in the secondary      market. |
|---------------------|----------------------------------------------------------------------------------------|

| •   | Provisions      of the pension and postretirement benefitplans; |
|---------------------|-----------------------------------------------------------------|

| •   | Changing      employee demographics; |
|---------------------|--------------------------------------|

| •   | Rates      of increase in compensation levels; |
|---------------------|------------------------------------------------|

| •   | Rates      of return on plan assets; |
|---------------------|--------------------------------------|

| •   | Discount      rates used in determining future benefit  obligations; |
|---------------------|----------------------------------------------------------------------|

| •   | Rates      of increase in health care costs; |
|---------------------|----------------------------------------------|

| •   | Levels      of interest rates used to measure the required minimum funding levels of      the plans; |
|---------------------|------------------------------------------------------------------------------------------------------|

| •   | Future      government regulation; and |
|---------------------|----------------------------------------|

| •   | Contributions      made to the plans. |
|---------------------|---------------------------------------|

| •   | The      value of the investments in the trust declines    significantly; |
|---------------------|---------------------------------------------------------------------------|

| •   | The      laws or regulations regarding nuclear decommissioning change the      decommissioning fundingrequirements; |
|---------------------|---------------------------------------------------------------------------------------------------------------------|

| •   | The      assumed real rate of return on plan assets, which is currently five      percent, is lowered by the TVABoard; |
|---------------------|------------------------------------------------------------------------------------------------------------------------|

| •   | Changes      in technology and experience related to decommissioning cause      decommissioning cost estimates to increase significantly;    or |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      is required to decommission a nuclear plant sooner than TVA      anticipates. |
|---------------------|----------------------------------------------------------------------------------------|

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Risks Related to TVA Securities

ITEM 1B.  UNRESOLVED STAFF COMMENTS

ITEM 2.  PROPERTIES

Generating Properties

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Transmission Properties

| •   | Approximately      15,800 circuit miles of transmission lines (primarily 500 kilovolt and 161      kilovolt lines); |
|---------------------|---------------------------------------------------------------------------------------------------------------------|

| •   | 495      transmission substations, power switchyards, and switching stations;      and |
|---------------------|----------------------------------------------------------------------------------------|

| •   | 68      individual interchange and 985 customer connection  points. |
|---------------------|---------------------------------------------------------------------|

Natural Resource Stewardship Properties

| •   | 11,000      miles of reservoir shoreline; |
|---------------------|-------------------------------------------|

| •   | 293,000      acres of reservoir land; |
|---------------------|---------------------------------------|

| •   | 650,000      surface acres of water; and |
|---------------------|------------------------------------------|

| •   | Over      100 public recreation facilities. |
|---------------------|---------------------------------------------|

Buildings

Disposal of Property

| •   | Under      Section 31 of the TVA Act, TVA has authority to dispose of surplus real      property at a public auction. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------|

| •   | Under      Section 4(k) of the TVA Act, TVA can dispose of real property for certain      specified purposes, including providing replacement lands for certain      entities whose lands were flooded or destroyed by dam or reservoir      construction and to grant easements and rights-of-way upon which are      located transmission or distributionlines. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Under      Section 15d(g) of the TVA Act, TVA can dispose of real property in      connection with the construction of generating plants or other facilities      under certain circumstances. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Under      40 U.S.C. § 1314, TVA has authority to grant easements for rights-of-way      or other purposes. |
|---------------------|------------------------------------------------------------------------------------------------------------------|

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ITEM 3.  LEGAL PROCEEDINGS

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6.  SELECTED FINANCIAL DATA

Statements of Income Data

|                                                                                              |   | 2007             |    |     | 2006             |   |    | 2005     |   |   | 2004    |     |   | 2003   |    |
|---------------------------------------------------------------------------------------------------|--------|------------------|---------|----------|------------------|--------|---------|----------|--------|--------|---------|----------|--------|--------|---------|
|                                                                                              |   | As      restated |    |     | As      restated |   |    |     |   |   |    |     |   |   |    |
| Operating      revenues1,      8                                                                  |   | $                | 9,326   |     |             | $      | 8,983   |     |   | $      | 7,792   |     |   | $      | 7,525   |   |   | $ | 6,954 |   |
| Revenue      capitalized during     pre-commercial      plant operations |   |             | (57     | )        |             |   | – |     |   |   | – |     |   |   | – |   |   |   | – |   |
| Operating      expenses 7,      9                                                                 |   |             | (7,726  | )      2 |             |   | (7,560  | )      2 |   |   | (6,455  | )      2 |   |   | (5,833  | )      3 |   |   | (5,379 | ) |
| Operating      income                                                                             |   |             | 1,543   |     |             |   | 1,423   |     |   |   | 1,337   |     |   |   | 1,692   |   |   |   | 1,575 |   |
| Other      income, net 1, 4,      7,      8                                                       |   |             | 71      |     |             |   | 78      |     |   |   | 57      |     |   |   | 64      |   |   |   | 46 |   |
| Unrealized      gain (loss) on     derivative      contracts, net        |   |             | 41      |     |             |   | (15     | )        |   |   | 3       |     |   |   | (7      | ) |   |   | (7 | ) |
| Net      interest expense 4,      9                                                               |   |             | (1,232  | )        |             |   | (1,264  | )        |   |   | (1,312  | )        |   |   | (1,363  | ) |   |   | (1,387 | ) |
| Cumulative      effect of accounting changes                                                      |   |             | – |     |             |   | (109    | )      5 |   |   | – |     |   |   | – |   |   |   | 217 | 6 |
| Net      income                                                                                   |   | $                | 423     |     |             | $      | 113     |     |   | $      | 85      |     |   | $      | 386     |   |   | $ | 444 |   |

|   | Notes     |
|--------|-------------------------------|

|   | (1) | Prior      to 2007, TVA reported certain revenue not directly associated with revenue      derived from electric operations as Other revenue.  This income      of $10 million, $12 million, $8 million, and $7 million for 2006, 2005,      2004, and 2003, respectively, has been reclassified from Other revenue to      Other income.  Additionally, certain items not directly      associated with the sale of electricity were previously reported as Sales      of electricity.  This revenue of $22 million, $23 million, $22      million, and $22 million for 2006, 2005, 2004, and 2003, respectively, has      been reclassified from Sales of electricity to Other      revenue.  See Note 1 —Reclassifications. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | During      2007, 2006 and 2005, TVA recognized a total of $21 million, $14 million,      and $24 million, respectively, in impairment losses related to its      Property, plant, and equipment.  The 2007 Loss on asset      impairment included a $17 million write-down of a scrubber project at      TVA’s Colbert Fossil Plant (“Colbert”) and write-downs of $4 million      related to other Construction in progress assets.  The 2006 Loss      on asset impairment included write-downs of $12 million on certain      Construction in progress assets related to new pollution-control and other      technologies that had not been proven effective and a re-evaluation of      other projects due to funding limitations and a $2 million write-down on      one of two buildings in TVA’s Knoxville Office Complex based on TVA’s      plans to sell or lease the East Tower of the Knoxville Office      Complex.  The 2005 Loss on asset impairment included a $16      million write-down on certain Construction in progress assets related to      new pollution-control and other technologies that had not been proven      effective and a re-evaluation of other projects due to funding limitations      and an $8 million write-down on one of two buildings in TVA’s Knoxville      Office Complex based on TVA’s plans to sell or lease the East Tower of the      Knoxville Office Complex. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | During      2004, TVA was notified by a supplier that it would not proceed with      manufacturing of fuel cells to be installed in the partially completed      Regenesys energy storage plant in Columbus,      Mississippi.  Accordingly, TVA recognized a net $20 million loss      on the cancellation of the Regenesysproject. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  (4) | Prior      to 2006, TVA reported short-term investment interest income with interest      expense.  Interest income of $19 million, $6 million, and $3      million for 2005, 2004, and 2003, respectively, has been reclassified from      Interest expense, net to Other income,net. |
|--------|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | During      2006, TVA adopted FIN No. 47, “Accounting for Conditional      Asset Retirement Obligations – an interpretation of FASB Statement No.      143,” which resulted in a cumulative effect charge to income of      $109 million and an increase in accumulated depreciation of $20      million.  See Note 5. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6) | The      cumulative effects of $217 million are due to two accounting      changes.  Effective October 1, 2002, the TVA Board approved a      change in the methodology for estimating unbilled revenue from electricity      sales.  The impact of this change resulted in an increase in      accounts receivable of $412 million with a cumulative effect gain for the      change in accounting for unbilled revenue.  In addition, TVA      adopted SFAS No. 143, “Accounting for Asset      Retirement Obligations,” which resulted in a cumulative effect      charge to income of $195 million and an increase in accumulated      depreciation of $206 million. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (7) | TVA      has certain service organizations which provide maintenance and testing      services to customers both inside and outside of TVA.  For 2005,      the excess of cost recovery over actual cost and services provided to TVA      organizations of $12 million has been reclassified from Other income to      Operating expense.  See Note 1 — Reclassifications. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8) | Certain      items previously reported as revenue under Other revenue  were      reclassified as Other income.  These items were not directly      associated with revenue derived from electric operations but are      associated with the operation of service organizations which provide      environmental and maintenance and testing services.  Previously      reported revenue from these items of approximately $5 million, $13      million, and $7 million for 2005, 2004, and 2003, respectively, are now      included in Other income.  Additionally, certain Other      revenue related to income derived from electric operations was      recorded net of related expenses.  Expenses of $15 million, $13      million and $15 million for 2005, 2004, and 2003, respectively, have been      reclassified from Other      revenue to operating expenses. See Note 1 — Reclassifications. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (9) | Subsequent      to 2005, certain financing charges related to leaseback obligations were      recorded as Operating      and maintenance expense.   Beginning with 2006,      these financing charges are classified as interest      expense.  Previously reported financing charges of approximately      $51 million, $53 million, and $34 million for 2005, 2004, and 2003,      respectively, are now included in Interest on debt and leaseback      obligations.  See Note 1 — Reclassifications. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Balance Sheets Data

|                                                   |   | 2007             |   |   | 2006             |   |   | 2005   |   |   | 2004   |   |   |   | 2003      1 |   |
|--------------------------------------------------------|--------|------------------|--------|--------|------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------------|--------|
|                                                   |   | As      restated |   |   | As      restated |   |   |   |   |   |   |   |   |   |        |   |
| Assets                                                 |   |             |   |   |             |   |   |   |   |   |   |   |   |   |        |   |
|   Current      assets 2                      |   | $                | 2,436  |   |             | $      | 2,513  |   |   | $      | 2,176  |   |   | $      | 2,295       |   |   | $ | 2,238 |   |
|   Property,      plant, and equipment, net   |   |             | 24,832 |   |             |   | 24,421 |   |   |   | 23,888 |   |   |   | 23,699      |   |   |   | 23,125 |   |
|   Investment      funds                      |   |             | 1,169  |   |             |   | 972    |   |   |   | 858    |   |   |   | 744         |   |   |   | 638 |   |
|   Regulatory      and other long-term assets |   |             | 5,295  |   |             |   | 6,402  |   |   |   | 7,551  |   |   |   | 7,451       |   |   |   | 7,027 |   |
| Total      assets                                      |   | $                | 33,732 |   |             | $      | 34,308 |   |   | $      | 34,473 |   |   | $      | 34,189      |   |   | $ | 33,028 |   |
|                                                   |   |             |   |   |             |   |   |   |   |   |   |   |   |   |        |   |   |   |   |   |
|                                                   |   |             |   |   |             |   |   |   |   |   |   |   |   |   |        |   |   |   |   |   |
| Liabilities      and proprietary capital               |   |             |   |   |             |   |   |   |   |   |   |   |   |   |        |   |   |   |   |   |
|   Current      liabilities 2                 |   | $                | 3,429  |   |             | $      | 5,229  |   |   | $      | 6,724  |   |   | $      | 5,420       |   |   | $ | 5,819 | 3 |
|   Regulatory      and other liabilities      |   |             | 6,400  |   |             |   | 7,052  |   |   |   | 7,606  |   |   |   | 7,168       |   |   |   | 5,114 |   |
|   Long-term      debt, net                   |   |             | 21,099 |   |             |   | 19,544 |   |   |   | 17,751 |   |   |   | 19,337      |   |   |   | 20,201 |   |
| Total      liabilities                                 |   |             | 30,928 |   |             |   | 31,825 |   |   |   | 32,081 |   |   |   | 31,925      |   |   |   | 31,134 |   |
|                                                   |   |             |   |   |             |   |   |   |   |   |   |   |   |   |        |   |   |   |   |   |
|   Retained      earnings                     |   |             | 1,763  |   |             |   | 1,349  |   |   |   | 1,244  |   |   |   | 1,162       |   |   |   | 783 |   |
|   Other      proprietary capital             |   |             | 1,041  |   |             |   | 1,134  |   |   |   | 1,148  |   |   |   | 1,102       |   |   |   | 1,111 |   |
| Total      proprietary capital                         |   |             | 2,804  |   |             |   | 2,483  |   |   |   | 2,392  |   |   |   | 2,264       |   |   |   | 1,894 |   |
| Total      liabilities and proprietary capital         |   | $                | 33,732 |   |             | $      | 34,308 |   |   | $      | 34,473 |   |   | $      | 34,189      |   |   | $ | 33,028 |   |

|   | (1) | Prior      to 2004, TVA presented two balance sheets – one for its power program and      one for all programs.  The 2003 Balance Sheet presented above is      for all programs which is consistent with the presentation for 2004, 2005,      2006, and 2007. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | In      2006, TVA began to apply certain customer advances previously reported as      Current liabilities as a reduction to Accounts receivable.  The      advances were $93 million in 2005, $91 million in 2004, and $83 million in      2003 and reduced both Current assets and Current liabilities by the same      amount. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | TVA      reclassified $5 million related to discounted energy units from a      long-term liability to a short-term liability in  2003. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------|

Financial Obligations

|                                                     |   | 2007   |   |   | 2006   |   |   | 2005   |   |   | 2004   |   |   | 2003   |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Net      long-term debt, excluding current maturities    |   | $      | 21,099 |   |   | $      | 19,544 |   |   | $      | 17,751 |   |   | $      | 19,337 |   |   | $ | 20,201 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      long-term obligations                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      leases *                                    |   |   | 104    |   |   |   | 128    |   |   |   | 150    |   |   |   | 138    |   |   |   | 151 |   |
| Leaseback      commitments                               |   |   | 1,072  |   |   |   | 1,108  |   |   |   | 1,143  |   |   |   | 1,178  |   |   |   | 1,238 |   |
| Energy      prepayment obligations                       |   |   | 1,138  |   |   |   | 1,244  |   |   |   | 1,350  |   |   |   | 1,455  |   |   |   | 47 |   |
| Total      other long-term obligations                   |   |   | 2,314  |   |   |   | 2,480  |   |   |   | 2,643  |   |   |   | 2,771  |   |   |   | 1,436 |   |
|     Total      long-term obligations |   |   | 23,413 |   |   |   | 22,024 |   |   |   | 20,394 |   |   |   | 22,108 |   |   |   | 21,637 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      notes                                      |   |   | 1,422  |   |   |   | 2,376  |   |   |   | 2,469  |   |   |   | 1,924  |   |   |   | 2,080 |   |
| Current      maturities of long-term debt, net           |   |   | 90     |   |   |   | 985    |   |   |   | 2,693  |   |   |   | 2,000  |   |   |   | 2,336 |   |
|    Total      short-term obligations      |   |   | 1,512  |   |   |   | 3,361  |   |   |   | 5,162  |   |   |   | 3,924  |   |   |   | 4,416 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      financial obligations                         |   | $      | 24,925 |   |   | $      | 25,385 |   |   | $      | 25,556 |   |   | $      | 26,032 |   |   | $ | 26,053 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

Business Overview

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Executive Summary

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|   | • | Eliminates      its obligation to provide any affected customer (including TVA) with a      minimum amount of power; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

|   | • | Provides      for all affected customers (except TVA) to receive a pro rata share of a      portion of the gross hourly generation from the eight Cumberland River      hydroelectric facilities; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Provides      for TVA to receive all of the remaining hourly generation (minus station      service for those facilities); |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------|

|   | • | Eliminates      the payment of demand charges by customers (including TVA) since there is      significantly reduced dependable capacity on the Cumberland River system;      and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Increases      the rate charged per kilowatt-hour of energy received by SEPA’s customers      (including TVA), because SEPA is legally required to charge rates that      cover its costs. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | • | New      Generation.  TVA intends to add new generation      assets.  This intention was reflected in TVA’s decision to      complete the construction of Watts Bar Nuclear Unit 2.  The      completion of Watts Bar Nuclear Unit 2 is expected to occur in 2013 and      cost approximately $2.5 billion.  TVA plans to consider other      opportunities to add new generation from time to time.  Market      conditions, like the volatility of the price of construction materials and      the potential shortage of skilled craft labor, may add uncertainties to      the cost and schedule of newconstruction. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Purchased      Power.  Purchasing power from others will likely remain a      part of how TVA meets the power needs of its service area.  The      Strategic Plan establishes a goal of balancing production capabilities      with power supply requirements within five percent.  Achieving      this goal will require TVA to reduce its reliance on purchased power,      which constituted 12.4 percent of the power that TVA sold in      2007. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Distributor-Owned      Generation.  TVA is also discussing with the distributors      of TVA power ways in which distributors can own generating facilities      while TVA remains the supplier of all of their power      requirements.  These discussions, while still in the early      stages, may provide the framework for the distributors of TVA power to      provide some of the future generating  facilities. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | TVA      intends to reduce these costs over the next three  years. |
|---------------------|--------------------------------------------------------------------|

| •   | After      that time, TVA intends to keep the rate of increase in these costs lower      than the rate of growth of TVA’s electricity  sales. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

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Liquidity and Capital Resources

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| Summary      Cash FlowsFor      the years ended September 30 |   |
|--------------------------------------------------------------|--------|
|                                                         |   | 2007 |   |   | 2006 |   |   | 2005 |   |
| Cash      provided by (used in):                             |   | As      Restated |   |   | As      Restated |   |   |   |   |
| Operating      activities                                    |   | $ | 1,788 |   |   | $ | 1,985 |   |   | $ | 1,462 |   |
| Investing      activities                                    |   |   | (1,686 | ) |   |   | (1,698 | ) |   |   | (1,188 | ) |
| Financing      activities                                    |   |   | (473 | ) |   |   | (289 | ) |   |   | (255 | ) |
| Net      (decrease) increase in cash and cash equivalents    |   | $ | (371 | ) |   | $ | (2 | ) |   | $ | 19 |   |

| •   | Operation,      maintenance, and administration of its power  system; |
|---------------------|-----------------------------------------------------------------------|

| •   | Payments      to states and counties in lieu oftaxes; |
|---------------------|-------------------------------------------------------|

| •   | Debt      service on outstanding Bonds; |
|---------------------|-----------------------------------------|

| •   | Payments      to the U.S. Treasury as a repayment of and a return on the Power      Facilities Appropriation Investment;and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------|

| •   | Such      additional margin as the TVA Board may consider desirable for investment      in power system assets, retirement of outstanding Bonds in advance of      maturity, additional reduction of the Power Facilities Appropriation      Investment, and other purposes connected with TVA’s power business, having      due regard for the primary objectives of the TVA Act, including the      objective that power shall be sold at rates as low as are      feasible. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      depreciation accruals and other charges representing the amortization of      capital expenditures, and |
|---------------------|------------------------------------------------------------------------------------------------------------------|

| •   | The      net proceeds from any disposition of power  facilities, |
|---------------------|------------------------------------------------------------------|

| •   | The      reduction of its capital obligations (including Bonds and the Power      Facilities Appropriation Investment),or |
|---------------------|---------------------------------------------------------------------------------------------------------------------------|

| •   | Investment      in power assets. |
|---------------------|----------------------------------|

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| CUSIP      or Other Identifier                  |   | Maturity                     |   | Coupon      Rate |                              | PrincipalAmount      1 |   | Stock      Exchange Listings |
|-------------------------------------------------|--------|------------------------------|--------|------------------|-----------------------------------|------------------------|--------|------------------------------|
|                                            |   |                         |   |             |                              |                   |   |                         |   |   |   |   |
| electronotes®                              |   | 01/15/2008      - 10/15/2026 |   |             | 2.450%      - 6.125%      2  |                   | $      | 1,117                        |   | None |
| 880591DB5                                       |   | 11/13/2008                   |   |             | 5.375%                            |                   |   | 2,000                        |   | New      York, Hong Kong, Luxembourg, Singapore |
| 880591DN9                                       |   | 01/18/2011                   |   |             | 5.625%                            |                   |   | 1,000                        |   | New      York, Luxembourg |
| 880591DL3                                       |   | 05/23/2012                   |   |             | 7.140%                            |                   |   | 29                           |   | New      York |
| 880591DT6                                       |   | 05/23/2012                   |   |             | 6.790%                            |                   |   | 1,486                        |   | New      York |
| 880591CW0                                       |   | 03/15/2013                   |   |             | 6.000%                            |                   |   | 1,359                        |   | New      York, Hong Kong, Luxembourg, Singapore |
| 880591DW9                                       |   | 08/01/2013                   |   |             | 4.750%                            |                   |   | 990                          |   | New      York, Luxembourg |
| 880591DY5                                       |   | 06/15/2015                   |   |             | 4.375%                            |                   |   | 1,000                        |   | New      York, Luxembourg |
| 880591DS8                                       |   | 12/15/2016                   |   |             | 4.875%                            |                   |   | 524                          |   | New      York |
| 880591EA6                                       |   | 07/18/2017                   |   |             | 5.500%                            |                   |   | 1,000                        |   | New      York, Luxembourg |
| 880591CU4                                       |   | 12/15/2017                   |   |             | 6.250%                            |                   |   | 750                          |   | New      York |
| 880591DC3                                       |   | 06/07/2021                   |   |             | 5.805%3                           |                   |   | 409                          |   | New      York, Luxembourg |
| 880591CJ9                                       |   | 11/01/2025                   |   |             | 6.750%                            |                   |   | 1,350                        |   | New      York, Hong Kong, Luxembourg, Singapore |
|  880591300                                 |   | 06/01/2028                   |   |             | 5.490%                            |                   |   | 466                          |   | New      York |
|  880591409                                 |   | 05/01/2029                   |   |             | 5.618%                            |                   |   | 410                          |   | New      York |
| 880591DM1                                       |   | 05/01/2030                   |   |             | 7.125%                            |                   |   | 1,000                        |   | New      York, Luxembourg |
| 880591DP4                                       |   | 06/07/2032                   |   |             | 6.587%                            |                   |   | 512                          |   | New      York, Luxembourg |
| 880591DV1                                       |   | 07/15/2033                   |   |             | 4.700%                            |                   |   | 472                          |   | New      York, Luxembourg |
| 880591DX7                                       |   | 06/15/2035                   |   |             | 4.650%                            |                   |   | 436                          |   | New      York |
| 880591CK6                                       |   | 04/01/2036                   |   |             | 5.980%                            |                   |   | 121                          |   | New      York |
| 880591CS9                                       |   | 04/01/2036                   |   |             | 5.880%                            |                   |   | 1,500                        |   | New      York |
| 880591CP5                                       |   | 01/15/2038                   |   |             | 6.150%                            |                   |   | 1,000                        |   | New      York |
| 880591BL5                                       |   | 04/15/2042                   |   |             | 8.250%                            |                   |   | 1,000                        |   | New      York |
| 880591DU3                                       |   | 06/07/2043                   |   |             |         4.962%3         |                   |   | 307                          |   | New      York, Luxembourg |
| 880591CF7                                       |   | 07/15/2045                   |   |             | 6.235%                            |                   |   | 140                          |   | New      York |
| 880591DZ2                                       |   | 04/01/2056                   |   |             | 5.375%                            |                   |   | 1,000                        |   | New      York |
| Subtotal                                        |   |                         |   |             |                              |                   |   |                         |   | 21,378 |   |   |
| Unamortized      discounts, premiums, and other |   |                         |   |             | (189                              | )                      |   |
| Total      outstanding power bonds, net         |   |                         |   | $                | 21,189                            |                   |   |

----

Tableof Contents

| •   | In      2003, TVA monetized the call provisions on a $1 billion Bond issue and a      $476 million Bond issue by entering into swaption agreements with a third      party in exchange for $175 million and $81 million,      respectively. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | In      2005, TVA monetized the call provisions on two Bond issues ($42 million      total par value) by entering into swaption agreements with a third party      in exchange for $5 million. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Tableof Contents

|   | • | An      increase in cash paid for fuel and purchased power of $249 million due to      higher volume of fuel and purchased power needed to replace hydroelectric      generation as well as increased market prices for  fuel; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | An      increase in cash outlays for routine and recurring operating costs of $108      million; |
|--------|---------|--------------------------------------------------------------------------------------------------|

|   | • | An      increase in tax equivalent payments of $76 million;    and |
|--------|---------|-------------------------------------------------------------------------|

|   | • | An      increase in expenditures for nuclear refueling outages of $24 million due      to three planned outages in 2007 compared to two planned outages in the      prior year. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | These      items were partially offset by: |
|--------|--------------------------------------------|

|   | • | A      decrease of $154 million in cash used by changes in working capital      resulting primarily from a smaller increase in the accounts receivable      balance of $142 million and a larger increase in accounts payable and      accrued liabilities of $9 million; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Cash      provided by deferred items of $61 million in 2007 compared to a $35      million net use of cash in 2006.  This change is primarily due      to funds collected in rates during 2007 that were used to fund future      generation.  See Note 1— Reserve for Future      Generation; and |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | A      decrease in cash paid for interest of $33 million in  2007. |
|--------|---------|--------------------------------------------------------------------|

|   | • | A      source of cash from collateral deposits in 2007 of $48 million as compared      to a net use of cash of $91 million in 2006.  See Note 1 — Restricted Cash and      Investments; and |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •   | A      decrease in expenditures for the enrichment and fabrication of nuclear      fuel of $74 million related to the restart of Browns Ferry Unit 1 in      2007. |
|--------|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | An      increase in expenditures of $111 million to acquire the Gleason and      Marshall County combustion turbine facilities in  2007; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | A      $40 million contribution to the Asset Retirement Trust.  See      Note 1 — Investment      Funds; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------|

|   | • | A      damage award of $35 million that TVA received in 2006 in its breach of      contract suit against the DOE not present in 2007;  and |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | An      increase in expenditures for capital projects of $9    million. |
|--------|---------|-------------------------------------------------------------------------|

----

Tableof Contents

|   | • | A      decrease of $92 million in long-term debt issues;  and |
|--------|---------|---------------------------------------------------------------|

|   | • | An      increase in net redemptions of short-term debt of $862      million. |
|--------|---------|------------------------------------------------------------------------------|

| •   | An      increase in cash provided by operating revenues of $1.4 billion primarily      from higher average rates from rate actions effective in October 2005 and      April 2006 and, to a lesser extent, from increased demand in      2006; |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Less      cash paid for interest of $46 million in 2006;  and |
|---------------------|---------------------------------------------------------------|

| •   | A      decrease in expenditures for nuclear refueling outages of $50 million due      to the number and timing of outages during2006. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | These      items were partially offset by: |
|--------|--------------------------------------------|

| •   | An      increase in cash paid for fuel and purchased power of $734 million due to      higher volume and increased marketprices; |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------|

| •   | An      increase in payments in lieu of taxes of $11  million; |
|---------------------|----------------------------------------------------------------|

| •   | An      increase in cash outlays for routine and recurring operating costs of $44      million; |
|---------------------|-------------------------------------------------------------------------------------------------|

| •   | An      increase in other deferred items of $33 million primarily due to $15      million related to customer advances for construction;  and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| •   | An      increase in contributions to the TVA Retirement System of $22      million. |
|---------------------|-------------------------------------------------------------------------------------|

|   | •   | A      larger increase in accounts receivable of $195 million due to increased      sales of the prior year and higher rates in 2006;  and |
|--------|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | •   | A      larger increase in inventories of $108 million due to higher priced coal      and natural gas in ending inventory in 2006 and a higher volume of coal on      hand at the end of 2006. |
|--------|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Tableof Contents

|   | These      items were partially offset by: |
|--------|--------------------------------------------|

| •  | A      $96 million increase in accounts payable and accrued liabilities in 2006      compared to a $16 million decrease in 2005 primarily due to changes of $88      million in the amount of collateral held by TVA under terms of a swap      agreement and higher costs for fuel and purchased power;    and |
|---------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | •  | A      $23 million increase in accrued interest in 2006 compared to a $22 million      decrease in 2005 due to timing of interest payments on Bonds issued      relative to Bonds retired during2006. |
|--------|---------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Sales      of short-term investments of $335 million in 2005 with no comparable sales      in 2006; |
|---------------------|-----------------------------------------------------------------------------------------------------|

| •   | An      increase in expenditures for the enrichment and fabrication of nuclear      fuel of $136 million for the Sequoyah Unit 2 and Watts Bar Unit 1 reloads      scheduled to be completed in the first quarter of 2007, and expenditures      related to uranium conversion and enrichment for Browns Ferry Unit      1;  |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | An      increase in expenditures for capital projects of $31 million primarily due      to increases in transmission construction projects related to reliability      and load growth on the TVA system, including a substation and a 500-kv      transmission line on the bulk transmission system, an increase in      expenditures for nuclear projects of $17 million primarily for the Browns      Ferry Unit 1 restart, and a corresponding increase in allowance for funds      used during construction of $35 million; partially offset by decreases in      clean air expenditures of $20 million related to project completions and a      decrease in hydroelectric expenditures of $26 million; and  |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      decrease in proceeds received from the sale of certain receivables/loans      of $45 million compared to the same period of  2005. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      damage award in 2006 of $35 million in TVA’s breach of contract suit      against the DOE; and  |
|---------------------|-------------------------------------------------------------------------------------------------------------------|

| •   | A      smaller increase in collateral deposits in 2006 of $16 million as compared      to 2005.  See Note 1 — Restricted Cash and      Investments. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      decrease in issuance of long-term debt of $518 million;  |
|---------------------|----------------------------------------------------------------------|

| •   | Net      issuances of short-term debt of $546 million in 2005 compared to net      redemptions of short-term debt of $93 million in 2006;  and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | An      increase in payments to the U.S. Treasury of $2 million due to changes in      interest rates. |
|---------------------|--------------------------------------------------------------------------------------------------------|

| •   | A      decrease in redemptions of long-term debt of $1.1 billion in 2006 compared      to 2005. |
|---------------------|-------------------------------------------------------------------------------------------------|

----

Tableof Contents

|                                       |   | Actual |    |   | Estimated      Construction Expenditures |   |
|--------------------------------------------|--------|--------|---------|--------|------------------------------------------|--------|
|                                       |   | 2007   |    |   | 2008                                     |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |
| Watts      Bar Unit 2                      |   | $      | – |   |                                     | $      | 317 |   |   | $ | 670 |   |   | $ | 684 |   |   | $ | 547 |   |   | $ | 276 |   |
| Other      Capacity Expansion Expenditures |   |   | 520     |   |                                     |   | 691 |   |   |   | 789 |   |   |   | 1,026 |   |   |   | 961 |   |   |   | 512 |   |
| Clean      Air Expenditures                |   |   | 240     |   |                                     |   | 386 |   |   |   | 313 |   |   |   | 276 |   |   |   | 260 |   |   |   | 433 |   |
| Transmission      Expenditures 2           |   |   | 44      |   |                                     |   | 73 |   |   |   | 74 |   |   |   | 56 |   |   |   | 63 |   |   |   | 60 |   |
| Other      Capital Expenditures 3          |   |   | 448     |   |                                     |   | 506 |   |   |   | 550 |   |   |   | 430 |   |   |   | 500 |   |   |   | 513 |   |
| Total      Capital Projects Requirements   |   | $      | 1,252   | 4      |                                     | $      | 1,973 |   |   | $ | 2,396 |   |   | $ | 2,472 |   |   | $ | 2,331 |   |   | $ | 1,794 |   |

|   | (1) | TVA      plans to fund these expenditures with power revenues and proceeds from      power program financings.  This table shows only expenditures      that are currently planned.  Additional expenditures may be      required for TVA to meet the growing demand for power in its service      area. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Transmission      Expenditures include reimbursableprojects. |
|--------|-----|--------------------------------------------------------------|

|   | (3) | Other      Capital Expenditures are primarily associated with short lead time      construction projects aimed at the continued safe and reliable operation      of generating assets. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | The      numbers above exclude allowance for funds used during construction of $165      million in 2007. |
|--------|-----|-----------------------------------------------------------------------------------------------------------|

----

Tableof Contents

| Commitments      and ContingenciesPayments      due in the year ending September 30  |
|-------------------------------------------------------------------------------------------|

|                                                                                                                                 |   | Total  |   |   | 2008   |   |   | 2009   |   |   | 2010    |   |   | 2011   |    |   | 2012   |   |    | Thereafter |   |
|--------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|--------|---------|------------|--------|
|                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |       |   |
| Debt                                                                                                                                 |   | $      | 22,501 | 1      |   | $      | 1,512  |   |   | $      | 2,030   |   |   | $      | 62      |   |   | $      | 1,015   |       |   | $ | 1,525 |   |   | $ | 16,357 |   |
| Interest      payments relating to debt                                                                                              |   |   | 21,061 |   |   |   | 1,235  |   |   |   | 1,173   |   |   |   | 1,118   |   |   |   | 1,088   |       |   |   | 1,059 |   |   |   | 15,388 |   |
| Lease      obligations                                                                                                               |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |       |   |   |   |   |   |   |   |   |
|    Capital                                                                                                            |   |   | 209    |   |   |   | 59     |   |   |   | 58      |   |   |   | 57      |   |   |   | 29      |       |   |   | 3 |   |   |   | 3 |   |
|    Non-cancelable      operating                                                                                      |   |   | 421    |   |   |   | 63     |   |   |   | 47      |   |   |   | 37      |   |   |   | 28      |       |   |   | 27 |   |   |   | 219 |   |
| Purchase      obligations                                                                                                            |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |       |   |   |   |   |   |   |   |   |
|    Power                                                                                                              |   |   | 4,760  |   |   |   | 186    |   |   |   | 183     |   |   |   | 194     |   |   |   | 195     |       |   |   | 196 |   |   |   | 3,806 |   |
|    Fuel                                                                                                               |   |   | 3,149  |   |   |   | 1,220  |   |   |   | 527     |   |   |   | 504     |   |   |   | 232     |       |   |   | 223 |   |   |   | 443 |   |
|    Other                                                                                                              |   |   | 561    |   |   |   | 310    |   |   |   | 157     |   |   |   | 24      |   |   |   | 16      |       |   |   | 15 |   |   |   | 39 |   |
| Payments      on other financings                                                                                                    |   |   | 1,473  |   |   |   | 89     |   |   |   | 85      |   |   |   | 89      |   |   |   | 95      |       |   |   | 97 |   |   |   | 1,018 |   |
| Payment      to U.S. Treasury 2                                                                                                      |   |   |   |   |   |   |   |   |   |   |    |   |   |   |    |   |   |   |    |       |   |   |   |   |   |   |   |   |
|    Return      of Power Facilities         Appropriation      Investment |   |   | 130    |   |   |   | 20     |   |   |   | 20      |   |   |   | 20      |   |   |   | 20      |       |   |   | 20 |   |   |   | 30 |   |
|    Return      on Power Facilities         Appropriation      Investment |   |   | 258    |   |   |   | 19     |   |   |   | 22      |   |   |   | 21      |   |   |   | 20      |       |   |   | 18 |   |   |   | 158 |   |
| Retirement      plans                                                                                                                |   |   | 81     |   |   |   | 81     |   |   |   | – |   |   |   | – |   |   |   | – |       |   |   | – |   |   |   | – |   |
| Total                                                                                                                                |   | $      | 54,604 |   |   | $      | 4,794  |   |   | $      | 4,302   |   |   | $      | 2,126   |   |   | $      | 2,738   |       |   | $ | 3,183 |   |   | $ | 37,461 |   |

|   | (1) | Does      not include noncash items of foreign currency valuation loss of $299      million and net discount on sale of Bonds of $189  million. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | TVA has access to      financing arrangements with the U.S. Treasury whereby the U.S. Treasury is      authorized to accept from TVA a short-term note with the maturity of one      year or less in an amount not to exceed $150 million.  TVA may      draw any portion of the authorized $150 million during the      year.  TVA’s practice is to repay on a quarterly basis the      outstanding balance of the note and related interest.  Because      of this practice, there was no outstanding balance on the note as of      September 30, 2007.  Accordingly, the Commitments and      Contingencies table does not include any outstanding payment obligations      to the U.S. Treasury for this note at September 30,      2007.   See Note 11 — Short-Term      Debt. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | Total  |   |   | 2008   |   |   | 2009   |   |   | 2010   |   |   | 2011   |   |   | 2012   |   |   | Thereafter |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |
| Energy      Prepayment Obligations |   | $      | 1,138  |   |   | $      | 106    |   |   | $      | 105    |   |   | $      | 105    |   |   | $      | 105    |       |   | $ | 105 |   |   | $ | 612 |   |

----

Tableof Contents

Results of Operations

|                                                                                             |   | 2007             |    |   | 2006             |   |    | 2005   |   |
|--------------------------------------------------------------------------------------------------|--------|------------------|---------|--------|------------------|--------|---------|--------|--------|
|                                                                                             |   | As      Restated |    |   | As      Restated |   |    |   |   |
| Operating      revenues                                                                          |   | $                | 9,326   |   |             | $      | 8,983   |   |   | $ | 7,792 |   |
| Revenue      capitalized during pre-commercial plant operations                                  |   |             | (57     | )      |             |   | – |   |   |   | – |   |
| Operating      expenses                                                                          |   |             | (7,726  | )      |             |   | (7,560  | )      |   |   | (6,455 | ) |
| Operating      income                                                                            |   |             | 1,543   |   |             |   | 1,423   |   |   |   | 1,337 |   |
| Other      income                                                                                |   |             | 73      |   |             |   | 80      |   |   |   | 61 |   |
| Other      expense                                                                               |   |             | (2      | )      |             |   | (2      | )      |   |   | (4 | ) |
| Unrealized      gain/(loss) on derivative contracts, net                                         |   |             | 41      |   |             |   | (15     | )      |   |   | 3 |   |
| Interest      expense, net                                                                       |   |             | (1,232  | )      |             |   | (1,264  | )      |   |   | (1,312 | ) |
| Income      before cumulative effects of accounting changes                                      |   |             | 423     |   |             |   | 222     |   |   |   | 85 |   |
| Cumulative      effect of change in accounting for conditional asset retirement      obligations |   |             | – |   |             |   | (109    | )      |   |   | – |   |
| Net      income                                                                                  |   | $                | 423     |   |             | $      | 113     |   |   | $ | 85 |   |
|                                                                                             |   |             |    |   |             |   |    |   |   |   |   |   |
| Sales      (millions of kWh)                                                                     |   |             | 175,529 |   |             |   | 171,651 |   |   |   | 171,498 |   |

| •   | A      $109 million cumulative expense charge in 2006 for adoption of a new      accounting standard related to conditional asset retirement obligations      that did not occur in 2007; |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $343 million increase in operatingrevenues; |
|---------------------|----------------------------------------------------|

| •   | A      change of $56 million in net unrealized gain/(loss) on derivative      contracts; and |
|---------------------|----------------------------------------------------------------------------------------------|

| •   | Lower      net interest expense of $32million. |
|---------------------|------------------------------------------------|

| •   | A      $166 million increase in operatingexpenses; |
|---------------------|----------------------------------------------------|

| •   | Revenue      of $57 million capitalized during pre-commercial plant operations;      and |
|---------------------|------------------------------------------------------------------------------------------|

| •   | A      $7 million decrease in otherincome. |
|---------------------|--------------------------------------------|

----

Tableof Contents

| Operating      Revenues and Electricity SalesFor      the years ended September 30 |   |
|------------------------------------------------------------------------------------|--------|
|                                                                               |   | Operating      Revenues |   |   | Sales      of Electricity |   |
|                                                                               |   | (millions      of dollars) |   |   | (millions      of kWh) |   |
|                                                                               |   | 2007 |   |   | 2006 |   |   | Percent      Change |   |   | 2007 |   |   | 2006 |   |   | Percent      Change |   |
|                                                                               |   | As      Restated |   |   | As      Restated |   |   |   |   |   | As      Restated |   |   | As      Restated |   |   |   |   |
| Operating      revenues and sales of electricity                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Municipalities      and cooperatives                 |   | $ | 7,847 |   |   | $ | 7,659 |   |   |   | 2.5 | % |   |   | 142,461 |   |   |   | 138,624 |   |   |   | 2.8 | % |
|      Industries      directly served                      |   |   | 1,221 |   |   |   | 1,065 |   |   |   | 14.6 | % |   |   | 30,993 |   |   |   | 30,987 |   |   |   | 0.0 | % |
|      Federal      agencies and other                      |   |   | 112 |   |   |   | 116 |   |   |   | (3.4 | %) |   |   | 2,075 |   |   |   | 2,040 |   |   |   | 1.7 | % |
|      Other      revenue                                   |   |   | 146 |   |   |   | 143 |   |   |   | 2.1 | % |   |   | – |   |   |   | – |   |   |   | – |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      operating revenues and sales of electricity                             |   | $ | 9,326 |   |   | $ | 8,983 |   |   |   | 3.8 | % |   |   | 175,529 |   |   |   | 171,651 |   |   |   | 2.3 | % |

| •   | A      $188 million increase in revenue from municipalities and      cooperatives primarily due to increased sales of 2.8 percent and      increased FCA revenue of $76 million, partially offset by a decrease      in average rates of 1.3 percent; |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $156 million increase in revenue from industries directly served      attributable to an increase in average rates of 15.1 percent and a slight      increase in sales; and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $3 million increase in other revenue primarily due to increased revenue      from salvage sales partially offset by decreased transmission revenues      from wheeling activity. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | A      $4 million decrease in revenue from Federal agencies and      other. |
|--------|---------|-----------------------------------------------------------------------------|

|   | o | This      decrease was the result of an $8 million decrease in revenues from federal      agencies directly served due to decreased sales of 3.0 percent, and a      decrease in average rates of 4.4percent. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | This      item was partially offset by a $4 million increase in off-system sales      reflecting increased sales of 40.7 percent partially offset by a decrease      in average rates of 6.5 percent. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      35 million kilowatt-hour increase in sales to Federal agencies and      other. |
|---------------------|---------------------------------------------------------------------------------------|

|   | o | This      increase was attributable to an 89 million kilowatt-hour increase in      off-system sales mainly reflecting increased generation available for      sale. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | This      item was partially offset by a 54 million kilowatt-hour decrease in sales      to federal agencies directly served primarily due to a decrease in demand      by one of TVA’s largest federal agencies directly served as a result of a      change in the nature and scope of itsload. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A 6      million kilowatt-hour increase in sales to industries directly served      largely attributable to customergrowth. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------|

----

Tableof Contents

|    |   |
|--------------|--------|

| TVA      Operating ExpensesFor      the years ended September 30             |   |
|------------------------------------------------------------------------------|--------|
|                                                                         |   | 2007 |   |   | 2006 |   |   | Percent      Change |   |
|                                                                         |   | As      Restated |   |   | As      Restated |   |   |   |   |
| Operating      expenses                                                      |   |   |   |   |   |   |   |   |   |
|      Fuel      and purchased power                  |   | $ | 3,449 |   |   | $ | 3,342 |   |   |   | 3.2 | % |
|      Operating      and maintenance                 |   |   | 2,332 |   |   |   | 2,328 |   |   |   | 0.2 | % |
|      Depreciation,      amortization, and accretion |   |   | 1,473 |   |   |   | 1,500 |   |   |   | (1.8 | %) |
|      Tax      equivalents                           |   |   | 451 |   |   |   | 376 |   |   |   | 19.9 | % |
|      Loss      on asset impairment                  |   |   | 21 |   |   |   | 14 |   |   |   | 50.0 | % |
| Total      operating expenses                                                |   | $ | 7,726 |   |   | $ | 7,560 |   |   |   | 2.2 | % |

|   | • | A      $75 million increase in Tax equivalent payments reflecting increased gross      revenues from the sale of power (excluding sales or deliveries to other      federal agencies and off-system sales with other utilities) during 2006 as      compared to 2005. |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | A      $107 million increase in Fuel and purchased power  expense. |
|--------|---------|--------------------------------------------------------------------|

|   | o | This      increase was mainly due a $114 million increase in purchased power      expense. |
|--------|---|--------------------------------------------------------------------------------------------|

| –   | The      increase in purchased power expense was primarily a result of a 16.4      percent increase in the volume of purchased power to accommodate decreased      hydroelectric generation of 9.2 percent and the extended outage of Unit 3      at TVA’s Paradise Fossil Plant during the third quarter of      2007. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | The      increase in volume was partially offset by the  following: |
|---------------------|---------------------------------------------------------------------|

| ▪   | A      decrease in the average purchase price of 0.8 percent;  and |
|---------------------|--------------------------------------------------------------------|

| ▪   | An      FCA net deferral and amortization for purchased power expense of $54      million.  In accordance with the FCA methodology, TVA has      deferred the amount of purchased power costs that were higher than the      amount included in power rates during 2007.  This $54 million      deferred amount will be charged to customers in future FCA      adjustments. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | The      increase in purchased power expense was partially offset by a $7 million      decrease in fuel expense. |
|--------|---|------------------------------------------------------------------------------------------------------------------|

| –   | The      decrease in fuel expense resulted primarily from an FCA net deferral and      amortization for fuel expense of $95 million.  In accordance      with the FCA methodology, TVA has deferred the amount of fuel costs that      were higher than the amount included in power rates during      2007.  This $95 million deferred amount will be charged to the      customers in future FCAadjustments. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | The      decrease was partially offset by thefollowing: |
|---------------------|---------------------------------------------------------|

| ▪   | Higher      aggregate fuel cost per kilowatt-hour net thermal generation of 2.7      percent; and |
|---------------------|---------------------------------------------------------------------------------------------------|

| ▪   | Increased      generation of 0.6 percent, 14.9 percent, and 2.5 percent at the      coal-fired, combustion turbine, and nuclear plants, respectively, in part      because of the lower hydroelectricgeneration. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | A      $7 million increase in Loss on asset impairment from $14 million in 2006      to $21 million in 2007. |
|--------|---------|--------------------------------------------------------------------------------------------------------------|

| o   | The      $21 million Loss on asset impairment in 2007 resulted  from: |
|---------------|-----------------------------------------------------------------------|

| –   | A      $17 million write-down of a scrubber project at Colbert during 2007;      and |
|---------------------|--------------------------------------------------------------------------------------|

| –   | Write-downs      of $4 million related to other Construction in progress assets during      2007. |
|---------------------|---------------------------------------------------------------------------------------------------|

| o   | The      $14 million Loss on asset impairment in 2006 resulted  from: |
|---------------|-----------------------------------------------------------------------|

| –   | Write-downs      of $12 million on certain Construction in progress assets related to new      pollution-control and other technologies that had not been proven      effective and a re-evaluation of other projects due to funding      limitations; and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | A      $2 million write-down on one of two buildings in TVA’s Knoxville Office      Complex based on TVA’s plans to sell or lease the East Tower of the      Knoxville Office Complex during2006. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | • | A      $4 million increase in Operating and maintenance  expense. |
|--------|---------|-------------------------------------------------------------------|

|   | o | This      increase was mainly a result of: |
|--------|---|--------------------------------------------|

| –   | Increased      outage and routine operating and maintenance costs at coal-fired plants of      $55 million due to: |
|---------------------|--------------------------------------------------------------------------------------------------------------------|

| •   | An      increase in outage days of 78 days as a result of four more planned      outages during 2007, |
|---------------------|-------------------------------------------------------------------------------------------------------|

| •   | Significant      repair work on Unit 3 at Paradise Fossil Plant,  and |
|---------------------|-----------------------------------------------------------------------|

| •   | Acquisition      of new combustion turbine units during2007; |
|---------------------|--------------------------------------------------------------|

| –   | A      $17 million increase in expense primarily related to Watts Bar Unit 2      studies during 2007; |
|---------------------|--------------------------------------------------------------------------------------------------------|

| –   | A      $10 million increase in severance expense during  2007; |
|---------------------|----------------------------------------------------------------|

| –   | A      $5 million increase in workers’ compensation expense primarily as a result      of a 0.05 percent lower discount rate utilized during 2007 and increased      costs to administer the program;and |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | An      increase in operating and maintenance expenses at nuclear plants of $13      million primarily as a result of the restart of Browns Ferry Unit 1, which      returned to commercial operation on August 1,  2007. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | These      items were partially offset by decreased pension financing costs of $91      million as a result of a 0.52 percent higher discount rate and a 0.50      percent higher than expected long-term rate of return on pension plan      assets. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $27 million decrease in Depreciation, amortization, and accretion      expense. |
|---------------------|----------------------------------------------------------------------------------------|

|   | o | This      decrease was mainly a result of a $41 million decrease in depreciation      expense primarily attributable to the depreciation rate reduction for      Browns Ferry Nuclear Plant reflecting the 20-year license extension      approved by the Nuclear Regulatory Commission (“NRC”) on May 4,      2006. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | This      item was partially offset by a $14 million increase in accretion expense      reflecting the adoption of FIN No. 47, the updated incremental accretion      for SFAS No. 143, and an increase in ARO liability during      2007. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $58 million smaller loss related to the mark-to-market valuation      adjustment of an embedded call option, from a $61 million loss during 2006      to a $3 million loss during 2007;and |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $9 million larger gain related to the mark-to-market valuation of swaption      contracts, from a $19 million gain during 2006 to a $28 million gain      during 2007. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Interest      ExpenseFor      the years ended September 30                                                         |   |
|--------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                               |   | 2007 |   |   | 2006 |   |   | PercentChange |   |
| Interest      expense                                                                                              |   |   |   |   |   |   |   |   |   |
|      Interest      on debt and leaseback obligations                                      |   | $ | 1,390 |   |   | $ | 1,406 |   |   |   | (1.1 | %) |
|      Amortization      of debt discount, issue, and reacquisition costs, net              |   |   | 19 |   |   |   | 21 |   |   |   | (9.5 | %) |
|      Allowance      for funds used during construction and nuclear fuel      expenditures |   |   | (177 | ) |   |   | (163 | ) |   |   | 8.6 | % |
| Net      interest expense                                                                                          |   | $ | 1,232 |   |   | $ | 1,264 |   |   |   | (2.5 | %) |
|                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                               |   | (percent) |   |
|                                                                                                               |   | 2007 |   |   | 2006 |   |   | PercentChange |   |
| Interest      rates (average)                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|      Long-term                                                                            |   |   | 6.02 |   |   |   | 6.17 |   |   |   | (2.4 | %) |
|      Discount      notes                                                                  |   |   | 5.21 |   |   |   | 4.47 |   |   |   | 16.6 | % |
|      Blended                                                                              |   |   | 5.94 |   |   |   | 6.02 |   |   |   | (1.3 | %) |

| •   | A      decrease in the average long-term interest rate from 6.17 percent in 2006      to 6.02 percent in 2007; |
|---------------------|----------------------------------------------------------------------------------------------------------------|

| •   | A      decrease of $283 million in the average balance of long-term outstanding      debt in 2007; and |
|---------------------|--------------------------------------------------------------------------------------------------------|

| •   | A      $14 million increase in AFUDC due to a 4.0 percent increase in the      construction work in progress base in2007. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------|

| •   | An      increase in the average discount notes interest rate from 4.47 percent in      2006 to 5.21 percent in 2007; and |
|---------------------|--------------------------------------------------------------------------------------------------------------------------|

| •   | An      increase of $260 million in the average balance of discount notes      outstanding in 2007. |
|---------------------|-----------------------------------------------------------------------------------------------------|

| •   | A      $1,191 million increase in operating  revenues; |
|---------------------|-------------------------------------------------------------|

| •   | Lower      net interest expense of $48million; |
|---------------------|------------------------------------------------|

| •   | A      $19 million increase in other income;and |
|---------------------|-------------------------------------------------|

| •   | Lower      other expense of $2 million. |
|---------------------|-----------------------------------------|

| •   | A      $1,105 million increase in operatingexpenses; |
|---------------------|------------------------------------------------------|

| •   | A      $109 million cumulative expense charge in 2006 for adoption of a new      accounting standard related to conditional asset retirement obligations;      and |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      change of $18 million in net unrealized gain/(loss) on derivative      contracts. |
|---------------------|------------------------------------------------------------------------------------------|

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| Operating      Revenues and Electricity SalesFor      the years ended September 30 |   |
|------------------------------------------------------------------------------------|--------|
|                                                                               |   | Operating      Revenues |   |   | Sales      of Electricity |   |
|                                                                               |   | (millions      of dollars) |   |   | (millions      of kWh) |   |
|                                                                               |   | 2006 |   |   | 2005 |   |   | Percent      Change |   |   | 2006 |   |   | 2005 |   |   | Percent      Change |   |
|                                                                               |   | As      Restated |   |   |   |   |   |   |   |   | As      Restated |   |   |   |   |   |   |   |
| Operating      revenues and sales of electricity                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Municipalities      and cooperatives                 |   | $ | 7,659 |   |   | $ | 6,539 |   |   |   | 17.1 | % |   |   | 138,624 |   |   |   | 136,640 |   |   |   | 1.5 | % |
|      Industries      directly served                      |   |   | 1,065 |   |   |   | 961 |   |   |   | 10.8 | % |   |   | 30,987 |   |   |   | 30,872 |   |   |   | 0.4 | % |
|      Federal      agencies and other                      |   |   | 116 |   |   |   | 181 |   |   |   | (35.9 | %) |   |   | 2,040 |   |   |   | 3,986 |   |   |   | (48.8 | %) |
|      Other      revenue                                   |   |   | 143 |   |   |   | 111 |   |   |   | 28.8 | % |   |   | – |   |   |   | – |   |   |   | – |   |
|                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      operating revenues and sales of electricity                             |   | $ | 8,983 |   |   | $ | 7,792 |   |   |   | 15.3 | % |   |   | 171,651 |   |   |   | 171,498 |   |   |   | 0.1 | % |

| •   | A      $1,120 million increase in revenue from municipalities and cooperatives      reflecting increased sales of 1.5 percent and an increase in average rates      of 15.4 percent.  Of this $1,120 million increase, $918 million      relates to the rate adjustments effective October 1, 2005, and April 1,      2006. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $104 million increase in revenue from industries directly served      attributable to an increase in sales of 0.4 percent and an increase in      average rates of 10.3 percent.  Of this $104 million increase,      $41 million relates to the rate adjustments effective October 1, 2005, and      April 1, 2006. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $32 million increase in other revenue primarily due to increased      transmission revenues from wheelingactivity. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------|

| •   | A      $65 million decrease in revenues from Federal agencies and      other. |
|---------------------|-------------------------------------------------------------------------------|

|   | o | This      decrease was due to an $82 million decrease in off-system sales reflecting      decreased sales of 90.3 percent and reduced generation of 2.7 percent,      which includes a 36.6 percent decrease in hydroelectric generation      resulting from dry conditions in2006. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | This      item was partially offset by a $17 million increase in revenues from      federal agencies directly served due to increased sales of 4.9 percent and      an increase in average rates of 14.3 percent.  Of this $17      million increase, $10 million relates to the rate adjustments effective      October 1, 2005, and April 1, 2006. |
|--------|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      1,984 million kilowatt-hour increase in sales to municipalities and      cooperatives. |
|---------------------|-----------------------------------------------------------------------------------------------|

| •   | A      115 million kilowatt-hour increase in sales to industries directly served      as a result of increased demand by one of TVA’s largest directly served      industrial customers to accommodate higher production levels at its      facility, partially offset by decreased sales to other large directly      served industrial customers reflecting reduced demand due to more      unplanned outages and lower production levels at those facilities compared      to the prior year. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|    |   |
|--------------|--------|

| •   | A      1,946 million kilowatt-hour decrease in sales to Federal agencies and      other. |
|---------------------|------------------------------------------------------------------------------------------|

|   | o | This      decrease was due to a 2,031 million kilowatt-hour decrease in off-system      sales mainly reflecting decreased generation available for      sale. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | o | This      item was partially offset by an 85 million kilowatt-hour increase in sales      to federal agencies directly served primarily due to increased demand of      34.5 percent for other miscellaneousproducts. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| TVA      Operating ExpensesFor      the years ended September 30             |   |
|------------------------------------------------------------------------------|--------|
|                                                                         |   | 2006 |   |   | 2005 |   |   | Percent      Change |   |
| Operating      expenses                                                      |   | As      Restated |   |   |   |   |   |   |   |
|      Fuel      and purchased power                  |   | $ | 3,342 |   |   | $ | 2,609 |   |   |   | 28.1 | % |
|      Operating      and maintenance                 |   |   | 2,328 |   |   |   | 2,303 |   |   |   | 1.1 | % |
|      Depreciation,      amortization, and accretion |   |   | 1,500 |   |   |   | 1,154 |   |   |   | 30.0 | % |
|      Tax      equivalents                           |   |   | 376 |   |   |   | 365 |   |   |   | 3.0 | % |
|      Loss      on asset impairment                  |   |   | 14 |   |   |   | 24 |   |   |   | (41.7 | %) |
| Total      operating expenses                                                |   | $ | 7,560 |   |   | $ | 6,455 |   |   |   | 17.1 | % |

|   | • | A      $733 million increase in Fuel and purchased power  expense. |
|--------|---------|--------------------------------------------------------------------|

|   | o | This      increase was a result of a $378 million increase in fuel expense and a      $355 million increase in purchased power  expense. |
|--------|---|------------------------------------------------------------------------------------------------------------------------------------------|

|   | – | The      increased fuel costs were largely attributable  to: |
|--------|---------|--------------------------------------------------------------|

| ▪   | Higher      aggregate fuel cost per kilowatt-hour net thermal generation of 19.0      percent; and |
|---------------------|----------------------------------------------------------------------------------------------------|

| ▪   | Increased      generation of 1.2 percent, 3.0 percent, and 0.3 percent at the coal-fired,      combustion turbine, and nuclear plants, respectively, in part because of      lower hydroelectric generation. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ▪   | Increased      average purchase price of 16.3 percent;and |
|---------------------|-----------------------------------------------------------|

| ▪   | Higher      volume acquired of 27.7 percent to accommodate for decreased hydroelectric      generation and for slightly lower asset availability in 2006 than in      2005. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $346 million increase in Depreciation, amortization, and accretion      expense. |
|---------------------|-----------------------------------------------------------------------------------------|

|   | o | This      increase was primarily a result of: |
|--------|---|-----------------------------------------------|

| –   | Increased      amortization expense of $388 million largely as a result of the      amortization of the deferred cost of nuclear generating units at      Bellefonte Nuclear Plant; and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | A      $1 million increase in accretion expense mainly reflecting an increase in      ARO liability during 2006. |
|---------------------|------------------------------------------------------------------------------------------------------------------|

|   | o | These      items were partially offset by a $43 million decrease in depreciation      expense primarily attributable to the depreciation rate reduction for      Browns Ferry Nuclear Plant reflecting the 20-year license extensions      approved by the NRC on May 4, 2006. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | A      $25 million increase in Operating and maintenance  expense. |
|--------|---------|--------------------------------------------------------------------|

|   | o | This      increase was primarily due to: |
|--------|---|------------------------------------------|

| –   | Increased      routine operating and maintenance costs at nuclear plants of $21 million      as a result of increased labor costs, more forced outages, and the timing      of contracts and billings during 2006;and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | Increased      benefits expense of $19 million attributable to increased pension related      retirement costs and increased health care and dental costs during      2006. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | o | These      items were partially offset by decreased workers’ compensation expense of      $29 million largely due to a 0.30 percent higher discount rate utilized in      2006. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | An      $11 million increase in Tax equivalent payments due to increased gross      revenues from the sale of power of 3.1 percent during 2005 as compared to      2004. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $10 million decrease in Loss on asset impairment from $24 million in 2005      to $14 million in 2006. |
|---------------------|---------------------------------------------------------------------------------------------------------------|

|   | o | The      $14 million Loss on asset impairment during 2006 resulted      from: |
|--------|---|-------------------------------------------------------------------------------|

| –   | Write-downs      of $12 million on certain Construction in progress assets related to new      pollution-control and other technologies that had not been proven      effective and a re-evaluation of other projects due to funding      limitations; and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | A      $2 million write-down on one of two buildings in TVA’s Knoxville Office      Complex based on TVA’s plans to sell or lease the East Tower of the      Complex. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| o   | The $24 million Loss on asset      impairment during 2005 resultedfrom: |
|---------------|-------------------------------------------------------------------------|

| –   | Write-downs      of $16 million on certain Construction in progress assets related to new      pollution-control and other technologies that had not been proven      effective and a re-evaluation of other projects due to funding      limitations; and |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | An      $8 million write-down on one of two buildings in TVA’s Knoxville Office      Complex based on TVA’s plans to sell or lease the East Tower of the      Complex. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $108 million net change related to the mark-to-market valuation adjustment      of swaption contracts, from an $89 million loss during 2005 to a $19      million gain during 2006; |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $45 million net change related to the mark-to-market valuation adjustment      of an interest rate swap contract, from an $18 million loss during 2005 to      a $27 million gain during 2006; and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      $6 million unrealized net loss related to the mark-to-market valuation of      sulfur dioxide emissions allowance call options during the first quarter      of 2005 not present in 2006. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| Interest      ExpenseFor      the years ended September 30                                                         |   |
|--------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                               |   | 2006 |   |   | 2005 |   |   | PercentChange |   |
| Interest      expense                                                                                              |   |   |   |   |   |   |   |   |   |
|      Interest      on debt and leaseback obligations                                      |   | $ | 1,406 |   |   | $ | 1,407 |   |   |   | (0.1 | %) |
|      Amortization      of debt discount, issue, and reacquisition costs, net              |   |   | 21 |   |   |   | 21 |   |   |   | 0.0 | % |
|      Allowance      for funds used during construction and nuclear fuel      expenditures |   |   | (163 | ) |   |   | (116 | ) |   |   | 40.5 | % |
| Net      interest expense                                                                                          |   | $ | 1,264 |   |   | $ | 1,312 |   |   |   | (3.7 | %) |
|                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                               |   | (percent) |   |
|                                                                                                               |   | 2006 |   |   | 2005 |   |   | PercentChange |   |
| Interest      rates (average)                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
|      Long-term                                                                            |   |   | 6.17 |   |   |   | 6.25 |   |   |   | (1.3 | %) |
|      Discount      notes                                                                  |   |   | 4.47 |   |   |   | 2.70 |   |   |   | 65.6 | % |
|      Blended                                                                              |   |   | 6.02 |   |   |   | 5.93 |   |   |   | 1.5 | % |

| •   | A      decrease in the average long-term interest rate from 6.25 percent in 2005      to 6.17 percent in 2006; |
|---------------------|----------------------------------------------------------------------------------------------------------------|

| •   | A      decrease of $407 million in the average balance of long-term outstanding      debt in 2006; |
|---------------------|----------------------------------------------------------------------------------------------------|

| •   | A      decrease of $75 million in the average balance of discount notes      outstanding in 2006; and |
|---------------------|-------------------------------------------------------------------------------------------------------|

| •   | A      $47 million increase in AFUDC due to a 31.4 percent increase in the      construction work in progress base in2006. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------|

Off-Balance Sheet Arrangements

Asset Retirement Trust

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Critical Accounting Policies and Estimates

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| •   | Timing      – In projecting decommissioning costs, two assumptions must be made to      estimate the timing of plant decommissioning.  First, the date      of the plant’s retirement must be estimated.  At a multiple unit      site, the expiration of the unit with the latest to expire operating      license is typically used for this purpose, or an assumption could be made      that the plant will be relicensed and operate for some time beyond the      original license term.  Second, an assumption must be made      whether decommissioning will begin immediately upon plant retirement, or      whether the plant will be held in SAFSTOR status — a status authorized by      applicable regulations which allows for a nuclear facility to be      maintained and monitored in a condition that allows the radioactivity to      decay, after which the facility is decommissioned and      dismantled.  While the impact of these assumptions cannot be      determined with precision, assuming either license extension or use of      SAFSTOR status can significantly decrease the present value of these      obligations. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Technology      and Regulation – There is limited experience with actual decommissioning      of large nuclear facilities.  Changes in technology and      experience as well as changes in regulations regarding nuclear      decommissioning could cause cost estimates to change      significantly.  The impact of these potential changes is not      presently determinable.  TVA’s cost studies assume current      technology and regulations. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Discount      Rate – TVA uses a blended rate of 5.32 percent to calculate the present      value of the weighted estimated cash flows required to satisfy TVA’s      decommissioning obligation. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | Investment      Rate of Return – TVA assumes that its decommissioning fund will achieve a      rate of return that is five percent greater than the rate of      inflation. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Cost      Escalation Factors – TVA’s decommissioning estimates include an assumption      that decommissioning costs will escalate over present cost levels by four      percent annually. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   Actuarial      Assumption |   | Change      in Assumption   |    |   | Impact      on 2008 Pension Cost |   |   | Impact      on 2007 Projected Benefit Obligation |   |
|---------------------------------------|--------|-----------------------------|---------|--------|----------------------------------|--------|--------|--------------------------------------------------|--------|
|                                  |   | (Increase      in millions) |    |
| Discount      rate                    |   |                        | (0.25%) |   | $                                | 17     |   |                                             | $      | 236 |   |
| Rate      of return on plan assets    |   |                        | (0.25%) |   | $                                | 17     |   |                                             | NA     |   |
| Rate      of compensation             |   |                        | 0.25%   |   | $                                | 4      |   |                                             | $      | 22 |   |
|                                  |   |                        |    |   |                             |   |   |                                             |   |   |   |   |

|    Actuarial      Assumption |   |  Change      in Assumption |   |   | Impact      on 2008 Postretirement Benefit Cost |   |   | Impact      on 2007 Projected Postretirement Benefit Obligation |   |
|---------------------------------------------|--------|---------------------------------|--------|--------|-------------------------------------------------|--------|--------|-----------------------------------------------------------------|--------|
|                                        |   | (Increase      in millions)     |   |
|                                        |   |                            |   |   |                                            |   |   |                                                            |   |
| Health      care cost trend                 |   |                            | 0.25   | %      |                                            | $      | 1      |                                                            |   | $ | 15 |   |
| Discount      rate                          |   |                            | (0.25  | %)     |                                            | $      | 1      |                                                            |   | $ | 14 |   |
|                                        |   |                            |   |   |                                            |   |   |                                                            |   |   |   |   |

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Changes in Accounting

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New Accounting Standards and Interpretations

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Legislative and Regulatory Matters

| •   | Expanding      the types of financial arrangements that count toward TVA’s      $30 billion debt ceiling; |
|---------------------|----------------------------------------------------------------------------------------------------------------------|

| •   | Requiring      TVA to register its debt securities with the Securities and Exchange      Commission; and |
|---------------------|----------------------------------------------------------------------------------------------------------|

| •   | Allowing      Congress to establish the amount of TVA’s Office of Inspector General’s      budget and directing TVA to fund the amount with power revenues beginning      in 2008. Funding for TVA’s Office of the Inspector General is currently      established by TVA. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (1) | The      anti-cherrypicking provision would not apply with respect to any      distributor which provided a termination notice to TVA before December 31,      2006, regardless of whether the notice was later withdrawn or      rescinded; |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Distributors      that have given termination notices to TVA on or before December 31, 2006,      would have express authority under federal law to receive partial      requirements from TVA and elect, not later than 180 days after enactment,      to rescind the termination notice “without the imposition of a      reintegration fee or any similarfee; |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Distributors      that have not given termination notices to TVA on or before December 31,      2006, would have express authority under federal law to receive partial      requirements from TVA within a ratable limit, which cumulatively stays      within a three percent compounded annual growth rate on the TVA system;      and |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Any      distributor that terminates its power supply contract with TVA in whole or      in part would have the federal statutory right to directly receive its      share of SEPA power that is otherwise being delivered to TVA for the      benefit of all distributors. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Environmental Matters

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Legal Proceedings

Risk Management Activities

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|                           |   | September      30, 2007 |   |   | Average |   |   | High   |   |   | Low    |   |
|--------------------------------|--------|-------------------------|--------|--------|---------|--------|--------|--------|--------|--------|--------|--------|
|                           |   |                    |   |   |    |   |   |   |   |   |   |   |
| Electricity      1             |   | $                       | 69     |   |    | $      | 48     |   |   | $      | 86     |   |   | $ | 18 |   |
| Natural      Gas 2             |   |                    | 5      |   |    |   | 15     |   |   |   | 35     |   |   |   | 1 |   |
| SO2      Emission Allowances 3 |   |                    | 20     |   |    |   | 21     |   |   |   | 34     |   |   |   | 16 |   |
| NOx      Emission Allowances 4 |   |                    | 1      |   |    |   | 1      |   |   |   | 3      |   |   |   | 0 |   |

|   | (1) | TVA’s      VaR calculations for electricity are based on its on-peak electricity      portfolio, which includes electricity forwards and option      contracts. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | TVA’s      VaR calculations for natural gas are based on TVA’s natural gas portfolio,      which includes natural gas forwards, futures, and options on futures      contracts. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | TVA’s      VaR calculations for SO2      emission allowances are based on TVA’s portfolio of SO2      emission allowances. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | TVA’s      VaR calculations for NOx emission allowances are based on TVA’s portfolio      of NOx emission allowances. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------|

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| Customer      Credit RiskAs      of September 30                                 |   |
|----------------------------------------------------------------------------------|--------|
| Trade      Accounts Receivable 1                                                 |   | As      Restated |   |
| Municipalities      and Cooperative Distributor Customers                        |   |   |   |
|      Investment      Grade                              |   | $ | 900 |   |
|      Internally      Rated — Investment Grade     |   |   | 462 |   |
| Industries      and Federal Agencies Directly Served                             |   |   |   |   |
|      Investment      Grade                              |   |   | 37 |   |
|      Non-investment      Grade                          |   |   | 17 |   |
|      Internally      Rated — Investment Grade     |   |   | 4 |   |
|      Internally      Rated — Non-investment Grade |   |   | 4 |   |
| Exchange      Power Arrangements                                                 |   |   |   |   |
|      Investment      Grade                              |   |   | 6 |   |
|      Non-investment      Grade                          |   |   | – |   |
|      Internally      Rated — Investment Grade     |   |   | 3 |   |
|      Internally      Rated — Non-investment Grade |   |   | 1 |   |
|      Subtotal                                           |   |   | 1,434 |   |
| Other      Accounts Receivable                                                   |   |   |   |   |
| Miscellaneous      Accounts                                                      |   |   | 26 |   |
| Provision      for Uncollectible Accounts                                        |   |   | (2 | ) |
|      Subtotal                                           |   |   | 24 |   |
|           Total                |   | $ | 1,458 |   |

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| •   | A      downgrade would increase TVA’s interest expense by increasing the interest      rates that TVA pays on debt securities that it issues.  An      increase in TVA’s interest expense would reduce the amount of cash      available for other purposes, which could result in the need to increase      borrowings, to reduce other expenses or capital investments, or to      increase electricity rates. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      significant downgrade could result in TVA having to post collateral under      certain physical and financial contracts that contain rating      triggers. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      downgrade below a contractual threshold could prevent TVA from borrowing      under two credit facilities totaling $2.5  billion. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| •   | A      downgrade could lower the price of TVA securities in the secondary market,      thereby hurting investors who sell TVA securities after the downgrade and      diminishing the attractiveness and marketability of TVA    Bonds. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Subsequent Events

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARYDATA

STATEMENTS OF INCOME

|                                                                                                                          |   | 2007     |          |   | 2006     |   |    | 2005   |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------------|--------|----------|--------|---------|--------|--------|
|                                                                                                                          |   | Restated |          |   | Restated |   |    |   |   |
| Operating      revenues                                                                                                       |   |     |          |   |     |   |    |   |   |
| Sales      of electricity                                                                                                     |   |     |          |   |     |   |    |   |   |
|     Municipalities      and cooperatives                                                                  |   | $        | 7,847         |   |     | $      | 7,659   |   |   | $ | 6,539 |   |
|     Industries      directly served                                                                       |   |     | 1,221         |   |     |   | 1,065   |   |   |   | 961 |   |
|     Federal      agencies and other                                                                       |   |     | 112           |   |     |   | 116     |   |   |   | 181 |   |
| Other      revenue                                                                                                            |   |     | 146           |   |     |   | 143     |   |   |   | 111 |   |
| Operating      revenues                                                                                                       |   |     | 9,326         |   |     |   | 8,983   |   |   |   | 7,792 |   |
| Revenue      capitalized during pre-commercial plant operations                                                               |   |     | (57           | )      |     |   | – |   |   |   | – |   |
| Net      operating revenues                                                                                                   |   |     | 9,269         |   |     |   | 8,983   |   |   |   | 7,792 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Operating      expenses                                                                                                       |   |     |          |   |     |   |    |   |   |   |   |   |
| Fuel      and purchased power                                                                                                 |   |     | 3,449         |   |     |   | 3,342   |   |   |   | 2,609 |   |
| Operating      and maintenance                                                                                                |   |     | 2,332         |   |     |   | 2,328   |   |   |   | 2,303 |   |
| Depreciation,      amortization, and accretion                                                                                |   |     | 1,473         |   |     |   | 1,500   |   |   |   | 1,154 |   |
| Tax      equivalents                                                                                                          |   |     | 451           |   |     |   | 376     |   |   |   | 365 |   |
| Loss      on asset impairment                                                                                                 |   |     | 21            |   |     |   | 14      |   |   |   | 24 |   |
| Total      operating expenses                                                                                                 |   |     | 7,726         |   |     |   | 7,560   |   |   |   | 6,455 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Operating      income                                                                                                         |   |     | 1,543         |   |     |   | 1,423   |   |   |   | 1,337 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Other      income                                                                                                             |   |     | 73            |   |     |   | 80      |   |   |   | 61 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Other      expense                                                                                                            |   |     | (2            | )      |     |   | (2      | )      |   |   | (4 | ) |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Unrealized      gain (loss) on derivative contracts, net                                                                      |   |     | 41            |   |     |   | (15     | )      |   |   | 3 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Interest      expense                                                                                                         |   |     |          |   |     |   |    |   |   |   |   |   |
| Interest      on debt and leaseback obligations                                                                               |   |     | 1,390         |   |     |   | 1,406   |   |   |   | 1,407 |   |
| Amortization      of debt discount, issue, and reacquisition costs, net                                                       |   |     | 19            |   |     |   | 21      |   |   |   | 21 |   |
| Allowance      for funds used during construction and nuclear fuel    expenditures                        |   |     | (177          | )      |     |   | (163    | )      |   |   | (116 | ) |
| Net      interest expense                                                                                                     |   |     | 1,232         |   |     |   | 1,264   |   |   |   | 1,312 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Income      before cumulative effects of accounting changes                                                                   |   |     | 423           |   |     |   | 222     |   |   |   | 85 |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Cumulative      effect of change in accounting for conditional     asset      retirement obligations |   |     |  – |   |     |   | (109    | )      |   |   | – |   |
|                                                                                                                          |   |     |          |   |     |   |    |   |   |   |   |   |
| Net      income                                                                                                               |   | $        | 423           |   |     | $      | 113     |   |   | $ | 85 |   |

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BALANCE SHEETS

| ASSETS                                                |   |
|-------------------------------------------------------|--------|
|                                                  |   | 2007 |   |   | 2006 |   |
|                                                  |   | Restated |   |   | Restated |   |
| Current      assets                                   |   |   |   |   |   |   |
| Cash      and cash equivalents                        |   | $ | 165 |   |   | $ | 536 |   |
| Restricted      cash and investments                  |   |   | 150 |   |   |   | 198 |   |
| Accounts      receivable, net                         |   |   | 1,458 |   |   |   | 1,181 |   |
| Inventories      and other                            |   |   | 663 |   |   |   | 598 |   |
| Total      current assets                             |   |   | 2,436 |   |   |   | 2,513 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Property, plant, and equipment      (Note 4)          |   |   |   |   |   |   |   |   |
| Completed      plant                                  |   |   | 38,811 |   |   |   | 35,652 |   |
| Less      accumulated depreciation                    |   |   | (15,937 | ) |   |   | (15,339 | ) |
| Net      completed plant                              |   |   | 22,874 |   |   |   | 20,313 |   |
| Construction      in progress                         |   |   | 1,286 |   |   |   | 3,534 |   |
| Nuclear      fuel and capital leases                  |   |   | 672 |   |   |   | 574 |   |
| Total      property, plant, and equipment, net        |   |   | 24,832 |   |   |   | 24,421 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Investment      funds                                 |   |   | 1,169 |   |   |   | 972 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Regulatory      and other long-term assets            |   |   |   |   |   |   |   |   |
| Deferred      nuclear generating units                |   |   | 3,130 |   |   |   | 3,521 |   |
| Other      regulatory assets (Note 6)                 |   |   | 1,790 |   |   |   | 1,787 |   |
|   Subtotal                                  |   |   | 4,920 |   |   |   | 5,308 |   |
| Other      long-term assets                           |   |   | 375 |   |   |   | 1,094 |   |
| Total      regulatory and other long-term assets      |   |   | 5,295 |   |   |   | 6,402 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Total      assets                                     |   | $ | 33,732 |   |   | $ | 34,308 |   |
|                                                  |   |   |   |   |   |   |   |   |
| LIABILITIES      AND PROPRIETARY CAPITAL              |   |
| Current      liabilities                              |   |   |   |   |   |   |   |   |
| Accounts      payable                                 |   | $ | 1,000 |   |   | $ | 890 |   |
| Accrued      liabilities                              |   |   | 205 |   |   |   | 237 |   |
| Collateral      funds held                            |   |   | 157 |   |   |   | 195 |   |
| Accrued      interest                                 |   |   | 406 |   |   |   | 403 |   |
| Current      portion of leaseback obligations         |   |   | 43 |   |   |   | 37 |   |
| Current      portion of energy prepayment obligations |   |   | 106 |   |   |   | 106 |   |
| Short-term      debt, net                             |   |   | 1,422 |   |   |   | 2,376 |   |
| Current      maturities of long-term debt (Note 11)   |   |   | 90 |   |   |   | 985 |   |
| Total      current liabilities                        |   |   | 3,429 |   |   |   | 5,229 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Other      liabilities                                |   |   |   |   |   |   |   |   |
| Other      liabilities                                |   |   | 2,067 |   |   |   | 2,283 |   |
| Regulatory      liabilities (Note 6)                  |   |   | 83 |   |   |   | 575 |   |
| Asset      retirement obligations                     |   |   | 2,189 |   |   |   | 1,985 |   |
| Leaseback      obligations                            |   |   | 1,029 |   |   |   | 1,071 |   |
| Energy      prepayment obligations                    |   |   | 1,032 |   |   |   | 1,138 |   |
| Total      other liabilities                          |   |   | 6,400 |   |   |   | 7,052 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Long-term debt, net      (Note 11)                    |   |   | 21,099 |   |   |   | 19,544 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Total      liabilities                                |   |   | 30,928 |   |   |   | 31,825 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Commitments and      contingencies (Note 15)          |   |   |   |   |   |   |   |   |
|                                                  |   |   |   |   |   |   |   |   |
| Proprietary      capital                              |   |   |   |   |   |   |   |   |
| Appropriation      investment                         |   |   | 4,743 |   |   |   | 4,763 |   |
| Retained      earnings                                |   |   | 1,763 |   |   |   | 1,349 |   |
| Accumulated      other comprehensive (loss) income    |   |   | (19 | ) |   |   | 43 |   |
| Accumulated      net expense of stewardship programs  |   |   | (3,683 | ) |   |   | (3,672 | ) |
| Total      proprietary capital                        |   |   | 2,804 |   |   |   | 2,483 |   |
|                                                  |   |   |   |   |   |   |   |   |
| Total      liabilities and proprietary capital        |   | $ | 33,732 |   |   | $ | 34,308 |   |

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STATEMENTS OF CASH FLOWS

|                                                                                       |   | 2007     |    |   | 2006     |   |    | 2005   |   |
|--------------------------------------------------------------------------------------------|--------|----------|---------|--------|----------|--------|---------|--------|--------|
| Cash      flows from operating activities                                                  |   | Restated |    |   | Restated |   |    |   |   |
| Net      income                                                                            |   | $        | 423     |   |     | $      | 113     |   |   | $ | 85 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities |   |     |    |   |     |   |    |   |   |   |   |   |
|    Depreciation,      amortization, and accretion                           |   |     | 1,492   |   |     |   | 1,521   |   |   |   | 1,175 |   |
|    Nuclear      refueling outage amortization                               |   |     | 86      |   |     |   | 89      |   |   |   | 105 |   |
|    Loss      on asset impairment                                            |   |     | 21      |   |     |   | 14      |   |   |   | 24 |   |
|    Cumulative      effect of change in accounting principle                 |   |     | – |   |     |   | 109     |   |   |   | - |   |
|    Amortization      of nuclear fuel                                        |   |     | 137     |   |     |   | 128     |   |   |   | 131 |   |
|    Non-cash      retirement benefit expense                                 |   |     | 201     |   |     |   | 302     |   |   |   | 289 |   |
|    Net      unrealized gain on derivative contracts                         |   |     | (41     | )      |     |   | 15      |   |   |   | (3 | ) |
|    Prepayment      credits applied to revenue                               |   |     | (105    | )      |     |   | (105    | )      |   |   | (105 | ) |
|    Fuel      cost adjustment deferral                                       |   |     | (150    | )      |     |   | – |   |   |   | – |   |
|    Other,      net                                                          |   |     | (31     | )      |     |   | (3      | )      |   |   | 7 |   |
| Changes      in current assets and liabilities                                             |   |     |    |   |     |   |    |   |   |   |   |   |
|    Accounts      receivable, net                                            |   |     | (144    | )      |     |   | (15     | )      |   |   | (19 | ) |
|    Inventories      and other                                               |   |     | (98     | )      |     |   | (120    | )      |   |   | (12 | ) |
|    Accounts      payable and accrued liabilities                            |   |     | 103     |   |     |   | 96      |   |   |   | (16 | ) |
|    Accrued      interest                                                    |   |     | 4       |   |     |   | 23      |   |   |   | (22 | ) |
| Pension      contributions                                                                 |   |     | (75     | )      |     |   | (75     | )      |   |   | (53 | ) |
| Refueling      outage costs                                                                |   |     | (96     | )      |     |   | (72     | )      |   |   | (122 | ) |
| Other,      net                                                                            |   |     | 61      |   |     |   | (35     | )      |   |   | (2 | ) |
| Net      cash provided by operating activities                                             |   |     | 1,788   |   |     |   | 1,985   |   |   |   | 1,462 |   |
|                                                                                       |   |     |    |   |     |   |    |   |   |   |   |   |
| Cash      flows from investing activities                                                  |   |     |    |   |     |   |    |   |   |   |   |   |
| Construction      expenditures                                                             |   |     | (1,379  | )      |     |   | (1,370  | )      |   |   | (1,339 | ) |
| Combustion      turbine asset acquisitions                                                 |   |     | (111    | )      |     |   | – |   |   |   | – |   |
| Nuclear      fuel expenditures                                                             |   |     | (203    | )      |     |   | (277    | )      |   |   | (141 | ) |
| Change      in restricted cash and investments                                             |   |     | 48      |   |     |   | (91     | )      |   |   | (107 | ) |
| (Purchases)      proceeds of investments                                                   |   |     | (44     | )      |     |   | – |   |   |   | 335 |   |
| Loans      and other receivables                                                           |   |     |    |   |     |   |    |   |   |   |   |   |
|       Advances                                               |   |     | (16     | )      |     |   | (17     | )      |   |   | (12 | ) |
|       Repayments                                             |   |     | 16      |   |     |   | 13      |   |   |   | 18 |   |
| Proceeds      from sale of receivables/loans  (Note 1)                           |   |     | 2       |   |     |   | 11      |   |   |   | 56 |   |
| Proceeds      from settlement of litigation                                                |   |     | – |   |     |   | 35      |   |   |   | – |   |
| Other,      net                                                                            |   |     | 1       |   |     |   | (2      | )      |   |   | 2 |   |
| Net      cash used in investing activities                                                 |   |     | (1,686  | )      |     |   | (1,698  | )      |   |   | (1,188 | ) |
|                                                                                       |   |     |    |   |     |   |    |   |   |   |   |   |
| Cash      flows from financing activities                                                  |   |     |    |   |     |   |    |   |   |   |   |   |
| Long-term      debt                                                                        |   |     |    |   |     |   |    |   |   |   |   |   |
|     Issues                                                             |   |     | 1,040   |   |     |   | 1,132   |   |   |   | 1,650 |   |
|     Redemptions      and repurchases (Note 11)                         |   |     | (470    | )      |     |   | (1,241  | )      |   |   | (2,368 | ) |
| Short-term      (redemptions)/borrowings, net                                              |   |     | (955    | )      |     |   | (93     | )      |   |   | 546 |   |
| Proceeds      from call monetizations                                                      |   |     | – |   |     |   | – |   |   |   | 5 |   |
| Payments      on leaseback financing                                                       |   |     | (30     | )      |     |   | (28     | )      |   |   | (29 | ) |
| Payments      on equipment financing                                                       |   |     | (7      | )      |     |   | (6      | )      |   |   | (6 | ) |
| Financing      costs, net                                                                  |   |     | (11     | )      |     |   | (14     | )      |   |   | (17 | ) |
| Payments      to U.S. Treasury                                                             |   |     | (40     | )      |     |   | (38     | )      |   |   | (36 | ) |
| Other                                                                                      |   |     | – |   |     |   | (1      | )      |   |   | – |   |
| Net      cash used in financing activities                                                 |   |     | (473    | )      |     |   | (289    | )      |   |   | (255 | ) |
|                                                                                       |   |     |    |   |     |   |    |   |   |   |   |   |
| Net      change in cash and cash equivalents                                               |   |     | (371    | )      |     |   | (2      | )      |   |   | 19 |   |
| Cash      and cash equivalents at beginning of period                                      |   |     | 536     |   |     |   | 538     |   |   |   | 519 |   |
|                                                                                       |   |     |    |   |     |   |    |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                            |   | $        | 165     |   |     | $      | 536     |   |   | $ | 538 |   |

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STATEMENTS OF CHANGES IN PROPRIETARY CAPITAL

|                                                         |   |   Appropriation      Investment |    |   |   Retained      Earnings |   |    | Accumulated      Other Comprehensive (Loss) Income |   |   | Accumulated      Net Expense of Stewardship Programs |   |   |    Total |    |   |   Comprehensive      Income |   |
|--------------------------------------------------------------|--------|-------------------------------------------|---------|--------|------------------------------------|--------|---------|---------------------------------------------------------|--------|--------|------------------------------------------------------|--------|--------|-------------------------|---------|--------|---------------------------------------|--------|
|                                                         |   |                                      |    |   |                               |   |    |                                                    |   |   |                                                 |   |   |                    |    |   |                                  |   |
| Balance      at September 30, 2004                           |   | $                                         | 4,803   |   |                               | $      | 1,162   |                                                    |   | $      | (52                                                  | )      |   | $                       | (3,649  | )      |                                  | $      | 2,264 |   |   |   |   |   |
| Net      income (loss)                                       |   |                                      | – |   |                               |   | 98      |                                                    |   |   | –                                              |   |   |                    | (13     | )      |                                  |   | 85 |   |   | $  | 85 |   |
| Return      on Power Facility Appropriation Investment       |   |                                      | – |   |                               |   | (16     | )                                                       |   |   | –                                              |   |   |                    | – |   |                                  |   | (16 | ) |   |   | – |   |
| Accumulated      other comprehensive income (Note 9)         |   |                                      | – |   |                               |   | – |                                                    |   |   | 79                                                   |   |   |                    | – |   |                                  |   | 79 |   |   |   | 79 |   |
| Return      of Power Facility Appropriation Investment       |   |                                      | (20     | )      |                               |   | – |                                                    |   |   | –                                              |   |   |                    | – |   |                                  |   | (20 | ) |   |   | – |   |
|                                                         |   |                                      |    |   |                               |   |    |                                                    |   |   |                                                 |   |   |                    |    |   |                                  |   |   |   |   |   |   |   |
| Balance      at September 30, 2005                           |   |                                      | 4,783   |   |                               |   | 1,244   |                                                    |   |   | 27                                                   |   |   |                    | (3,662  | )      |                                  |   | 2,392 |   |   | $ | 164 |   |
| Net      income (loss) (as restated)                         |   |                                      | – |   |                               |   | 123     |                                                    |   |   | –                                              |   |   |                    | (10     | )      |                                  |   | 113 |   |   | $ | 113 |   |
| Return      on Power Facility Appropriation Investment       |   |                                      | – |   |                               |   | (18     | )                                                       |   |   | –                                              |   |   |                    | – |   |                                  |   | (18 | ) |   |   | – |   |
| Accumulated      other comprehensive income (Note 9)         |   |                                      | – |   |                               |   | – |                                                    |   |   | 16                                                   |   |   |                    | – |   |                                  |   | 16 |   |   |   | 16 |   |
| Return      of Power Facility Appropriation Investment       |   |                                      | (20     | )      |                               |   | – |                                                    |   |   | –                                              |   |   |                    | – |   |                                  |   | (20 | ) |   |   | – |   |
|                                                         |   |                                      |    |   |                               |   |    |                                                    |   |   |                                                 |   |   |                    |    |   |                                  |   |   |   |   |   |   |   |
| Balance      at September 30, 2006 (as restated)             |   |                                      | 4,763   |   |                               |   | 1,349   |                                                    |   |   | 43                                                   |   |   |                    | (3,672  | )      |                                  |   | 2,483 |   |   | $ | 129 |   |
| Net      income (loss)  (as restated)              |   |                                      | – |   |                               |   | 434     |                                                    |   |   | –                                              |   |   |                    | (11     | )      |                                  |   | 423 |   |   | $  | 423 |   |
| Return      on Power Facility Appropriation Investment       |   |                                      | – |   |                               |   | (20     | )                                                       |   |   | –                                              |   |   |                    | – |   |                                  |   | (20 | ) |   |   | – |   |
| Accumulated      other comprehensive (loss) (Notes 9 and 14) |   |                                      | – |   |                               |   | – |                                                    |   |   | (62                                                  | )      |   |                    | – |   |                                  |   | (62 | ) |   |   | (62 | ) |
| Return      of Power Facility Appropriation Investment       |   |                                      | (20     | )      |                               |   | – |                                                    |   |   | –                                              |   |   |                    | – |   |                                  |   | (20 | ) |   |   | – |   |
|                                                         |   |                                      |    |   |                               |   |    |                                                    |   |   |                                                 |   |   |                    |    |   |                                  |   |   |   |   |   |   |   |
| Balance      at September 30, 2007 (as restated)             |   | $                                         | 4,743   |   |                               | $      | 1,763   |                                                    |   | $      | (19                                                  | )      |   | $                       | (3,683  | )      |                                  | $      | 2,804 |   |   | $ | 361 |   |

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NOTES TO FINANCIAL STATEMENTS

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| Accounts      ReceivableAs      of September 30 |   |
|-------------------------------------------------|--------|
|                                            |   | 2007 |   |   | 2006 |   |
|                                            |   | As      Restated |   |   | As      Restated |   |
| Power      receivables billed                   |   | $ | 316 |   |   | $ | 303 |   |
| Power      receivables unbilled                 |   |   | 986 |   |   |   | 832 |   |
| Fuel      cost adjustments unbilled             |   |   | 132 |   |   |   | - |   |
| Total      power receivables                    |   |   | 1,434 |   |   |   | 1,135 |   |
|                                            |   |   |   |   |   |   |   |   |
| Other      receivables                          |   |   | 26 |   |   |   | 56 |   |
| Allowance      for uncollectible accounts       |   |   | (2 | ) |   |   | (10 | ) |
| Net      accounts receivable                    |   | $ | 1,458 |   |   | $ | 1,181 |   |

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| TVA      Property, Plant, and Equipment Depreciation RatesAs      of September 30 |   |
|-----------------------------------------------------------------------------------|--------|
|                                                                              |   | 2007 |   |   | 2006 |   |   | 2005 |   |
|                                                                              |   | As      Restated |   |   | As      Restated |   |   |   |   |
| Asset      Class:                                                                 |   | (percent) |   |
|   Nuclear                                                               |   |   | 2.29 |   |   |   | 3.00 |   |   |   | 3.40 |   |
|   Coal-Fired                                                            |   |   | 3.59 |   |   |   | 3.53 |   |   |   | 3.53 |   |
|   Hydroelectric                                                         |   |   | 1.82 |   |   |   | 1.79 |   |   |   | 1.78 |   |
|   Combustion      turbine/diesel generators                             |   |   | 4.70 |   |   |   | 4.54 |   |   |   | 4.55 |   |
|   Transmission                                                          |   |   | 2.53 |   |   |   | 2.57 |   |   |   | 2.52 |   |
|   Other                                                                 |   |   | 7.05 |   |   |   | 6.26 |   |   |   | 5.60 |   |

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|                                                                          |   | 2007   |    |   | 2006   |   |
|-------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|    Loans      and long-term receivables, net                   |   | $      | 79      |   |   | $      | 80 |   |
|    Intangible      asset related to pension prior service cost |   |   | – |   |   |   | 280 |   |
|    Valuation      of currency swaps                            |   |   | 280     |   |   |   | 246 |   |
|    Valuation      of commodity contracts                       |   |   | 16      |   |   |   | 487 |   |
|                                                                          |   | $      | 375     |   |   | $      | 1,093 |   |

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|                    | Description      of Adjustment                                             |   | 2007   |    | Note    |        | 2006   |   |    | Note   |
|-------------------------|----------------------------------------------------------------------------|--------|--------|---------|---------|-------------|--------|--------|---------|--------|
|                    |                                                                       |   |   |    |    |        |   |   |    |   |
| Operating      revenues |  Unbilled      revenue adjustments                                    |   | $      | 73      |    |        |   | $      | (200    | )      |   |   |
|                    | Reclassification      of expenses previously netted with revenue           |   |   | 9       |    |        |   |   | 8       |   |   |   |
|                    |                                                                       |   |   | 82      |    |  I07-1 |   |   | (192    | )      |   |  I06-1 |
|                    |                                                                       |   |   |    |    |        |   |   |    |   |   |   |
| Operating      expenses |  Fuel      cost adjustment                                            |   |   | 46      |    |        |   |   | – |   |   |   |
|                    |  Write      off of construction projects                              |   |   | (5      | )       |        |   |   | 5       |   |   |   |
|                    |  Capitalization      of construction projects                         |   |   | (8      | )  |        |   |   | 8       |   |   |   |
|                    |  Financing      cost interest reclassification                        |   |   | (48     | )  |        |   |   | (49     | )      |   |   |
|                    |  Reclassification      of expenses previously netted with revenue     |   |   | 15      |    |        |   |   | 26      |   |   |   |
|                    |  Additional      legal expense                                        |   |   | 3       |    |        |   |   | – |   |   |   |
|                    |  Intracompany      charges reclassification                           |   |   | – |    |        |   |   | (12     | )      |   |   |
|                    |                                                                       |   |   | 3       |    |  I07-2 |   |   | (22     | )      |   |  I06-2 |
|                    |                                                                       |   |   |    |    |        |   |   |    |   |   |   |
| Operating      income   |                                                                       |   |   | 79      |    |        |   |   | (170    | )      |   |   |
|                    |                                                                       |   |   |    |    |        |   |   |    |   |   |   |
| Other      income       |  Additional      legal reserve                                        |   |   | 3       |    |        |   |   | (3      | )      |   |   |
|                    |  Reclassification      of other income previously reported as revenue |   |   | 6       |    |        |   |   | 18      |   |   |   |
|                    |  Intrarcompany      charges reclassification                          |   |   | – |    |        |   |   | (12     | )      |   |   |
|                    |                                                                       |   |   | 9       |    |  I07-3 |   |   | 3       |   |   |  I06-3 |
|                    |                                                                       |   |   |    |    |        |   |   |    |   |   |   |
| Interest      expense   | Financing      cost interest reclassification                              |   |   | 48      |    |  I07-4 |   |   | 49      |   |   |  I06-4 |
|                    |                                                                       |   |   |    |    |        |   |   |    |   |   |   |
| Net      income         |                                                                       |   | $      | 40      |    |        |   | $      | (216    | )      |   |   |
|                    |                                                                       |   |   |    |    |        |   |   |    |   |   |   |

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|                                                          | Description      of Adjustment               |   | 2007   |    |   | Note   |              | 2006   |   |    | Note   |
|---------------------------------------------------------------|----------------------------------------------|--------|--------|---------|--------|--------|-------------------|--------|--------|---------|--------|
| Current      assets                                           |                                         |   |   |    |   |   |              |   |   |    |   |
| Accounts      receivable                                      | Unbilled      revenue adjustments            |   | $      | (127    | )      |   |              |   | $      | (199    | )      |   |   |
| Accounts      receivable                                      | Swap      asset reclassification             |   |   | – |   |   |              |   |   | 21      |   |   |   |
| Accounts      receivable                                      | Fuel      cost adjustments                   |   |   | 132     |   |   |              |   |   | – |   |   |   |
| Inventories      and other                                    | Derivative      reclassification             |   |   | – |   |   |              |   |   | 22      |   |   |   |
|                                                          |                                         |   |   | 5       |   |   |   B07-1 |   |   | (156    | )      |   |   B06-1 |
| Property,      plant, and equipment                           |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Accumulated      depreciation                                 | Capitalization      of construction projects |   |   | – |   |   |              |   |   | (8      | )      |   |   |
| Construction      in progress                                 | Write      off of construction projects      |   |   | – |   |   |              |   |   | (5      | )      |   |   |
| Construction      in progress                                 | Unrecorded      software liability           |   |   | 4       |   |   |              |   |   | – |   |   |   |
|                                                          |                                         |   |   | 4       |   |   |   B07-2 |   |   | (13     | )      |   |   B06-2 |
| Regulatory      and other long-term assets                    |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Regulatory      assets                                        | Fuel      cost adjustments                   |   |   | (179    | )      |   |              |   |   | – |   |   |   |
| Regulatory      assets                                        | Derivative      reclassification             |   |   | – |   |   |              |   |   | (22     | )      |   |   |
| Other      long-term assets                                   | Swap      asset reclassification             |   |   | – |   |   |              |   |   | (21     | )      |   |   |
|                                                          |                                         |   |   | (179    | )      |   |   B07-3 |   |   | (43     | )      |   |   B06-3 |
|                                                          |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Total      restatement of assets                              |                                         |   | $      | (170    | )      |   |              |   | $      | (212    | )      |   |   |
|                                                          |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Current      liabilities                                      |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Accrued      liabilities                                      | Derivative      reclassification             |   | $      | – |   |   |              |   | $      | 22      |   |   |   |
| Accrued      liabilities                                      | Legal      reserve adjustment                |   |   | – |   |   |              |   |   | 3       |   |   |   |
| Accrued      liabilities                                      | Unbilled      revenue adjustments            |   |   | – |   |   |              |   |   | 1       |   |   |   |
| Accrued      liabilities                                      | Fuel      cost adjustments                   |   |   | (1      | )      |   |              |   |   | – |   |   |   |
| Accrued      liabilities                                      | Unrecorded      software liability           |   |   | 4       |   |   |              |   |   | – |   |   |   |
| Accrued      liabilities                                      | Legal      expense adjustment                |   |   | 3       |   |   |              |   |   | – |   |   |   |
|                                                          |                                         |   |   | 6       |   |   |   B07-4 |   |   | 26      |   |   |   B06-4 |
| Other      liabiliites                                        |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Other      liabilities                                        | Derivative      reclassification             |   |   | – |   |   |              |   |   | (22     | )      |   |   B06-5 |
|                                                          |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Total      restatement of liabilities                         |                                         |   |   | 6       |   |   |              |   |   | 4       |   |   |   |
|                                                          |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Proprietary      capital                                      |                                         |   |   |    |   |   |              |   |   |    |   |   |   |
| Retained      earnings                                        | Write      off of construction projects      |   |   | 4       |   |   |              |   |   | (4      | )      |   |   |
| Retained      earnings                                        | Legal      reserve adjustment                |   |   | 4       |   |   |              |   |   | (4      | )      |   |   |
| Retained      earnings                                        | Derivative      reclassification             |   |   | 8       |   |   |              |   |   | (8      | )      |   |   |
| Retained      earnings                                        | Unbilled      revenue adjustments            |   |   | 73      |   |   |              |   |   | (200    | )      |   |   |
| Retained      earnings                                        | Fuel      cost adjustments                   |   |   | (46     | )      |   |              |   |   | – |   |   |   |
| Retained      earnings                                        | Legal      expense adjustment                |   |   | (3      | )      |   |              |   |   | – |   |   |   |
| Retained      earnings                                        | Beginning      retained earnings adjustment  |   |   | (216    | )      |   |              |   |   | – |   |   |   |
|                                                          |                                         |   |   | (176    | )      |   |   B07-5 |   |   | (216    | )      |   |   B06-6 |
| Total      restatement of liabilities and proprietary capital |                                         |   | $      | (170    | )      |   |              |   | $      | (212    | )      |   |   |
|                                                          |                                         |   |   |    |   |   |              |   |   |    |   |   |   |

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| Statement      of Income |
|--------------------------|

|                                                                                                                          |   | 2007                        |    |   | 2006               |   |
|-------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|--------------------|--------|
|                                                                                                                          |   | As      Previously Reported |    |   | Increase(Decrease) |   |  Note |   | AsRestated |   |   | As      Previously Reported |   |   | Increase(Decrease) |   |  Note |   | AsRestated |   |
| Operating      revenues                                                                                                       |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales      of electricity                                                                                                     |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Municipalities      and cooperatives                                                                  |   | $                           | 7,774   |   |               |   | 73 |   |   |   | $ | 7,847 |   |   | $ | 7,859 |   |   |   | (200 | ) |   |   | $ | 7,659 |   |
|     Industries      directly served                                                                       |   |                        | 1,221   |   |               |   | – |   |   |   |   | 1,221 |   |   |   | 1,065 |   |   |   | – |   |   |   |   | 1,065 |   |
|     Federal      agencies and other                                                                       |   |                        | 112     |   |               |   | – |   |   |   |   | 112 |   |   |   | 116 |   |   |   | – |   |   |   |   | 116 |   |
| Other      revenue                                                                                                            |   |                        | 137     |   |               |   | 9 |   |   |   |   | 146 |   |   |   | 135 |   |   |   | 8 |   |   |   |   | 143 |   |
| Operating      revenues                                                                                                       |   |                        | 9,244   |   |               |   | 82 |   |   |   |   | 9,326 |   |   |   | 9,175 |   |   |   | (192 | ) |   |   |   | 8,983 |   |
| Revenue      capitalized during pre-commercial plant operations                                                               |   |                        | (57     | )      |               |   | – |   |   |   |   | (57 | ) |   |   | – |   |   |   | – |   |   |   |   | – |   |
| Net      operating revenues                                                                                                   |   |                        | 9,187   |   |               |   | 82 |   |  107-1 |   |   | 9,269 |   |   |   | 9,175 |   |   |   | (192 | ) |  106-1 |   |   | 8,983 |   |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses                                                                                                       |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fuel      and purchased power                                                                                                 |   |                        | 3,382   |   |               |   | 67 |   |   |   |   | 3,449 |   |   |   | 3,333 |   |   |   | 9 |   |   |   |   | 3,342 |   |
| Operating      and maintenance                                                                                                |   |                        | 2,382   |   |               |   | (50 | ) |   |   |   | 2,332 |   |   |   | 2,372 |   |   |   | (44 | ) |   |   |   | 2,328 |   |
| Depreciation,      amortization, and accretion                                                                                |   |                        | 1,481   |   |               |   | (8 | ) |   |   |   | 1,473 |   |   |   | 1,492 |   |   |   | 8 |   |   |   |   | 1,500 |   |
| Tax      equivalents                                                                                                          |   |                        | 452     |   |               |   | (1 | ) |   |   |   | 451 |   |   |   | 376 |   |   |   | – |   |   |   |   | 376 |   |
| Loss      on asset impairment                                                                                                 |   |                        | 26      |   |               |   | (5 | ) |   |   |   | 21 |   |   |   | 9 |   |   |   | 5 |   |   |   |   | 14 |   |
| Total      operating expenses                                                                                                 |   |                        | 7,723   |   |               |   | 3 |   |  107-2 |   |   | 7,726 |   |   |   | 7,582 |   |   |   | (22 | ) |  106-2 |   |   | 7,560 |   |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      income                                                                                                         |   |                        | 1,464   |   |               |   | 79 |   |   |   |   | 1,543 |   |   |   | 1,593 |   |   |   | (170 | ) |   |   |   | 1,423 |   |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      income                                                                                                             |   |                        | 64      |   |               |   | 9 |   |  107-3 |   |   | 73 |   |   |   | 77 |   |   |   | 3 |   |  106-3 |   |   | 80 |   |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      expense                                                                                                            |   |                        | (2      | )      |               |   | – |   |   |   |   | (2 | ) |   |   | (2 | ) |   |   | – |   |   |   |   | (2 | ) |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      gain/(loss) on derivative contracts, net                                                                      |   |                        | 41      |   |               |   | – |   |   |   |   | 41 |   |   |   | (15 | ) |   |   | – |   |   |   |   | (15 | ) |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                                                         |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on debt and leaseback obligations                                                                               |   |                        | 1,342   |   |               |   | 48 |   |   |   |   | 1,390 |   |   |   | 1,357 |   |   |   | 49 |   |   |   |   | 1,406 |   |
| Amortization      of debt discount, issue, and reacquisition costs, net                                                       |   |                        | 19      |   |               |   | – |   |   |   |   | 19 |   |   |   | 21 |   |   |   | – |   |   |   |   | 21 |   |
| Allowance      for funds used during construction and nuclear fuel      expenditures                                          |   |                        | (177    | )      |               |   | – |   |   |   |   | (177 | ) |   |   | (163 | ) |   |   | – |   |   |   |   | (163 | ) |
| Net      interest expense                                                                                                     |   |                        | 1,184   |   |               |   | 48 |   |  107-4 |   |   | 1,232 |   |   |   | 1,215 |   |   |   | 49 |   |  106-3 |   |   | 1,264 |   |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before cumulative effects of accounting changes                                                                   |   |                        | 383     |   |               |   | 40 |   |   |   |   | 423 |   |   |   | 438 |   |   |   | (216 | ) |   |   |   | 222 |   |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cumulative      effect of change in accounting for conditional     asset      retirement obligations |   |                        | – |   |               |   | – |   |   |   |   | – |   |   |   | (109 | ) |   |   | – |   |   |   |   | (109 | ) |
|                                                                                                                          |   |                        |    |   |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                                                               |   | $                           | 383     |   |               | $      | 40 |   |   |   | $ | 423 |   |   | $ | 329 |   |   |   | (216 | ) |   |   | $ | 113 |   |

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| Balance      Sheets |
|---------------------|

|                                                  |   |                        |    | 2007               |   |       |   |        |   |                        |    | 2006               |   |    |   |       |    |
|-------------------------------------------------------|--------|-----------------------------|---------|--------------------|--------|------------|--------|-------------|--------|-----------------------------|---------|--------------------|--------|---------|--------|------------|---------|
|                                                  |   | As      Previously Reported |    | Increase(Decrease) |   |  Note |   | AsRestated  |   | As      Previously Reported |    | Increase(Decrease) |   | Note    |   | AsRestated |    |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |
| ASSETS                                                |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |
| Current      assets                                   |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |
| Cash      and cash equivalents                        |   | $                           | 165     |               | $      | –    |   |        |   | $                           | 165     |               | $      | 536     |   | $          | – |   |   |   | $ | 536 |   |
| Restricted      cash and investments                  |   |                        | 150     |               |   | –    |   |        |   |                        | 150     |               |   | 198     |   |       | – |   |   |   |   | 198 |   |
| Accounts      receivable, net                         |   |                        | 1,453   |               |   | 5          |   |        |   |                        | 1,458   |               |   | 1,359   |   |       | (178    | ) |   |   |   | 1,181 |   |
| Inventories      and other                            |   |                        | 663     |               |   | –    |   |        |   |                        | 663     |               |   | 576     |   |       | 22      |   |   |   |   | 598 |   |
| Total      current assets                             |   |                        | 2,431   |               |   | 5          |   |  B07-1 |   |                        | 2,436   |               |   | 2,669   |   |       | (156    | ) |  B06-1 |   |   | 2,513 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Property, plant, and equipment      (Note 4)          |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Completed      plant                                  |   |                        | 38,811  |               |   | –    |   |        |   |                        | 38,811  |               |   | 35,652  |   |       | – |   |   |   |   | 35,652 |   |
| Less      accumulated depreciation                    |   |                        | (15,937 | )                  |   | –    |   |        |   |                        | (15,937 | )                  |   | (15,331 | )      |       | (8      | ) |   |   |   | (15,339 | ) |
| Net      completed plant                              |   |                        | 22,874  |               |   | –    |   |        |   |                        | 22,874  |               |   | 20,321  |   |       | (8      | ) |   |   |   | 20,313 |   |
| Construction      in progress                         |   |                        | 1,282   |               |   | 4          |   |        |   |                        | 1,286   |               |   | 3,539   |   |       | (5      | ) |   |   |   | 3,534 |   |
| Nuclear      fuel and capital leases                  |   |                        | 672     |               |   | –    |   |        |   |                        | 672     |               |   | 574     |   |       | – |   |   |   |   | 574 |   |
| Total      property, plant, and equipment, net        |   |                        | 24,828  |               |   | 4          |   |  B07-2 |   |                        | 24,832  |               |   | 24,434  |   |       | (13     | ) |  B06-2 |   |   | 24,421 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Investment      funds                                 |   |                        | 1,169   |               |   | –    |   |        |   |                        | 1,169   |               |   | 972     |   |       | – |   |   |   |   | 972 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Regulatory      and other long-term assets            |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Deferred      nuclear generating units                |   |                        | 3,130   |               |   | –    |   |        |   |                        | 3,130   |               |   | 3,521   |   |       | – |   |   |   |   | 3,521 |   |
| Other      regulatory assets (Note 6)                 |   |                        | 1,969   |               |   | (179       | )      |        |   |                        | 1,790   |               |   | 1,809   |   |       | (22     | ) |   |   |   | 1,787 |   |
|   Subtotal                                  |   |                        | 5,099   |               |   | (179       | )      |        |   |                        | 4,920   |               |   | 5,330   |   |       | (22     | ) |   |   |   | 5,308 |   |
| Other      long-term assets                           |   |                        | 375     |               |   | –    |   |        |   |                        | 375     |               |   | 1,115   |   |       | (21     | ) |   |   |   | 1,094 |   |
| Total      regulatory and other long-term assets      |   |                        | 5,474   |               |   | (179       | )      |  B07-3 |   |                        | 5,295   |               |   | 6,445   |   |       | (43     | ) |  B06-3 |   |   | 6,402 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Total      assets                                     |   | $                           | 33,902  |               | $      | (170       | )      |        |   | $                           | 33,732  |               | $      | 34,520  |   | $          | (212    | ) |   |   | $ | 34,308 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| LIABILITIES      AND PROPRIETARY CAPITAL              |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Current      liabilities                              |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Accounts      payable                                 |   | $                           | 1,000   |               | $      | –    |   |        |   | $                           | 1,000   |               | $      | 890     |   | $          | – |   |   |   | $ | 890 |   |
| Accrued      liabilities                              |   |                        | 199     |               |   | 6          |   |        |   |                        | 205     |               |   | 211     |   |       | 26      |   |   |   |   | 237 |   |
| Collateral      funds held                            |   |                        | 157     |               |   | –    |   |        |   |                        | 157     |               |   | 195     |   |       | – |   |   |   |   | 195 |   |
| Accrued      interest                                 |   |                        | 406     |               |   | –    |   |        |   |                        | 406     |               |   | 403     |   |       | – |   |   |   |   | 403 |   |
| Current      portion of leaseback obligations         |   |                        | 43      |               |   | –    |   |        |   |                        | 43      |               |   | 37      |   |       | – |   |   |   |   | 37 |   |
| Current      portion of energy prepayment obligations |   |                        | 106     |               |   | –    |   |        |   |                        | 106     |               |   | 106     |   |       | – |   |   |   |   | 106 |   |
| Short-term      debt, net                             |   |                        | 1,422   |               |   | –    |   |        |   |                        | 1,422   |               |   | 2,376   |   |       | – |   |   |   |   | 2,376 |   |
| Current      maturities of long-term debt (Note 11)   |   |                        | 90      |               |   | –    |   |        |   |                        | 90      |               |   | 985     |   |       | – |   |   |   |   | 985 |   |
| Total      current liabilities                        |   |                        | 3,423   |               |   | 6          |   |  B07-4 |   |                        | 3,429   |               |   | 5,203   |   |       | 26      |   |  B06-4 |   |   | 5,229 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Other      liabilities                                |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Other      liabilities                                |   |                        | 2,067   |               |   | –    |   |        |   |                        | 2,067   |               |   | 2,305   |   |       | (22     | ) |   |   |   | 2,283 |   |
| Regulatory      liabilities (Note 6)                  |   |                        | 83      |               |   | –    |   |        |   |                        | 83      |               |   | 575     |   |       | – |   |   |   |   | 575 |   |
| Asset      retirement obligations                     |   |                        | 2,189   |               |   | –    |   |        |   |                        | 2,189   |               |   | 1,985   |   |       | – |   |   |   |   | 1,985 |   |
| Leaseback      obligations                            |   |                        | 1,029   |               |   | –    |   |        |   |                        | 1,029   |               |   | 1,071   |   |       | – |   |   |   |   | 1,071 |   |
| Energy      prepayment obligations                    |   |                        | 1,032   |               |   | –    |   |        |   |                        | 1,032   |               |   | 1,138   |   |       | – |   |   |   |   | 1,138 |   |
| Total      other liabilities                          |   |                        | 6,400   |               |   | –    |   |        |   |                        | 6,400   |               |   | 7,074   |   |       | (22     | ) |  B06-5 |   |   | 7,052 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Long-term debt, net      (Note 11)                    |   |                        | 21,099  |               |   | –    |   |        |   |                        | 21,099  |               |   | 19,544  |   |       | – |   |   |   |   | 19,544 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Total      liabilities                                |   |                        | 30,922  |               |   | 6          |   |        |   |                        | 30,928  |               |   | 31,821  |   |       | 4       |   |   |   |   | 31,825 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Commitments and      contingencies (Note 15)          |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Proprietary      capital                              |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Appropriation      investment                         |   |                        | 4,743   |               |   | –    |   |        |   |                        | 4,743   |               |   | 4,763   |   |       | – |   |   |   |   | 4,763 |   |
| Retained      earnings                                |   |                        | 1,939   |               |   | (176       | )      |        |   |                        | 1,763   |               |   | 1,565   |   |       | (216    | ) |   |   |   | 1,349 |   |
| Accumulated      other comprehensive (loss) income    |   |                        | (19     | )                  |   | –    |   |        |   |                        | (19     | )                  |   | 43      |   |       | – |   |   |   |   | 43 |   |
| Accumulated      net expense of stewardship programs  |   |                        | (3,683  | )                  |   | –    |   |        |   |                        | (3,683  | )                  |   | (3,672  | )      |       | – |   |   |   |   | (3,672 | ) |
| Total      proprietary capital                        |   |                        | 2,980   |               |   | (176       | )      |  B07-5 |   |                        | 2,804   |               |   | 2,699   |   |       | (216    | ) |  B06-6 |   |   | 2,483 |   |
|                                                  |   |                        |    |               |   |       |   |        |   |                        |    |               |   |    |   |       |    |   |   |   |   |   |   |
| Total      liabilities and proprietary capital        |   | $                           | 33,902  |               | $      | (170       | )      |        |   | $                           | 33,732  |               | $      | 34,520  |   | $          | (212    | ) |   |   | $ | 34,308 |   |

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Tableof Contents

| Statement      of Cash Flows                                                               |   |
|--------------------------------------------------------------------------------------------|--------|
|                                                                                       |   |   |   |   |   |   |
|                                                                                       |   | 2007 |   |   | 2006 |   |
|                                                                                       |   | As      Previously Reported |   |   | Increase(Decrease) |   |   | AsRestated |   |   | As      Previously Reported |   |   | Increase(Decrease) |   |   | AsRestated |   |
| Cash      flows from operating activities                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                            |   | $ | 383 |   |   | $ | 40 |   |   | $ | 423 |   |   | $ | 329 |   |   | $ | (216 | ) |   | $ | 113 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Depreciation,      amortization, and accretion                           |   |   | 1,500 |   |   |   | (8 | ) |   |   | 1,492 |   |   |   | 1,513 |   |   |   | 8 |   |   |   | 1,521 |   |
|    Nuclear      refueling outage amortization                               |   |   | 86 |   |   |   | – |   |   |   | 86 |   |   |   | 89 |   |   |   | – |   |   |   | 89 |   |
|    Loss      on asset impairment                                            |   |   | 26 |   |   |   | (5 | ) |   |   | 21 |   |   |   | 9 |   |   |   | 5 |   |   |   | 14 |   |
|    Cumulative      effect of change in accounting principle                 |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 109 |   |   |   | – |   |   |   | 109 |   |
|    Amortization      of nuclear fuel                                        |   |   | 137 |   |   |   | – |   |   |   | 137 |   |   |   | 128 |   |   |   | – |   |   |   | 128 |   |
|    Non-cash      retirement benefit expense                                 |   |   | 201 |   |   |   | – |   |   |   | 201 |   |   |   | 302 |   |   |   | – |   |   |   | 302 |   |
|    Net      unrealized gain on derivative contracts                         |   |   | (41 | ) |   |   | – |   |   |   | (41 | ) |   |   | 15 |   |   |   | – |   |   |   | 15 |   |
|    Prepayment      credits applied to revenue                               |   |   | (105 | ) |   |   | – |   |   |   | (105 | ) |   |   | (105 | ) |   |   | – |   |   |   | (105 | ) |
|    Fuel      cost adjustment deferral                                       |   |   | (197 | ) |   |   | 47 |   |   |   | (150 | ) |   |   | – |   |   |   | – |   |   |   | – |   |
|   Other,      net                                                                |   |   | (31 | ) |   |   | – |   |   |   | (31 | ) |   |   | (7 | ) |   |   | 4 |   |   |   | (3 | ) |
| Changes      in current assets and liabilities                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Accounts      receivable, net                                            |   |   | (72 | ) |   |   | (72 | ) |   |   | (144 | ) |   |   | (214 | ) |   |   | 199 |   |   |   | (15 | ) |
|    Inventories      and other                                               |   |   | (98 | ) |   |   | - |   |   |   | (98 | ) |   |   | (120 | ) |   |   | – |   |   |   | (120 | ) |
|    Accounts      payable and accrued liabilities                            |   |   | 80 |   |   |   | 23 |   |   |   | 103 |   |   |   | 125 |   |   |   | (29 | ) |   |   | 96 |   |
|    Accrued      interest                                                    |   |   | 4 |   |   |   | – |   |   |   | 4 |   |   |   | 23 |   |   |   | – |   |   |   | 23 |   |
| Pension      contributions                                                                 |   |   | (75 | ) |   |   | – |   |   |   | (75 | ) |   |   | (75 | ) |   |   | – |   |   |   | (75 | ) |
| Refueling      outage costs                                                                |   |   | (96 | ) |   |   | – |   |   |   | (96 | ) |   |   | (72 | ) |   |   | – |   |   |   | (72 | ) |
| Other,      net                                                                            |   |   | 61 |   |   |   | – |   |   |   | 61 |   |   |   | (35 | ) |   |   | – |   |   |   | (35 | ) |
| Net      cash provided by operating activities                                             |   |   | 1,763 |   |   |   | 25 |   |   |   | 1,788 |   |   |   | 2,014 |   |   |   | (29 | ) |   |   | 1,985 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from investing activities                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Construction      expenditures                                                             |   |   | (1,306 | ) |   |   | (73 | )  |   |   | (1,379 | ) |   |   | (1,399 | ) |   |   | 29 |   |   |   | (1,370 | ) |
| Combustion      turbine asset acquisitions                                                 |   |   | (111 | ) |   |   | – |   |   |   | (111 | ) |   |   | – |   |   |   | – |   |   |   | – |   |
| Nuclear      fuel expenditures                                                             |   |   | (251 | ) |   |   | 48 |   |   |   | (203 | ) |   |   | (277 | ) |   |   | – |   |   |   | (277 | ) |
| Change      in restricted cash and investments                                             |   |   | 48 |   |   |   | – |   |   |   | 48 |   |   |   | (91 | ) |   |   | – |   |   |   | (91 | ) |
| (Purchases)      proceeds of investments                                                   |   |   | (44 | ) |   |   | – |   |   |   | (44 | ) |   |   | – |   |   |   | – |   |   |   | – |   |
| Loans      and other receivables                                                           |   |   |   |   |   |   | – |   |   |   |   |   |   |   |   |   |   |   | – |   |   |   |   |   |
|       Advances                                               |   |   | (16 | ) |   |   | – |   |   |   | (16 | ) |   |   | (17 | ) |   |   | – |   |   |   | (17 | ) |
|       Repayments                                             |   |   | 16 |   |   |   | – |   |   |   | 16 |   |   |   | 13 |   |   |   | – |   |   |   | 13 |   |
| Proceeds      from sale of receivables/loans  (Note 1)                           |   |   | 2 |   |   |   | – |   |   |   | 2 |   |   |   | 11 |   |   |   | – |   |   |   | 11 |   |
| Proceeds      from settlement of litigation                                                |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 35 |   |   |   | – |   |   |   | 35 |   |
| Other,      net                                                                            |   |   | 1 |   |   |   | – |   |   |   | 1 |   |   |   | (2 | ) |   |   | – |   |   |   | (2 | ) |
| Net      cash used in investing activities                                                 |   |   | (1,661 | ) |   |   | (25) |   |   |   | (1,686 | ) |   |   | (1,727 | ) |   |   | 29 |   |   |   | (1,698 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      debt                                                                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Issues                                                             |   |   | 1,040 |   |   |   | – |   |   |   | 1,040 |   |   |   | 1,132 |   |   |   | – |   |   |   | 1,132 |   |
|     Redemptions      and repurchases (Note 11)                         |   |   | (470 | ) |   |   | – |   |   |   | (470 | ) |   |   | (1,241 | ) |   |   | – |   |   |   | (1,241 | ) |
| Short-term      (redemptions)/borrowings, net                                              |   |   | (955 | ) |   |   | – |   |   |   | (955 | ) |   |   | (93 | ) |   |   | – |   |   |   | (93 | ) |
| Proceeds      from call monetizations                                                      |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Payments      on leaseback financing                                                       |   |   | (30 | ) |   |   | – |   |   |   | (30 | ) |   |   | (28 | ) |   |   | – |   |   |   | (28 | ) |
| Payments      on equipment financing                                                       |   |   | (7 | ) |   |   | – |   |   |   | (7 | ) |   |   | (6 | ) |   |   | – |   |   |   | (6 | ) |
| Financing      costs, net                                                                  |   |   | (11 | ) |   |   | – |   |   |   | (11 | ) |   |   | (14 | ) |   |   | – |   |   |   | (14 | ) |
| Payments      to U.S. Treasury                                                             |   |   | (40 | ) |   |   | – |   |   |   | (40 | ) |   |   | (38 | ) |   |   | – |   |   |   | (38 | ) |
| Other                                                                                      |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (1 | ) |   |   | – |   |   |   | (1 | ) |
| Net      cash used in financing activities                                                 |   |   | (473 | ) |   |   | – |   |   |   | (473 | ) |   |   | (289 | ) |   |   | - |   |   |   | (289 | ) |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      change in cash and cash equivalents                                               |   |   | (371 | ) |   |   | – |   |   |   | (371 | ) |   |   | (2 | ) |   |   | – |   |   |   | (2 | ) |
| Cash      and cash equivalents at beginning of period                                      |   |   | 536 |   |   |   | – |   |   |   | 536 |   |   |   | 538 |   |   |   | – |   |   |   | 538 |   |
|                                                                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                            |   | $ | 165 |   |   | $ | – |   |   | $ | 165 |   |   | $ | 536 |   |   | $ | – |   |   | $ | 536 |   |

----

Tableof Contents

| Statements      of Changes in Proprietary Capital         |   |
|-----------------------------------------------------------|--------|
|                                                      |   |   Appropriation      Investment |   |   |   Retained      Earnings |   |   | Accumulated      Other Comprehensive (Loss) Income |   |   | Accumulated      Net Expense of Stewardship Programs |   |   |    Total |   |   |   Comprehensive      Income |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at September 30, 2005                        |   | $ | 4,783 |   |   | $ | 1,244 |   |   | $ | 27 |   |   | $ | (3,662 | ) |   | $ | 2,392 |   |   | $ | 164 |   |
| Net      income (loss)                                    |   |   | – |   |   |   | 339 |   |   |   | – |   |   |   | (10 | ) |   |   | 329 |   |   | $ | 329 |   |
| Return      on Power Facility Appropriation Investment    |   |   | – |   |   |   | (18 | ) |   |   | – |   |   |   | – |   |   |   | (18 | ) |   |   | – |   |
| Accumulated      other comprehensive income               |   |   | – |   |   |   | – |   |   |   | 16 |   |   |   | – |   |   |   | 16 |   |   |   | 16 |   |
| Return      of Power Facility Appropriation Investment    |   |   | (20 | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (20 | ) |   |   | – |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at September 30, 2006 as previously reported |   |   | 4,763 |   |   |   | 1,565 |   |   |   | 43 |   |   |   | (3,672 | ) |   |   | 2,699 |   |   |   | 345 |   |
| (Decrease)                                                |   |   | – |   |   |   | (216 | ) |   |   | – |   |   |   | – |   |   |   | (216 | ) |   |   | (216 | ) |
| Balance      at September 30, 2006 as restated            |   |   | 4,763 |   |   |   | 1,349 |   |   |   | 43 |   |   |   | (3,672 | ) |   |   | 2,483 |   |   | $ | 129 |   |
| Net      income (loss)                                    |   |   | – |   |   |   | 394 |   |   |   | – |   |   |   | (11 | ) |   |   | 383 |   |   | $ | 383 |   |
| Return      on Power Facility Appropriation Investment    |   |   | – |   |   |   | (20 | ) |   |   | – |   |   |   | – |   |   |   | (20 | ) |   |   | – |   |
| Accumulated      other comprehensive (loss)               |   |   | – |   |   |   | – |   |   |   | (62 | ) |   |   | – |   |   |   | (62 | ) |   |   | (62 | ) |
| Return      of Power Facility Appropriation Investment    |   |   | (20 | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (20 | ) |   |   | – |   |
|                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance      at September 30, 2007 as previously reported |   |   | 4,743 |   |   |   | 1,939 |   |   |   | (19 | ) |   |   | (3,683 | ) |   |   | 2,980 |   |   |   | 321 |   |
| (Decrease)      Increase                                  |   |   | – |   |   |   | (176 | ) |   |   | – |   |   |   | – |   |   |   | (176 | ) |   |   | 40 |   |
| Balance      at September 30, 2007 as restated            |   | $ | 4,743 |   |   | $ | 1,763 |   |   | $ | (19 | ) |   | $ | (3,683 | ) |   | $ | 2,804 |   |   | $ | 361 |   |

| Accounts      Receivable                                |   |
|---------------------------------------------------------|--------|
|                                                    |   |   |   |   |   |   |
|                                                    |   | 2007 |   |   | 2006 |   |
|                                                    |   | As      Previously Reported |   |   | Increase(Decrease) |   |   | AsRestated |   |   | As      Previously Reported |   |   | Increase(Decrease) |   |   | AsRestated |   |
| Power      receivables billed                           |   | $ | 316 |   |   | $ | – |   |   | $ | 316 |   |   | $ | 303 |   |   | $ | – |   |   | $ | 303 |   |
| Power      receivables unbilled                         |   |   | 1,113 |   |   |   | (127 | ) |   |   | 986 |   |   |   | 1,031 |   |   |   | (199 | ) |   |   | 832 |   |
| Fuel      cost adjustments unbilled                     |   |   | – |   |   |   | 132 |   |   |   | 132 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|     Subtotal      power receivables |   |   | 1,429 |   |   |   | 5 |   |   |   | 1,434 |   |   |   | 1,334 |   |   |   | (199 | ) |   |   | 1,135 |   |
|                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      receivables                                  |   |   | 26 |   |   |   | – |   |   |   | 26 |   |   |   | 35 |   |   |   | 21 |   |   |   | 56 |   |
| Allowance      for uncollectible accounts               |   |   | (2 | ) |   |   | – |   |   |   | (2 | ) |   |   | (10 | ) |   |   | – |   |   |   | (10 | ) |
|     Net      accounts receivable    |   | $ | 1,453 |   |   | $ | 5 |   |   | $ | 1,458 |   |   | $ | 1,359 |   |   | $ | (178 | ) |   | $ | 1,181 |   |

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| Regulatory      Assets                                                                   |   |
|------------------------------------------------------------------------------------------|--------|
|                                                                                     |   |   |   |   |   |   |
|                                                                                     |   | 2007 |   |   | 2006 |   |
|                                                                                     |   | As      Previously Reported |   |   | Increase(Decrease) |   |   | AsRestated |   |   | As      Previously Reported |   |   | Increase(Decrease) |   |   | AsRestated |   |
| Regulatory      Assets:                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|    Unfunded      benefit costs                                            |   | $ | 973 |   |   | $ | – |   |   | $ | 973 |   |   | $ | – |   |   | $ | – |   |   | $ | – |   |
|    Minimum      pension liability                                         |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 914 |   |   |   | – |   |   |   | 914 |   |
|    Nuclear      decommissioning costs                                     |   |   | 419 |   |   |   | – |   |   |   | 419 |   |   |   | 474 |   |   |   | – |   |   |   | 474 |   |
|    Debt      reacquisition costs                                          |   |   | 210 |   |   |   | – |   |   |   | 210 |   |   |   | 232 |   |   |   | – |   |   |   | 232 |   |
|    Deferred      losses relating to TVA’s financial trading program |   |   | 8 |   |   |   | – |   |   |   | 8 |   |   |   | 6 |   |   |   | – |   |   |   | 6 |   |
|    Deferred      outage costs                                             |   |   | 96 |   |   |   | – |   |   |   | 96 |   |   |   | 85 |   |   |   | – |   |   |   | 85 |   |
|    Deferred      capital lease asset costs                                |   |   | 66 |   |   |   | – |   |   |   | 66 |   |   |   | 76 |   |   |   | – |   |   |   | 76 |   |
|    Unrealized      losses on power purchase contracts                     |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 22 |   |   |   | (22 | ) |   |   | – |   |
|    Fuel      cost adjustment:  long term                        |   |   | 197 |   |   |   | (179 | ) |   |   | 18 |   |   |   | – |   |   |   | – |   |   |   | – |   |
| Subtotal                                                                                 |   |   | 1,969 |   |   |   | (179 | ) |   |   | 1,790 |   |   |   | 1,809 |   |   |   | (22 | ) |   |   | 1,787 |   |
|    Deferred      nuclear generating units                                 |   |   | 3,130 |   |   |   | – |   |   |   | 3,130 |   |   |   | 3,521 |   |   |   | – |   |   |   | 3,521 |   |
| Subtotal                                                                                 |   |   | 5,099 |   |   |   | – |   |   |   | 4,920 |   |   |   | 5,330 |   |   |   | (22 | ) |   |   | 5,308 |   |
|    Unrealized      loss – current power purchase                    |   |   | – |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 22 |   |   |   | 22 |   |
|    Fuel      cost adjustment receivable: short term                       |   |   | – |   |   |   | 132 |   |   |   | 132 |   |   |   | – |   |   |   | – |   |   |   | – |   |
|                                                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                                                    |   | $ | 5,099 |   |   | $ | (47 | ) |   | $ | 5,052 |   |   | $ | 5,330 |   |   | $ | – |   |   | $ | 5,330 |   |

|                          |   | Completed      Plant, Net |    |   | Construction      in Progress |   |    | Fuel      Investment |   |
|-------------------------------|--------|---------------------------|---------|--------|-------------------------------|--------|---------|----------------------|--------|
| Browns      Ferry             |   | $                         | 4,001   |   |                          | $      | 117     |                 |   | $ | 245 |   |
| Sequoyah                      |   |                      | 1,559   |   |                          |   | 32      |                 |   |   | 132 |   |
| Watts      Bar*               |   |                      | 5,403   |   |                          |   | 9       |                 |   |   | 45 |   |
| Raw      materials            |   |                      | – |   |                          |   | – |                 |   |   | 180 |   |
| Total      Nuclear Production |   | $                         | 10,963  |   |                          | $      | 158     |                 |   | $ | 602 |   |

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|  Nuclear      Unit  |  Operating      License Expiration Date |
|--------------------------|----------------------------------------------|
|                     |                                         |
| Browns      Ferry Unit 1 | 2033                                         |
| Browns      Ferry Unit 2 | 2034                                         |
| Browns      Ferry Unit 3 | 2036                                         |

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|                             |   | 2007   |   |   | 2006      (As Restated)       |   |
|----------------------------------|--------|--------|--------|--------|-------------------------------|--------|
|                             |   | Cost   |   |   | Accumulated      Depreciation |   |   | Net |   |   | Cost |   |   | Accumulated      Depreciation |   |   | Net |   |
| Coal-Fired                       |   | $      | 11,093 |   |                          | $      | 5,606 |   |   | $ | 5,487 |   |   | $ | 10,567 |   |   | $ | 5,249 |   |   | $ | 5,318 |   |
| Combustion      turbine          |   |   | 1,212  |   |                          |   | 555 |   |   |   | 657 |   |   |   | 1,168 |   |   |   | 500 |   |   |   | 668 |   |
| Nuclear                          |   |   | 17,514 |   |                          |   | 6,551 |   |   |   | 10,963 |   |   |   | 15,437 |   |   |   | 6,520 |   |   |   | 8,917 |   |
| Transmission                     |   |   | 4,680  |   |                          |   | 1,682 |   |   |   | 2,998 |   |   |   | 4,360 |   |   |   | 1,607 |   |   |   | 2,753 |   |
| Hydroelectric                    |   |   | 1,991  |   |                          |   | 718 |   |   |   | 1,273 |   |   |   | 1,879 |   |   |   | 683 |   |   |   | 1,196 |   |
| Other      electrical plant      |   |   | 1,315  |   |                          |   | 471 |   |   |   | 844 |   |   |   | 1,235 |   |   |   | 436 |   |   |   | 799 |   |
|     Subtotal |   |   | 37,805 |   |                          |   | 15,583 |   |   |   | 22,222 |   |   |   | 34,646 |   |   |   | 14,995 |   |   |   | 19,651 |   |
|                             |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Multipurpose      dams           |   |   | 962    |   |                          |   | 345 |   |   |   | 617 |   |   |   | 962 |   |   |   | 336 |   |   |   | 626 |   |
| Other      stewardship           |   |   | 44     |   |                          |   | 9 |   |   |   | 35 |   |   |   | 44 |   |   |   | 8 |   |   |   | 36 |   |
|     Subtotal |   |   | 1,006  |   |                          |   | 354 |   |   |   | 652 |   |   |   | 1,006 |   |   |   | 344 |   |   |   | 662 |   |
|                             |   |   |   |   |                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                            |   | $      | 38,811 |   |                          | $      | 15,937 |   |   | $ | 22,874 |   |   | $ | 35,652 |   |   | $ | 15,339 |   |   | $ | 20,313 |   |

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| Conditional      Asset Retirement Obligations for Asbestos and PCB Abatement      Costs |   |
|-----------------------------------------------------------------------------------------|--------|
| FIN      47 ARO Category                                                                |   | Pro-Forma      October      1, 2005Obligation |   |   | September      30, 2006Obligation |   |   | September      30, 2007 Obligation |   |   | Estimated      Future Liability (Undiscounted)September      30, 2007 |   |
| Coal-Fired      Plants                                                                  |   | $ | 111 |   |   | $ | 117 |   |   | $ | 123 |   |   | $ | 449 |   |
| Office      and Other Facilities                                                        |   |   | 2 |   |   |   | 2 |   |   |   | 2 |   |   |   | 42 |   |
| Hydroelectric      Plants                                                               |   |   | 5 |   |   |   | 5 |   |   |   | 5 |   |   |   | 32 |   |
| Transmission      Facilities                                                            |   |   | 9 |   |   |   | 8 |   |   |   | 9 |   |   |   | 21 |   |
| Total                                                                                   |   | $ | 127 |   |   | $ | 132 |   |   | $ | 139 |   |   | $ | 544 |   |

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|                                                                      |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| Balance      at beginning of period                                       |   | $      | 1,985  |   |   | $      | 1,857 |   |
|                                                                      |   |   |   |   |   |   |   |   |
|    Changes      in nuclear estimates to future cash flows  |   |   | 90     |   |   |   | (242 | ) |
|    Non-nuclear      additional obligations                 |   |   | 1      |   |   |   | 270 |   |
|                                                                      |   |   | 91     |   |   |   | 28 |   |
| Add:  ARO      (accretion) expense                              |   |   |   |   |   |   |   |   |
|    Nuclear      accretion (recorded as a regulatory asset) |   |   | 85     |   |   |   | 87 |   |
|    Non-nuclear      accretion (charged to expense)         |   |   | 28     |   |   |   | 13 |   |
|                                                                      |   |   | 113    |   |   |   | 100 |   |
|                                                                      |   |   |   |   |   |   |   |   |
| Balance      at end of period                                             |   | $      | 2,189  |   |   | $      | 1,985 |   |

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| TVA      Regulatory Assets and LiabilitiesAs      of September 30                        |   |
|------------------------------------------------------------------------------------------|--------|
|                                                                                     |   | 2007 |   |   | 2006 |   |
|                                                                                     |   | As      Restated |   |   | As      Restated |   |
| Regulatory      Assets:                                                                  |   |   |   |   |   |   |
|    Unfunded      benefit costs                                            |   | $ | 973 |   |   | $ | – |   |
|    Minimum      pension liability                                         |   |   | – |   |   |   | 914 |   |
|    Nuclear      decommissioning costs                                     |   |   | 419 |   |   |   | 474 |   |
|    Debt      reacquisition costs                                          |   |   | 210 |   |   |   | 232 |   |
|    Deferred      losses relating to TVA’s financial trading program |   |   | 8 |   |   |   | 6 |   |
|    Deferred      outage costs                                             |   |   | 96 |   |   |   | 85 |   |
|    Deferred      capital lease asset costs                                |   |   | 66 |   |   |   | 76 |   |
|    Fuel      cost adjustment long term                                    |   |   | 18 |   |   |   | – |   |
| Subtotal                                                                                 |   |   | 1,790 |   |   |   | 1,787 |   |
|    Deferred      nuclear generating units                                 |   |   | 3,130 |   |   |   | 3,521 |   |
| Subtotal                                                                                 |   |   | 4,920 |   |   |   | 5,308 |   |
|    Unrealized      loss on current power purchase contracts               |   |   | – |   |   |   | 22 |   |
|    Fuel      cost adjustment receivable short term                        |   |   | 132 |   |   |   | – |   |
|                                                                                     |   |   |   |   |   |   |   |   |
| Total                                                                                    |   | $ | 5,052 |   |   | $ | 5,330 |   |
|                                                                                     |   |   |   |   |   |   |   |   |
| Regulatory      Liabilities:                                                             |   |   |   |   |   |   |   |   |
|    Unrealized      gain on coal purchase contracts                        |   | $ | 16 |   |   | $ | 487 |   |
|    Capital      lease liability                                           |   |   | 67 |   |   |   | 88 |   |
| Subtotal                                                                                 |   |   | 83 |   |   |   | 575 |   |
|    Reserve      for future generation                                     |   |   | 74 |   |   |   | – |   |
|                                                                                     |   |   |   |   |   |   |   |   |
| Total                                                                                    |   | $ | 157 |   |   | $ | 575 |   |

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| Appropriations      ActivityAs      of September 30 |
|-----------------------------------------------------|
|                                                |   | Power      Facility Appropriation Investment |   | Stewardship      ProgramAppropriations |   | Total      Appropriation Investment |
|                                                |   |   |   |   |   |   |
| Appropriation      Investment at September 30, 2005 |   | $ | 428 |   | $ | 4,355 |   | $ | 4,783 |   |
| Less      repayments to the U.S. Treasury           |   |   | (20 | ) |   | – |   |   | (20 | ) |
| Appropriation      Investment at September 30, 2006 |   |   | 408 |   |   | 4,355 |   |   | 4,763 |   |
|                                                |   |   |   |   |   |   |   |   |   |   |
| Less      repayments to the U.S. Treasury           |   |   | (20 | ) |   | – |   |   | (20 | ) |
| Appropriation      Investment at September 30, 2007 |   | $ | 388 |   | $ | 4,355 |   | $ | 4,743 |   |

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| Total      Other Comprehensive Income (Loss) ActivityAs      of September 30 |   |
|------------------------------------------------------------------------------|--------|
| Accumulated      other comprehensive loss, October 1, 2004                   |   | $ | (52 | ) |
| Changes      in fair value:                                                  |   |   |   |   |
|     Inflation      swap                                  |   |   | 4 |   |
|     Foreign      currency swaps 1                        |   |   | 75 |   |
| Accumulated      other comprehensive income, September 30, 2005              |   |   | 27 |   |
|                                                                         |   |   |   |   |
| Changes      in fair value:                                                  |   |   |   |   |
|     Inflation      swap                                  |   |   | (11 | ) |
|     Foreign      currency swaps 1                        |   |   | 27 |   |
| Accumulated      other comprehensive income, September 30, 2006              |   |   | 43 |   |
|                                                                         |   |   |   |   |
| Changes      in fair value:                                                  |   |   |   |   |
|     Inflation      swap                                  |   |   | 9 |   |
|     Foreign      currency swaps 1                        |   |   | (71 | ) |
|                                                                         |   |   |   |   |
| Accumulated      other comprehensive loss, September 30, 2007                |   | $ | (19 | ) |

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| Derivative      Hedging Instrument |   Hedged      Item                               |  Purpose      of Hedge Transaction                                                                 |  Type      of Hedge |  Accounting      for Derivative Hedging Instrument                                                                                                                                                                     |  Accounting      for the Hedged Item                    |
|------------------------------------|------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|--------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------|
|                               |                                                       |                                                                                                    |                     |                                                                                                                                                                                                                        |                                                         |
| Currency      Swaps                | Anticipated      payment denominated in a foreign currency | To      protect against changes in cash flows caused by changes in      foreign-currency exchange rates | Cash      Flow           | Cumulative      unrealized gains and losses are recorded in Other comprehensive income and      reclassified to earnings to the extent they are offset by cumulative gains      and losses on the hedged transaction.  | No      adjustment is made to the basis of the hedged  item. |

| Derivative      Type                    | Purpose      of Derivative                                                             | Accounting      for Derivative Instrument                                                                                                                                      |
|-----------------------------------------|----------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                                                   |                                                                                                                                                                           |
| Coal      Contracts with Volume Options | To      protect against fluctuations in market prices of the item to be      purchased | Gains      and losses are recorded as regulatory assets or liabilities until      settlement at which time they are recognized in fuel and purchased power      expense.  |
| Interest      Rate Swap                 | To      fix short-term debt variable rate to a fixed rate                              | Gains      and losses are recorded in earnings as unrealized gains/losses on      derivative contracts.                                                                   |
| Swaptions                          | To      protect against decreases in value of the embedded call                        | Gains      and losses are recorded in earnings as unrealized gains/losses on      derivative contracts.                                                                        |
| Futures      and Options on Futures     | To      protect against fluctuations in the price of the item to be      purchased     | Realized      gains and losses are recorded in earnings as purchased power expense;      unrealized gains and losses are recorded as a regulatory      asset/liability.        |

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|                                              |   | 2007      Balance |    | 2007      Balance Sheet Presentation |                         | 2006      Balance |   | 2006      Balance Sheet Presentation |   | 2007      Notional Amount    |   | Year      of Expiration |
|---------------------------------------------------|--------|-------------------|---------|--------------------------------------|------------------------------|-------------------|--------|--------------------------------------|--------|------------------------------|--------|-------------------------|
|                                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |
| Inflation      swap                               |   | $                 | – |                                 |  –                |              | $      | 22                                   |   | Accounts      receivable     |   |  –           |   | 2007 |
| Interest      rate swap                           |   |              | (115    | )                                    | Other      liabilities       |              |   | (131                                 | )      | Other      liabilities       |   | $476      million       |   | 2044 |
|                                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
| Currency      swaps:                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
|     Sterling                  |   |              | 63      |                                 | Other      long-term assets  |              |   | 47                                   |   | Other      long-term assets  |   | £200      million  |   | 2021 |
|     Sterling                  |   |              | 148     |                                 | Other      long-term assets  |              |   | 133                                  |   | Other      long-term assets  |   | £250      million  |   | 2032 |
|     Sterling                  |   |              | 69      |                                 | Other      long-term assets  |              |   | 66                                   |   | Other      long-term assets  |   | £150      million  |   | 2043 |
|                                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
| Swaptions:                                        |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
|     $1      billion notional  |   |              | (269    | )                                    | Other      liabilities       |              |   | (296                                 | )      | Other      liabilities       |   | $1      billion         |   | 2042 |
|     $28      million notional |   |              | (3      | )                                    | Other      liabilities       |              |   | (3                                   | )      | Other      liabilities       |   | $28      million        |   | 2022 |
|     $14      million notional |   |              | (1      | )                                    | Other      liabilities       |              |   | (2                                   | )      | Other      liabilities       |   | $14      million        |   | 2022 |
|                                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
| Coal      contracts with volume options           |   |              | 16      |                                 | Other      long-term assets  |              |   | 487                                  |   | Other      long-term assets  |   | 115      million tons   |   | 2017 |
|                                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
| Purchase      power option contracts              |   |              | – |                                 |  –                |              |   | (22                                  | )      | Accrued      liabilities     |   |  –           |   | 2007 |
|                                              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
| Futures      and options on futures:              |   |              |    |                                 |                         |              |   |                                 |   |                         |   |                    |   |   |
|   Margin      Cash Account*             |   |              | 18      |                                 | Inventories      and other   |              |   | 6                                    |   | Inventories      and other   |   | 23,800,000      mmBtu   |   | 2009 |
|   Unrealized      losses                |   |              | 8       |                                 | Other      regulatory assets |              |   | 6                                    |   | Other      regulatory assets |   |  –           |   |       – |

|   | * | In      accordance with certain credit terms, TVA used leveraging to trade      financial instruments under the financial trading      program.  Therefore, the margin cash account balance does not      represent 100 percent of the net market value of the derivative positions      outstanding as shown in the Financial Trading Program Activity      table. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | In      2003, TVA monetized the call provisions on a $1 billion Bond issue by      entering into a swaption agreement with a third party in exchange for $175      million (the “2003A Swaption”). |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | In      2003, TVA also monetized the call provisions on a Bond issue of $476      million by entering into a swaption agreement with a third party in      exchange for $81 million (the “2003BSwaption”). |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | In      2005, TVA monetized the call provisions on two electronotes®      issues ($42 million total par value) by entering into swaption agreements      with a third party in exchange for $5 million (the “2005      Swaptions”). |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                                    |   | 2007            |        |   | 2006                |   |
|---------------------------------------------------------|--------|-----------------|-------------|--------|---------------------|--------|
|                                                    |   | NotionalAmount  |        |   | Contract      Value |   |   | Notional      Amount |   |   | Contract      Value |   |
|                                                    |   | (in      mmBtu) |        |   | (in      millions)  |   |   | (in      mmBtu) |   |   | (in      millions) |   |
| Futures      contracts                                  |   |            |        |   |                |   |   |   |   |   |   |   |
| Financial      positions, beginning of period, net      |   |            | 4,290,000   |   |                | $      | 35 |   |   |   | 880,000 |   |   | $ | 9 |   |
| Purchased                                               |   |            | 52,780,000  |   |                |   | 403 |   |   |   | 18,160,000 |   |   |   | 146 |   |
| Settled                                                 |   |            | (40,840,000 | )      |                |   | (273 | ) |   |   | (14,750,000 | ) |   |   | (97 | ) |
| Realized      (losses)                                  |   |            | –     |   |                |   | (34 | ) |   |   | – |   |   |   | (23 | ) |
| Net      positions-long                                 |   |            | 16,230,000  |   |                |   | 131 |   |   |   | 4,290,000 |   |   |   | 35 |   |
|                                                    |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Swap      futures                                       |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Financial      positions, beginning of period, net      |   |            | 1,822,500   |   |                |   | 11 |   |   |   | – |   |   |   | – |   |
| Fixed      portion                                      |   |            | 17,007,500  |   |                |   | 120 |   |   |   | 1,977,500 |   |   |   | 12 |   |
| Floating      portion - realized                        |   |            | (16,860,000 | )      |                |   | (108 | ) |   |   | (155,000 | ) |   |   | (1 | ) |
| Realized      (losses)                                  |   |            | –     |   |                |   | (11 | ) |   |   | – |   |   |   | – |   |
| Net      positions-long                                 |   |            | 1,970,000   |   |                |   | 12 |   |   |   | 1,822,500 |   |   |   | 11 |   |
|                                                    |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Option      contracts                                   |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Financial      positions, beginning of period, net      |   |            | –     |   |                |   | – |   |   |   | 240,000 |   |   |   | – |   |
| Calls      purchased                                    |   |            | 2,900,000   |   |                |   | 2 |   |   |   | – |   |   |   | – |   |
| Puts      sold                                          |   |            | 2,900,000   |   |                |   | (1 | ) |   |   | – |   |   |   | – |   |
| Positions      closed or expired                        |   |            | (200,000    | )      |                |   | – |   |   |   | (240,000 | ) |   |   | – |   |
| Net      positions-long                                 |   |            | 5,600,000   |   |                |   | 1 |   |   |   | – |   |   |   | – |   |
|                                                    |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Holding      (losses)/gains                             |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Unrealized      (loss) gain at beginning of period, net |   |            | –     |   |                |   | (6 | ) |   |   | – |   |   |   | 1 |   |
| Unrealized      (losses) for the period                 |   |            | –     |   |                |   | (2 | ) |   |   | – |   |   |   | (7 | ) |
| Unrealized      (losses) at end of period, net          |   |            | –     |   |                |   | (8 | ) |   |   | – |   |   |   | (6 | ) |
|                                                    |   |            |        |   |                |   |   |   |   |   |   |   |   |   |   |   |
| Financial      positions at end of period, net          |   |            | 23,800,000  |   |                | $      | 136 |   |   |   | 6,112,500 |   |   | $ | 40 |   |

----

Tableof Contents

| •   | the      remainder of TVA’s gross powerrevenues |
|---------------------|-------------------------------------------------------|

| o   | after      deducting |
|---------------|----------------------|

| –   | the      costs of operating, maintaining, and administering its power properties,      and |
|---------------------|--------------------------------------------------------------------------------------------|

| –   | payments      to states and counties in lieu of taxes,but |
|---------------------|-----------------------------------------------------------|

| o   | before      deducting depreciation accruals or other charges representing the      amortization of capital expenditures,plus |
|---------------|------------------------------------------------------------------------------------------------------------------------------|

| •   | the      net proceeds from the sale or other disposition of any power facility or      interest therein. |
|---------------------|----------------------------------------------------------------------------------------------------------|

| –   | the      depreciation accruals and other charges representing the amortization of      capital expenditures and |
|---------------------|-----------------------------------------------------------------------------------------------------------------|

| –   | the      net proceeds from any disposition of power  facilities |
|---------------------|-----------------------------------------------------------------|

| –   | the      reduction of its capital obligations (including Bonds and the Power      Facility Appropriation Investment)or |
|---------------------|------------------------------------------------------------------------------------------------------------------------|

| –   | investment      in power assets. |
|---------------------|----------------------------------|

----

Tableof Contents

----

Tableof Contents

|                                                    |   | Principal      Amount |    |
|---------------------------------------------------------|--------|-----------------------|---------|
| Redemptions/Maturities:                                 |   | 2007                  |    |   | 2006 |
|    electronotes®                    |   |                  |    |   |   |
|       First      quarter  |   | $                     | 2       |   |   | $ | 152 |   |
|       Second      quarter |   |                  | 5       |   |   |   | 3 |   |
|       Third      quarter  |   |                  | 5       |   |   |   | 4 |   |
|       Fourth      quarter |   |                  | 1       |   |   |   | 4 |   |
|    2001      Series D                    |   |                  | 75      |   |   |   | – |   |
|    1997      Series A                    |   |                  | 382     |   |   |   | – |   |
|    1996      Series C                    |   |                  | – |   |   |   | 1,000 |   |
|    2003      Series B                    |   |                  | – |   |   |   | 28 | * |
|    2005      Series A                    |   |                  | – |   |   |   | 64 | * |
| Total                                                   |   | $                     | 470     |   |   | $ | 1,255 |   |
|                                                    |   |                  |    |   |   |   |   |   |
| Issues:                                                 |   |                  |    |   |   |   |   |   |
|    electronotes®                    |   |                  |    |   |   |   |   |   |
|       First      quarter  |   |                  | 9       |   |   | $ | 49 |   |
|       Second      quarter |   |                  | 19      |   |   |   | 19 |   |
|       Third      quarter  |   |                  | 8       |   |   |   | 37 |   |
|       Fourth      quarter |   |                  | 4       |   |   |   | 27 |   |
|    2006      Series A                    |   |                  | – |   |   |   | 1,000 |   |
|    2007      Series A                    |   |                  | 1,000   |   |   |   | – |   |
| Total                                                   |   | $                     | 1,040   |   |   | $ | 1,132 |   |
| Inflation      indexed bond (decretion) accretion       |   | $                     | (3      | ) |   | $ | 15 |   |

|  CUSIP      or Other Identifier                          |  Maturity | Call/(Put)      Date |   | Coupon      Rate |    |   | 2007Par      Amount |    |   | 2006Par      Amount |   |
|---------------------------------------------------------------|----------------|----------------------|--------|------------------|---------|--------|---------------------|---------|--------|---------------------|--------|
|                                                          |           |                 |   |             |    |   |                |    |   |                |   |
| Discount      Notes (net of discount)                         |           |                 |   |             |    |   | $                   | 1,422   |   |                | $      | 2,376 |   |
| Current      maturities of long-term debt:                    |           |                 |   |             |    |   |                |    |   |                |   |   |   |
| 880591CQ3                                                     | 01/15/2007     |                 |   |             | 6.643%* |   |                | – |   |                |   | 385 |   |
| 880591DS8                                                     | 12/15/2016     | (12/15/2006)         |   |             | 4.875%  |   |                | – |   |                |   | 600 |   |
| 88059TBQ3                                                     | 01/15/2008     | 01/15/2004           |   |             | 3.05%   |   |                | 10      |   |                |   | – |   |
| 88059TBS9                                                     | 01/15/2008     | 01/15/2004           |   |             | 3.30%   |   |                | 40      |   |                |   | – |   |
| 88059TCB5                                                     | 05/15/2008     | 05/15/2004           |   |             | 2.45%   |   |                | 40      |   |                |   | – |   |
| Current      maturities of long-term debt                     |           |                 |   |             |    |   |                |    | 90     |                |   |   | 985 |   |
|                                                          |           |                 |   |             |    |   |                |    |   |                |   |   |   |   |
|      Total      short-term debt, net |           |                 |   |             |    |   |                | $       | 1,512  |                |   | $ | 3,361 |   |

----

Tableof Contents

|  CUSIP      or Other Identifier                |  Maturity | Call/(Put)      Date |   | Coupon      Rate |   |   | 2007Par      Amount |   |    | 2006Par      Amount |   |
|-----------------------------------------------------|----------------|----------------------|--------|------------------|--------|--------|---------------------|--------|---------|---------------------|--------|
|                                                |           |                 |   |             |   |   |                |   |    |                |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |
| 88059TBQ3                                           | 01/15/2008     | 01/15/2004           |   |             | 3.050  | %      |                | $      | – |                |   | $ | 10 |   |
| 88059TBS9                                           | 01/15/2008     | 01/15/2004           |   |             | 3.300  | %      |                |   | – |                |   |   | 40 |   |
| 88059TCB5                                           | 05/15/2008     | 05/15/2004           |   |             | 2.450  | %      |                |   | – |                |   |   | 40 |   |
|      Maturing      in 2008 |           |                 |   |             |   |   |                |   | – |                |   |   | 90 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 880591DB5                                           | 11/13/2008     |                 |   |             | 5.375  | %      |                |   | 2,000   |                |   |   | 2,000 |   |
| 88059TCW9                                           | 03/15/2009     | 03/15/2005           |   |             | 3.200  | %      |                |   | 30      |                |   |   | 30 |   |
|      Maturing      in 2009 |           |                 |   |             |   |   |                |   | 2,030   |                |   |   | 2,030 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 88059TDP3                                           | 04/15/2010     | 04/15/2007           |   |             | 5.125  | %      |                |   | 21      |                |   |   | 21 |   |
| 88059TDD0                                           | 06/15/2010     | 06/15/2006           |   |             | 4.125  | %      |                |   | 41      |                |   |   | 42 |   |
|      Maturing      in 2010 |           |                 |   |             |   |   |                |   | 62      |                |   |   | 63 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 880591DN9                                           | 01/18/2011     |                 |   |             | 5.625  | %      |                |   | 1,000   |                |   |   | 1,000 |   |
| 88059TDQ1                                           | 05/15/2011     | 05/15/2007           |   |             | 5.250  | %      |                |   | 6       |                |   |   | 6 |   |
| 88059TDR9                                           | 06/15/2011     | 06/15/2007           |   |             | 5.250  | %      |                |   | 9       |                |   |   | 9 |   |
|      Maturing      in 2011 |           |                 |   |             |   |   |                |   | 1,015   |                |   |   | 1,015 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 880591DL3                                           | 05/23/2012     |                 |   |             | 7.140  | %      |                |   | 29      |                |   |   | 29 |   |
| 880591DT6                                           | 05/23/2012     |                 |   |             | 6.790  | %      |                |   | 1,486   |                |   |   | 1,486 |   |
| 88059TBH3                                           | 09/15/2012     | 09/15/2004           |   |             | 4.375  | %      |                |   | 10      |                |   |   | 10 |   |
|      Maturing      in 2012 |           |                 |   |             |   |   |                |   | 1,525   |                |   |   | 1,525 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 880591CW0                                           | 03/15/2013     |                 |   |             | 6.000  | %      |                |   | 1,359   |                |   |   | 1,359 |   |
| 88059TBR1                                           | 01/15/2013     | 01/15/2005           |   |             | 4.375  | %      |                |   | 14      |                |   |   | 14 |   |
| 88059TBW0                                           | 03/15/2013     | 03/15/2005           |   |             | 4.000  | %      |                |   | 23      |                |   |   | 23 |   |
| 88059TBX8                                           | 03/15/2013     | 03/15/2004           |   |             | 4.250  | %      |                |   | 12      |                |   |   | 13 |   |
| 88059TCD1                                           | 06/15/2013     | 06/15/2004           |   |             | 3.500  | %      |                |   | 12      |                |   |   | 12 |   |
| 880591DW9                                           | 08/01/2013     |                 |   |             | 4.750  | %      |                |   | 990     |                |   |   | 990 |   |
| 88059TCF6                                           | 07/15/2013     | 07/15/2005           |   |             | 4.350  | %      |                |   | 17      |                |   |   | 17 |   |
| 88059TDS7                                           | 07/15/2013     | 07/15/2008           |   |             | 5.625  | %      |                |   | 9       |                |   |   | 9 |   |
|      Maturing      in 2013 |           |                 |   |             |   |   |                |   | 2,436   |                |   |   | 2,437 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 88059TCL3                                           | 10/15/2013     | 10/15/2005           |   |             | 4.500  | %      |                |   | 12      |                |   |   | 12 |   |
| 88059TCQ2                                           | 12/15/2013     | 12/15/2005           |   |             | 4.700  | %      |                |   | 8       |                |   |   | 8 |   |
| 88059TDX6                                           | 02/15/2014     | 02/15/2008           |   |             | 5.250  | %      |                |   | 7       |                |   |   | – |   |
| 88059TDZ1                                           | 04/15/2014     | 04/15/2008           |   |             | 5.000  | %      |                |   | 4       |                |   |   | – |   |
|      Maturing      in 2014 |           |                 |   |             |   |   |                |   | 31      |                |   |   | 20 |   |
|                                                |           |                 |   |             |   |   |                |   |    |                |   |   |   |   |
| 88059TBJ9                                           | 10/15/2014     | 10/15/2004           |   |             | 4.600  | %      |                |   | 21      |                |   |   | 22 |   |
| 88059TBN0                                           | 12/15/2014     | 12/15/2004           |   |             | 5.000  | %      |                |   | 54      |                |   |   | 54 |   |
| 88059TBY6                                           | 04/15/2015     | 04/15/2005           |   |             | 4.600  | %      |                |   | 20      |                |   |   | 20 |   |
| 88059TDB4                                           | 04/15/2015     | 04/15/2007           |   |             | 5.000  | %      |                |   | 50      |                |   |   | 50 |   |
| 880591DY5                                           | 06/15/2015     |                 |   |             | 4.375  | %      |                |   | 1,000   |                |   |   | 1,000 |   |
| 88059TDE8                                           | 07/15/2015     | 07/15/2007           |   |             | 4.500  | %      |                |   | 7       |                |   |   | 7 |   |
| 88059TCH2                                           | 08/15/2015     | 08/15/2005           |   |             | 5.125  | %      |                |   | 34      |                |   |   | 34 |   |
| 88050TBK6                                           | 10/15/2015     | 10/15/2005           |   |             | 5.050  | %      |                |   | 19      |                |   |   | 19 |   |
| 88059TDH1                                           | 10/15/2015     | 10/15/2007           |   |             | 5.000  | %      |                |   | 27      |                |   |   | 28 |   |
| 88059TBL4                                           | 11/15/2015     | 11/15/2005           |   |             | 4.800  | %      |                |   | 26      |                |   |   | 27 |   |
| 88059TCR0                                           | 12/15/2015     | 12/15/2005           |   |             | 4.875  | %      |                |   | 11      |                |   |   | 11 |   |
| 88059TDK4                                           | 12/15/2015     | 12/15/2006           |   |             | 5.375  | %      |                |   | 10      |                |   |   | 10 |   |
| 88059TBU4                                           | 02/15/2016     | 02/15/2006           |   |             | 4.550  | %      |                |   | 8       |                |   |   | 9 |   |
| 88059TCV1                                           | 02/15/2016     | 02/15/2006           |   |             | 4.500  | %      |                |   | 3       |                |   |   | 3 |   |
| 88059TDN8                                           | 03/15/2016     | 03/15/2008           |   |             | 5.375  | %      |                |   | 8       |                |   |   | 8 |   |
| 88059TCC3                                           | 06/15/2016     | 06/15/2006           |   |             | 3.875  | %      |                |   | 3       |                |   |   | 4 |   |
| 88059TDT5                                           | 08/15/2016     | 08/15/2007           |   |             | 5.625  | %      |                |   | 4       |                |   |   | 4 |   |
| 88059TCJ8                                           | 09/15/2016     | 09/15/2006           |   |             | 4.950  | %      |                |   | 11      |                |   |   | 11 |   |
| 88059TDU2                                           | 09/15/2016     | 09/15/2007           |   |             | 5.375  | %      |                |   | 14      |                |   |   | 14 |   |
| 880591DS8                                           | 12/15/2016     |                 |   |             | 4.875  | %      |                |   | 524     |                |   |   | – |   |
| 88059TCS8                                           | 01/15/2017     | 01/15/2007           |   |             | 5.000  | %      |                |   | 28      |                |   |   | 29 |   |
| 88059TDW8                                           | 01/15/2017     | 01/15/2008           |   |             | 5.250  | %      |                |   | 6       |                |   |   | – |   |
| 88059TEA5                                           | 06/15/2017     | 06/15/2008           |   |             | 5.500  | %      |                |   | 4       |                |   |   | – |   |
| 880591EA6                                           | 07/18/2017     |                 |   |             | 5.500  | %      |                |   | 1,000   |                |   |   | – |   |
| 88059TEB3                                           | 09/15/2017     | 09/15/2009           |   |             | 5.000  | %      |                |   | 4       |                |   |   | – |   |

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Tableof Contents

| CUSIP      or Other Identifier                            |  Maturity | Call/(Put)      Date | Coupon      Rate | 2007Par      Amount | 2006Par      Amount |   |
|-----------------------------------------------------------|----------------|----------------------|------------------|---------------------|---------------------|--------|
|                                                      |           |                 |             |                |                |   |   |   |
| 880591CU4                                                 | 12/15/2017     |                 |             | 6.250               | %                   |   | 750 |   |   | 750 |   |
| 88059TCA7                                                 | 05/15/2018     | 05/15/2004           |             | 4.750               | %                   |   | 24 |   |   | 24 |   |
| 88059TCE9                                                 | 07/15/2018     | 07/15/2004           |             | 4.700               | %                   |   | 35 |   |   | 35 |   |
| 88059TCN9                                                 | 11/15/2018     | 11/15/2006           |             | 5.125               | %                   |   | 18 |   |   | 18 |   |
| 88059TCT6                                                 | 01/15/2019     | 01/15/2005           |             | 5.000               | %                   |   | 28 |   |   | 28 |   |
| 88059TCX7                                                 | 03/15/2019     | 03/15/2007           |             | 4.500               | %                   |   | 12 |   |   | 13 |   |
| 88059TDF5                                                 | 08/15/2020     | 08/15/2008           |             | 5.000               | %                   |   | 10 |   |   | 10 |   |
| 88059TDG3                                                 | 09/15/2020     | 09/15/2008           |             | 4.800               | %                   |   | 3 |   |   | 3 |   |
| 88059TDJ7                                                 | 11/15/2020     | 11/15/2008           |             | 5.500               | %                   |   | 11 |   |   | 11 |   |
| 88059TDL2                                                 | 01/18/2021     | 01/15/2009           |             | 5.125               | %                   |   | 5 |   |   | 5 |   |
| 880591DC3                                                 | 06/07/2021     |                 |             | 5.805               | %      2            |   | 409 |   |   | 374 |   |
| 88859TAN1                                                 | 12/15/2021     | 12/15/2005           |             | 6.000               | %                   |   | 25 |   |   | 25 |   |
| 88059TAR2                                                 | 01/15/2022     | 01/15/2006           |             | 6.125               | %                   |   | 28 |   |   | 28 |   |
| 88059TDY4                                                 | 03/15/2022     | 03/15/2008           |             | 5.375               | %                   |   | 6 |   |   | – |   |
| 88059TAX9                                                 | 04/15/2022     | 04/15/2006           |             | 6.125               | %                   |   | 13 |   |   | 14 |   |
| 88059TBE0                                                 | 08/15/2022     | 08/15/2006           |             | 5.500               | %                   |   | 28 |   |   | 28 |   |
| 88059TBM2                                                 | 11/15/2022     | 11/15/2006           |             | 5.000               | %                   |   | 11 |   |   | 11 |   |
| 88059TBP5                                                 | 12/15/2022     | 12/15/2006           |             | 5.000               | %                   |   | 19 |   |   | 20 |   |
| 88059TBT7                                                 | 01/15/2023     | 01/15/2007           |             | 5.000               | %                   |   | 11 |   |   | 11 |   |
| 88059TBV2                                                 | 02/15/2023     | 02/15/2007           |             | 5.000               | %                   |   | 16 |   |   | 17 |   |
| 88059TBZ3                                                 | 05/15/2023     | 05/15/2004           |             | 5.125               | %                   |   | 14 |   |   | 15 |   |
| 88059TCK5                                                 | 10/15/2023     | 10/15/2007           |             | 5.200               | %                   |   | 14 |   |   | 14 |   |
| 88059TCP4                                                 | 11/15/2023     | 11/15/2004           |             | 5.250               | %                   |   | 12 |   |   | 12 |   |
| 88059TCU3                                                 | 02/15/2024     | 02/15/2008           |             | 5.125               | %                   |   | 9 |   |   | 9 |   |
| 88059TCY5                                                 | 04/15/2024     | 04/15/2005           |             | 5.375               | %                   |   | 14 |   |   | 14 |   |
| 88059TCZ2                                                 | 02/15/2025     | 02/15/2006           |             | 5.000               | %                   |   | 18 |   |   | 18 |   |
| 88059TDA6                                                 | 03/15/2025     | 03/15/2009           |             | 5.000               | %                   |   | 6 |   |   | 6 |   |
| 88059TDC2                                                 | 05/15/2025     | 05/15/2009           |             | 5.125               | %                   |   | 14 |   |   | 14 |   |
| 880591CJ9                                                 | 11/01/2025     |                 |             | 6.750               | %                   |   | 1,350 |   |   | 1,350 |   |
| 88059TDM0                                                 | 02/15/2026     | 02/15/2010           |             | 5.500               | %                   |   | 7 |   |   | 7 |   |
| 88059TDV0                                                 | 10/15/2026     | 10/15/2010           |             | 5.500               | %                   |   | 9 |   |   | – |   |
|  880591300      3                                    | 06/01/2028     |                 |             | 5.490               | %                   |   | 466 |   |   | 466 |   |
|  880591409      3                                    | 05/01/2029     |                 |             | 5.618               | %                   |   | 410 |   |   | 410 |   |
| 880591DM1                                                 | 05/01/2030     |                 |             | 7.125               | %                   |   | 1,000 |   |   | 1,000 |   |
| 880591DP4                                                 | 06/07/2032     |                 |             | 6.587               | %      2            |   | 512 |   |   | 468 |   |
| 880591DV1                                                 | 07/15/2033     |                 |             | 4.700               | %                   |   | 472 |   |   | 472 |   |
| 880591DX7                                                 | 06/15/2035     |                 |             | 4.650               | %                   |   | 436 |   |   | 436 |   |
| 880591CK6                                                 | 04/01/2036     |                 |             | 5.980               | %                   |   | 121 |   |   | 121 |   |
| 880591CS9                                                 | 04/01/2036     |                 |             | 5.880               | %                   |   | 1,500 |   |   | 1,500 |   |
| 880591CP5                                                 | 01/15/2038     |                 |             | 6.150               | %                   |   | 1,000 |   |   | 1,000 |   |
| 880591BL5                                                 | 04/15/2042     | 04/15/2012           |             | 8.250               | %                   |   | 1,000 |   |   | 1,000 |   |
| 880591DU3                                                 | 06/07/2043     |                 |             | 4.962               | %      2            |   | 307 |   |   | 281 |   |
| 880591CF7                                                 | 07/15/2045     | 07/15/2020           |             | 6.235               | %                   |   | 140 |   |   | 140 |   |
| 880591DZ2                                                 | 04/01/2056     |                 |             | 5.375               | %                   |   | 1,000 |   |   | 1,000 |   |
| Maturing      2015-2056                                   |           |                 |             |                |                |   | 14,189 |   |   | 12,542 |   |
| Subtotal                                                  |           |                 |             |                |                |   | 21,288 |   |   | 19,722 |   |
| Unamortized      discounts, premiums, and      other |           |                 |             |                |                |   | (189 | ) |   | (178 | ) |
| Total      long-term debt, net                            |           |                 |             |                |                | $      | 21,099 |   | $ | 19,544 |   |
|                                                      |           |                 |             |                |                |   |   |   |   |   |   |

|   | (1) | The      above table includes net exchange losses from currency transactions of      $299 million and $195 million at September 30, 2007 and 2006,      respectively. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The      coupon rate represents TVA’s effective interest  rate. |
|--------|-----|-----------------------------------------------------------------------|

|   | (3) | TVA      PARRS, CUSIP numbers 880591300 and 880591409, may be redeemed under      certain conditions.  See Note 11 — Put      and Call Options. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Tableof Contents

| Estimated      Values of Financial InstrumentsAs      of September 30 |   |
|-----------------------------------------------------------------------|--------|
|                                                                  |   |
|                                                                  |   | 2007 |   |   | 2006 |   |
|                                                                  |   | Carrying      Amount |   |   | FairValue |   |   | CarryingAmount |   |   | FairValue |   |
| Cash      and cash equivalents                                        |   | $ | 165 |   |   | $ | 165 |   |   | $ | 536 |   |   | $ | 536 |   |
| Restricted      cash and investments                                  |   |   | 150 |   |   |   | 150 |   |   |   | 198 |   |   |   | 198 |   |
| Investment      funds                                                 |   |   | 1,169 |   |   |   | 1,169 |   |   |   | 972 |   |   |   | 972 |   |
| Loans      and other long-term receivables                            |   |   | 79 |   |   |   | 79 |   |   |   | 80 |   |   |   | 80 |   |
| Short-term      debt, net of discount                                 |   |   | 1,422 |   |   |   | 1,422 |   |   |   | 2,376 |   |   |   | 2,376 |   |
| Long-term      debt (including current portion), net of discount      |   |   | 21,189 |   |   |   | 22,453 |   |   |   | 20,529 |   |   |   | 22,037 |   |
| Other      financing obligations                                      |   |   | 1,072 |   |   |   | 1,072 |   |   |   | 1,108 |   |   |   | 1,108 |   |

|                            |   | 2007   |   |   | 2006   |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|
| Securities      held as trading |   | $      | 1,162  |   |   | $      | 966 |   |
| Other                           |   |   | 7      |   |   |   | 6 |   |
| Total      investment funds     |   | $      | 1,169  |   |   | $      | 972 |   |

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| •   | Original Benefit      Structure.  The pension benefit for a member      participating in the Original Benefit Structure is based on the member’s      years of creditable service, the member’s average base pay for the highest      three consecutive years, and the pension rate for the member’s age and      years of service, less a Social Securityoffset. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Cash Balance Benefit      Structure.  The pension benefit for a member      participating in the Cash Balance Benefit Structure is based on credits      accumulated in the member’s account and the member’s age. A member’s      account receives credits each pay period equal to 6.00 percent of his or      her straight-time earnings. The account also increases at an interest rate      equal to the change in the Consumer Price Index (“CPI”) plus 3.00 percent,      with the provision that the rate may not be less than 6.00 percent or more      than 10.00 percent. The actual changes in the CPI for 2007 and 2006 were      3.43 percent and 3.37 percent, which resulted in interest rates of 6.43      percent and 6.37 percent,respectively. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   Actuarial      Assumption |   | Change      in Assumption   |   |   | Impact      on 2008 Pension Cost |   |   | Impact      on 2007 Projected Benefit Obligation |   |
|---------------------------------------|--------|-----------------------------|--------|--------|----------------------------------|--------|--------|--------------------------------------------------|--------|
|                                  |   | (Increase      in millions) |   |
| Discount      rate                    |   |                        | (0.25  | %)     |                             | $      | 17     |                                             |   | $ | 236 |   |
| Rate      of return on plan assets    |   |                        | (0.25  | %)     |                             |   | 17     |                                             |   | NA |   |
| Rate      of compensation             |   |                        | 0.25   | %      |                             |   | 4      |                                             |   |   | 22 |   |

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|                                                |   | Pension      Benefits |                   |
|-----------------------------------------------------|--------|-----------------------|------------------------|
|                                                |   | 2007                  |                   |   | 2006 |   |
| Change in benefitobligation                         |   |                  |                   |   |   |   |
| Benefit      obligation at beginning of year        |   | $                     | 8,600                  |   |   | $ | 8,433 |   |
| Service      cost                                   |   |                  | 120                    |   |   |   | 127 |   |
| Interest      cost                                  |   |                  | 492                    |   |   |   | 440 |   |
| Plan      participants’ contributions         |   |                  | 35                     |   |   |   | 35 |   |
| Actuarial      (gain) / loss                        |   |                  | (175                   | ) |   |   | 3 |   |
| Net      transfers from variable fund/401(k) plan   |   |                  | 11                     |   |   |   | 9 |   |
| Expenses      paid                                  |   |                  | (4                     | ) |   |   | (4 | ) |
| Benefits      paid                                  |   |                  | (481                   | ) |   |   | (443 | ) |
| Benefit      obligation at end of year              |   | $                     | 8,598                  |   |   | $ | 8,600 |   |
|                                                |   |                  |                   |   |   |   |   |   |
| Change in plan assets                               |   |                  |                   |   |   |   |   |   |
| Fair      value of plan assets at beginning of year |   | $                     | 7,328                  |   |   | $ | 7,015 |   |
| Adjustment      to reconcile to system asset value  |   |                  | –                |   |   |   | – |   |
| Actual      return on plan assets                   |   |                  | 1,013                  |   |   |   | 641 |   |
| Plan      participants’ contributions         |   |                  | 35                     |   |   |   | 35 |   |
| Net      transfers from variable fund/401(k) plan   |   |                  | 11                     |   |   |   | 9 |   |
| Employer      contributions                         |   |                  | 75                     |   |   |   | 75 |   |
| Expenses      paid                                  |   |                  | (4                     | ) |   |   | (4 | ) |
| Benefits      paid                                  |   |                  | (481                   | ) |   |   | (443 | ) |
| Fair      value of plan assets at end of year       |   | $                     | 7,977                  |   |   | $ | 7,328 |   |
|                                                |   |                  |                   |   |   |   |   |   |
| Funded status                                       |   | $                     | (621                   | ) |   | $ | (1,272 | ) |
| Unrecognized      net actuarial loss                |   |                  | –                |   |   |   | 1,275 |   |
| Unrecognized      prior service cost                |   |                  | –                |   |   |   | 275 |   |
| Prepaid      (accrued) benefit cost                 |   | $                     | (621                   | ) |   | $ | 278 |   |
|                                                |   |                  |                   |   |   |   |   |   |
| Assumptions as of September    30                   |   |                  |                   |   |   |   |   |   |
| Discount      rate                                  |   |                  | 6.25                   | % |   |   | 5.90 | % |
| Expected      return on plan assets                 |   |                  | 8.75                   | % |   |   | 8.75 | % |
| Rate      of compensation increase                  |   |                  | 3.3%      – 10.1 | % |   |   | 3.3%      – 10.1 | % |

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| Pension      Benefits                   |   |   |
|----------------------------------------------|--------|--------|
|                                         |   | 2007   |   |   | 2006 |   |   | 2005 |
| Components of net periodic benefit      cost |   |   |   |   |   |   |   |   |
| Service      cost                            |   | $      | 120 |   |   | $ | 127 |   |   | $ | 117 |   |
| Interest      cost                           |   |   | 492 |   |   |   | 440 |   |   |   | 429 |   |
| Expected      return on plan assets          |   |   | (571 | ) |   |   | (490 | ) |   |   | (457 | ) |
| Amortization      of prior service cost      |   |   | 36 |   |   |   | 36 |   |   |   | 36 |   |
| Recognized      net actuarial loss           |   |   | 82 |   |   |   | 131 |   |   |   | 118 |   |
| Total      net periodic benefit cost         |   | $      | 159 |   |   | $ | 244 |   |   | $ | 243 |   |
|                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Assumptions utilized    include:             |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount      rate                           |   |   | 5.90 | % |   |   | 5.38 | % |   |   | 5.81 | % |
| Expected      return on plan assets          |   |   | 8.75 | % |   |   | 8.25 | % |   |   | 8.25 | % |
| Rate      of compensation increase           |   |   | 3.3%-10.1 | % |   |   | 3.3%-10.1 | % |   |   | 3.3%-10.1 | % |

|      |   | Pension |   |
|-----------|--------|---------|--------|
| 2008      |   | $       | 574    |   |
| 2009      |   |    | 579    |   |
| 2010      |   |    | 591    |   |
| 2011      |   |    | 603    |   |
| 2012      |   |    | 617    |   |
| 2013-2017 |   |    | 3,306  |   |

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|                                                  |   | Other      Postretirement Benefits |    |
|-------------------------------------------------------|--------|------------------------------------|---------|
|                                                  |   | 2007                               |    |   | 2006 |   |
| Change in benefitobligation                           |   |                               |    |   |   |   |
| Benefit      obligation at beginning of year          |   | $                                  | 451     |   |   | $ | 544 |   |
| Service      cost                                     |   |                               | 5       |   |   |   | 9 |   |
| Interest      cost                                    |   |                               | 26      |   |   |   | 29 |   |
| Plan      participants’ contributions           |   |                               | 77      |   |   |   | 64 |   |
| Actuarial      (gain) / loss                          |   |                               | 2       |   |   |   | (108 | ) |
| Net      transfers from variable fund/401(k) plan     |   |                               | – |   |   |   | – |   |
| Expenses      paid                                    |   |                               | – |   |   |   | – |   |
| Benefits      paid                                    |   |                               | (97     | ) |   |   | (87 | ) |
| Benefit      obligation at end of year                |   | $                                  | 464     |   |   | $ | 451 |   |
|                                                  |   |                               |    |   |   |   |   |   |
| Change in plan assets                                 |   |                               |    |   |   |   |   |   |
| Fair      value of plan assets at beginning of year   |   | $                                  | – |   |   | $ | – |   |
| Adjustment      to reconcile to system asset value    |   |                               | – |   |   |   | – |   |
| Actual      return on plan assets                     |   |                               | – |   |   |   | – |   |
| Plan      participants’ contributions           |   |                               | 77      |   |   |   | 64 |   |
| Net      transfers from variable fund/401(k) plan     |   |                               | – |   |   |   | – |   |
| Employer      contributions                           |   |                               | 20      |   |   |   | 23 |   |
| Expenses      paid                                    |   |                               | – |   |   |   | – |   |
| Benefits      paid                                    |   |                               | (97     | ) |   |   | (87 | ) |
| Fair      value of plan assets at end of year         |   | $                                  | – |   |   | $ | – |   |
|                                                  |   |                               |    |   |   |   |   |   |
| Funded status                                         |   | $                                  | (464    | ) |   | $ | (451 | ) |
| Unrecognized      net actuarial loss                  |   |                               | – |   |   |   | 113 |   |
| Unrecognized      prior service cost                  |   |                               | – |   |   |   | 39 |   |
| Prepaid      (accrued) benefit cost                   |   | $                                  | (464    | ) |   | $ | (299 | ) |
|                                                  |   |                               |    |   |   |   |   |   |
| Assumptions as of September    30                     |   |                               |    |   |   |   |   |   |
| Discount      rate                                    |   |                               | 6.25    | % |   |   | 5.90 | % |
| Expected      return on plan assets                   |   | NA                                 |    |   | NA |   |
| Rate      of compensation increase                    |   | NA                                 |    |   | NA |   |
| Initial      health care trend rate                   |   |                               | 8.00    | % |   |   | 8.50 | % |
| Ultimate      health care trend rate                  |   |                               | 5.00    | % |   |   | 5.00 | % |
| Ultimate      trend rate is reached in year beginning |   | 2013                               |    |   | 2013 |   |

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|                                                  |   | Other      Postretirement Benefits                                                                             |   |
|-------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------|--------|
|                                                  |   | 2007                                                                                                           |   |   | 2006 |   |   | 2005 |
| Components      of net periodic benefit cost          |   |                                                                                                           |   |   |   |   |   |   |
| Service      cost                                     |   | $                                                                                                              | 5      |   |   | $ | 9 |   |   | $ | 6 |
| Interest      cost                                    |   |                                                                                                           | 26     |   |   |   | 29 |   |   |   | 25 |
| Expected      return on plan assets                   |   |                        NA |   |   |                           NA |   |   |                      NA |
| Amortization      of prior service cost               |   |                                                                                                           | 5      |   |   |   | 5 |   |   |   | 5 |
| Recognized      net actuarial loss                    |   |                                                                                                           | 6      |   |   |   | 15 |   |   |   | 10 |
| Total      net periodic benefit cost                  |   | $                                                                                                              | 42     |   |   | $ | 58 |   |   | $ | 46 |
|                                                  |   |                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| Assumptions      used to  determine expense |   |                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| Discount      rate                                    |   |                                                                                                           | 5.90   | % |   |   | 5.38 | % |   |   | 5.81% |
| Expected      return on plan assets                   |   | NA                                                                                                             |   |   | NA   |   |   | NA        |
| Rate      of compensation increase                    |   | NA                                                                                                             |   |   | NA   |   |   | NA        |
| Initial      health care trend rate                   |   |                                                                                                           | 8.50   | % |   |   | 9.00 | % |   |   | 9.00% |
| Ultimate      health care trend rate                  |   |                                                                                                           | 5.00   | % |   |   | 5.00 | % |   |   | 5.00% |
| Ultimate      trend rate is reached in year beginning |   | 2013                                                                                                           |   |   | 2013   |   |   | 2012      |

|                                                                        |   | 1%      Increase |   |   | 1%      Decrease |   |
|-----------------------------------------------------------------------------|--------|------------------|--------|--------|------------------|--------|
| Effect      on total of service and interest cost components                |   | $                | 4      |   |             | $      | (5 | ) |
| Effect      on end-of-year accumulated postretirement benefit    obligation |   | $                | 62     |   |             | $      | (65 | ) |

|      |   | Postretirement      Benefits      Plan |   |
|-----------|--------|----------------------------------------|--------|
| 2008      |   | $                                      | 25     |   |
| 2009      |   |                                   | 27     |   |
| 2010      |   |                                   | 30     |   |
| 2011      |   |                                   | 32     |   |
| 2012      |   |                                   | 33     |   |
| 2013-2017 |   |                                   | 171    |   |

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|   | • | Plan      assets in trust of $36 million, |
|--------|---------|-------------------------------------------|

|   | • | A      regulatory asset of $15 million, |
|--------|---------|-----------------------------------------|

|   | • | An      estimated accrued and unfunded pension plan obligation of $44      million, |
|--------|---------|-------------------------------------------------------------------------------------|

|   | • | Expense      of $6 million, and |
|--------|---------|---------------------------------|

|   | • | Current      year gains on plan assets of $3 million, of which approximately $3 million      was unrealized. |
|--------|---------|--------------------------------------------------------------------------------------------------------------|

|   | •   | Plan      assets in trust of $30 million, |
|--------|---------------------|-------------------------------------------|

|   | •   | A      regulatory asset of $7 million, |
|--------|---------------------|----------------------------------------|

|   | •   | An      intangible asset of $5 million, |
|--------|---------------------|-----------------------------------------|

|   | •   | An      estimated accrued and minimum pension plan obligation of $38      million, |
|--------|---------------------|------------------------------------------------------------------------------------|

|   | •   | Expense      of $7 million, and |
|--------|---------------------|---------------------------------|

|   | •   | Current      year gains on plan assets of $2 million, of which $0.6 million was      realized. |
|--------|---------------------|------------------------------------------------------------------------------------------------|

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|                                                               |   |              |    |
|--------------------------------------------------------------------|--------|-------------------|---------|
|                                                               |   | Prior      to AML |    |   | AML |   |   | SFAS      158 |   |   | Post      AML |   |
| Adjustments      pre and post SFAS 158 adoption:                   |   | and      SFAS 158 |    |   | Adjustment |   |   | Adjustment |   |   | and      SFAS 158 |   |
|                                                               |   |              |    |   |   |   |   |   |   |   |   |   |
|   Other      regulatory assets                           |   | $                 | 914     |   |   | $ | (662 | ) |   | $ | 721 |   |   | $ | 973 |   |
|   Intangible      asset (unamortized prior service cost) |   |              | 243     |   |   |   | 3 |   |   |   | (246 | ) |   |   | – |   |
|   Other      liabilities (Pension and SERP)              |   |              | 991     |   |   |   | (657 | ) |   |   | 330 |   |   |   | 664 |   |
|   Current      liabilities (Postretirement)              |   |              | – |   |   |   | – |   |   |   | 25 |   |   |   | 25 |   |
|   Other      liabilities (Postretirement)                |   |              | 321     |   |   |   | – |   |   |   | 118 |   |   |   | 439 |   |
|   Accumulated      other comprehensive income (loss)     |   |              | – |   |   |   | (2 | ) |   |   | 2 |   |   |   | – |   |

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|                                               |   |              |   |
|----------------------------------------------------|--------|-------------------|--------|
|                                               |   | Prior      to AML |   |   | AML |   |   | SFAS      158 |   |   | Post      AML |   |
| Line      items pre and post SFAS 158 adoption:    |   | and      SFAS 158 |   |   | Adjustment |   |   | Adjustment |   |   | and      SFAS 158 |   |
|                                               |   | As      restated  |   |   |   |   |   |   |   |   | As      restated |   |
| Regulatory and other long-term      assets         |   |              |   |   |   |   |   |   |   |   |   |   |
| Other      regulatory assets                       |   | $                 | 1,731  |   |   | $ | (662 | ) |   | $ | 721 |   |   | $ | 1,790 |   |
| Subtotal                                           |   |              | 4,861  |   |   |   | (662 | ) |   |   | 721 |   |   |   | 4,920 |   |
| Other      long-term assets                        |   |              | 618    |   |   |   | 3 |   |   |   | (246 | ) |   |   | 375 |   |
| Total      regulatory and other long-term assets   |   |              | 5,479  |   |   |   | (659 | ) |   |   | 475 |   |   |   | 5,295 |   |
| Total      assets                                  |   |              | 33,916 |   |   |   | (659 | ) |   |   | 475 |   |   |   | 33,732 |   |
|                                               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current liabilities                                |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts      payable                              |   |              | 975    |   |   |   | – |   |   |   | 25 |   |   |   | 1,000 |   |
| Total      current liabilities                     |   |              | 3,404  |   |   |   | – |   |   |   | 25 |   |   |   | 3,429 |   |
|                                               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other liabilities                                  |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other      pension liabilities                     |   |              | 991    |   |   |   | (657 | ) |   |   | 330 |   |   |   | 664 |   |
| Other      postretirement liabilities              |   |              | 321    |   |   |   | – |   |   |   | 118 |   |   |   | 439 |   |
| Other      liabilities                             |   |              | 2,276  |   |   |   | (657 | ) |   |   | 448 |   |   |   | 2,067 |   |
| Total      other liabilities                       |   |              | 6,584  |   |   |   | (657 | ) |   |   | 473 |   |   |   | 6,400 |   |
| Total      liabilities                             |   |              | 31,112 |   |   |   | (657 | ) |   |   | 473 |   |   |   | 30,928 |   |
|                                               |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Proprietary capital                                |   |              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accumulated      other comprehensive income (loss) |   |              | (19    | ) |   |   | (2 | ) |   |   | 2 |   |   |   | (19 | ) |
| Total      proprietary capital                     |   |              | 2,804  |   |   |   | (2 | ) |   |   | 2 |   |   |   | 2,804 |   |
| Total      liabilities and proprietary capital     |   |              | 33,916 |   |   |   | (659 | ) |   |   | 475 |   |   |   | 33,732 |   |

|                    |   | Pension |   |   | Postretirement |   |   | Postemployment |   |   | SERP    |   |   | Total  |   |
|-------------------------|--------|---------|--------|--------|----------------|--------|--------|----------------|--------|--------|---------|--------|--------|--------|--------|
|                    |   |    |   |   |           |   |   |           |   |   |    |   |   |   |   |
| Prior      service cost |   | $       | 36     |   |           | $      | 5      |           |   | $      | – |   |   | $      | 1      |   |   | $ | 42 |   |
| Net      actuarial loss |   |    | 41     |   |           |   | 5      |           |   |   | – |   |   |   | 1      |   |   |   | 47 |   |

|                                |   | 2007   |   |   | 2006   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|
| Projected      benefit obligation   |   | $      | 8,598  |   |   | $      | 8,600 |   |
| Accumulated      benefit obligation |   |   | 8,276  |   |   |   | 8,231 |   |
| Fair      value of plan assets      |   |   | 7,977  |   |   |   | 7,328 |   |

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| Commitments      and ContingenciesPayments      Due in the Year Ending September 30  |
|-------------------------------------------------------------------------------------------|

|                                            |   | 2008   |   |   | 2009   |   |   | 2010   |   |   | 2011   |   |   | 2012   |   |   | Thereafter |   |   | Total  |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|--------|
|                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |   |
| Debt                                            |   | $      | 1,512  |   |   | $      | 2,030  |   |   | $      | 62     |   |   | $      | 1,015  |   |       | $      | 1,525  |   |   | $ | 16,357 |   |   | $ | 22,501 | * |
| Lease      obligations                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |
|    Capital                       |   |   | 59     |   |   |   | 58     |   |   |   | 57     |   |   |   | 29     |   |       |   | 3      |   |   |   | 3 |   |   |   | 209 |   |
|    Non-cancelable      operating |   |   | 63     |   |   |   | 47     |   |   |   | 37     |   |   |   | 28     |   |       |   | 27     |   |   |   | 219 |   |   |   | 421 |   |
| Purchase      obligations                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |   |   |   |   |   |   |   |   |
|    Power                         |   |   | 186    |   |   |   | 183    |   |   |   | 194    |   |   |   | 195    |   |       |   | 196    |   |   |   | 3,806 |   |   |   | 4,760 |   |
|    Fuel                          |   |   | 1,220  |   |   |   | 527    |   |   |   | 504    |   |   |   | 232    |   |       |   | 223    |   |   |   | 443 |   |   |   | 3,149 |   |
|    Other                         |   |   | 310    |   |   |   | 157    |   |   |   | 24     |   |   |   | 16     |   |       |   | 15     |   |   |   | 39 |   |   |   | 561 |   |
| Total                                           |   | $      | 3,350  |   |   | $      | 3,002  |   |   | $      | 878    |   |   | $      | 1,515  |   |       | $      | 1,989  |   |   | $ | 20,867 |   |   | $ | 31,601 |   |

|                               |   | 2008   |   |   | 2009   |   |   | 2010   |   |   | 2011   |   |   | 2012   |   |   | Thereafter |   |   | Total  |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------------|--------|--------|--------|
|                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |       |   |   |   |
| Energy      Prepayment Obligations |   | $      | 106    |   |   | $      | 105    |   |   | $      | 105    |   |   | $      | 105    |   |       | $      | 105    |   |   | $ | 612 |   |   | $ | 1,138 |   |

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|   | • | Eliminates      its obligation to provide any affected customer (including TVA) with a      minimum amount of power; |
|--------|---------|----------------------------------------------------------------------------------------------------------------------|

|   | • | Provides      for all affected customers (except TVA) to receive a pro rata share of a      portion of the gross hourly generation from the eight Cumberland River      hydroelectric facilities; |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Provides      for TVA to receive all of the remaining hourly generation (minus station      service for those facilities); |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------|

|   | • | Eliminates      the payment of demand charges by customers (including TVA) since there is      significantly reduced dependable capacity on the Cumberland River system;      and |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Increases      the rate charged per kilowatt-hour of energy received by SEPA’s customers      (including TVA), because SEPA is legally required to charge rates that      cover its costs. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | The      Clean Air Act (“CAA”) and the Clean Air Interstate Rule (“CAIR”) and Clean      Air Mercury Rule (“CAMR”) |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      Clean Water Act and regulations under Sections 316a and    316b |
|---------------------|--------------------------------------------------------------------------|

| •   | The      Comprehensive Environmental Response, Compensation, and Liability Act      (“CERCLA”) |
|---------------------|------------------------------------------------------------------------------------------------------------|

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|                                                      |   | Related      Party TransactionsFor      the years ended, or as of September 30 |   |
|-----------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|
|                                                      |   | 2007                                                                           |   |   | 2006 |   |   | 2005 |   |
| Sales      of electricity services                        |   | $                                                                              | 188    |   |   | $ | 181 |   |   | $ | 168 |   |
| Other      revenues                                       |   |                                                                           | 47     |   |   |   | 24 |   |   |   | 15 |   |
| Other      expenses                                       |   |                                                                           | 237    |   |   |   | 226 |   |   |   | 222 |   |
| Receivables      at September 30                          |   |                                                                           | 19     |   |   |   | 21 |   |   |   | 26 |   |
| Payables      at September 30                             |   |                                                                           | 126    |   |   |   | 123 |   |   |   | 131 |   |
| Return      on Power Facility Appropriation Investment    |   |                                                                           | 20     |   |   |   | 18 |   |   |   | 16 |   |
| Repayment      of Power Facility Appropriation Investment |   |                                                                           | 20     |   |   |   | 20 |   |   |   | 20 |   |

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|                                                                   |   | 2007   |    |
|------------------------------------------------------------------------|--------|--------|---------|
|                                                                   |   | First  |    |   | Second |   |   | Third |   |   | Fourth |   |   | Total |   |
| Operating      revenues, as originally reported                        |   | $      | 2,104   |   |   | $ | 2,280 |   |   | $ | 2,236 |   |   | $ | 2,624 |   |   | $ | 9,244 |   |
| Unbilled      revenue adjustments                                      |   |   | 21      |   |   |   | (25 | ) |   |   | 26 |   |   |   | 51 |   |   |   | 73 |   |
| Reclassification      of expenses previously netted with revenue       |   |   | 1       |   |   |   | 4 |   |   |   | 3 |   |   |   | 1 |   |   |   | 9 |   |
| Operating      revenues, as restated                                   |   |   | 2,126   | 1,2 |   |   | 2,259 | 2 |   |   | 2,265 |   |   |   | 2,676 |   |   |   | 9,326 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenue      capitalized during pre-commercial plant operations        |   |   | – |   |   |   | – |   |   |   | (23 | )      3 |   |   | (34 | ) |   |   | (57 | ) |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses, as originally reported                        |   |   | 1,788   |   |   |   | 1,891 |   |   |   | 1,853 |   |   |   | 2,191 |   |   |   | 7,723 |   |
| Fuel      cost adjustment                                              |   |   | 6       |   |   |   | 3 |   |   |   | 6 |   |   |   | 31 |   |   |   | 46 |   |
| Write      off of construction projects                                |   |   | (5      | ) |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (5 | ) |
| Capitalization      of construction projects                           |   |   | 5       |   |   |   | (13 | ) |   |   | – |   |   |   | – |   |   |   | (8 | ) |
| Additional      legal expense                                          |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 3 |   |   |   | 3 |   |
| Financing      cost interest reclassification                          |   |   | (12     | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (48 | ) |
| Reclassification      of expenses previously netted with revenue       |   |   | 3       |   |   |   | 4 |   |   |   | 4 |   |   |   | 4 |   |   |   | 15 |   |
| Intracompany      charges reclassification                             |   |   | – |   |   |   | 2 |   |   |   | (14 | ) |   |   | 12 |   |   |   | – |   |
| Operating      expenses, as restated                                   |   |   | 1,785   |   |   |   | 1,875 |   |   |   | 1,837 | 3 |   |   | 2,229 |   |   |   | 7,726 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      income, as restated                                     |   |   | 341     | 1,2 |   |   | 384 | 2 |   |   | 405 |   |   |   | 413 |   |   |   | 1,543 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      income, as originally reported                                |   |   | 51      |   |   |   | 126 |   |   |   | 194 |   |   |   | 12 |   |   |   | 383 |   |
| Additional      revenue detailed above                                 |   |   | 22      |   |   |   | (21 | ) |   |   | 29 |   |   |   | 52 |   |   |   | 82 |   |
| Additional      expense detailed above, net                            |   |   | 3       |   |   |   | 16 |   |   |   | 16 |   |   |   | (38 | ) |   |   | (3 | ) |
| Financing      cost interest reclassification, net interest adjustment |   |   | (12     | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (48 | ) |
| Intracompany      charges reclassification, changes in other income    |   |   | – |   |   |   | 2 |   |   |   | (14 | ) |   |   | 11 |   |   |   | (1 | ) |
| Reclassification      of expenses previously netted with revenue       |   |   | 2       |   |   |   | – |   |   |   | 1 |   |   |   | 3 |   |   |   | 6 |   |
| Additional      legal reserve                                          |   |   | 4       |   |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 4 |   |
| Net      income, as restated                                           |   |   | 70      |   |   |   | 111 |   |   |   | 214 |   |   |   | 28 |   |   |   | 423 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                   |   | 2006   |    |
|                                                                   |   | First  |    |   | Second |   |   | Third |   |   | Fourth |   |   | Total |   |
| Operating      revenues, as originally reported                        |   | $      | 2,050   |   |   | $ | 2,055 |   |   | $ | 2,242 |   |   | $ | 2,828 |   |   | $ | 9,175 |   |
|  Unbilled      revenue adjustments                                |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (200 | ) |   |   | (200 | ) |
| Reclassification      of expenses previously netted with revenue       |   |   | 1       |   |   |   | 3 |   |   |   | 1 |   |   |   | 3 |   |   |   | 8 |   |
|  Operating      revenues, as restated 4                           |   |   | 2,051   |   |   |   | 2,058 |   |   |   | 2,243 |   |   |   | 2,631 |   |   |   | 8,983 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses, as originally reported                        |   |   | 1,827   |   |   |   | 1,766 |   |   |   | 1,874 |   |   |   | 2,115 |   |   |   | 7,582 |   |
| Write      off of construction projects                                |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 5 |   |   |   | 5 |   |
| Capitalization      of construction projects                           |   |   | – |   |   |   | – |   |   |   | – |   |   |   | 8 |   |   |   | 8 |   |
| Intracompany      charges reclassification                             |   |   | (3      | ) |   |   | 7 |   |   |   | (9 | ) |   |   | (7 | ) |   |   | (12 | ) |
| Financing      cost interest reclassification                          |   |   | (13     | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (49 | ) |
| Reclassification      of expenses previously netted with revenue       |   |   | 5       |   |   |   | 8 |   |   |   | 7 |   |   |   | 6 |   |   |   | 26 |   |
| Operating      expenses, as restated                                   |   |   | 1,816   |   |   |   | 1,769 |   |   |   | 1,860 |   |   |   | 2,115 |   |   |   | 7,560 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income, as      restated      4                              |   |   | 235     |   |   |   | 289 |   |   |   | 383 |   |   |   | 516 |   |   |   | 1,423 |   |
|                                                                   |   |   |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      (loss) income, as originally reported                         |   |   | (53     | ) |   |   | 14 |   |   |   | 162 |   |   |   | 206 |   |   |   | 329 |   |
| Increase      (decrease) in revenue detailed above, net                |   |   | 1       |   |   |   | 3 |   |   |   | 1 |   |   |   | (197 | ) |   |   | (192 | ) |
| Additional      expense detailed above, net                            |   |   | 11      |   |   |   | (3 | ) |   |   | 14 |   |   |   | – |   |   |   | 22 |   |
| Financing      cost interest reclassification, net interest adjustment |   |   | (13     | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (12 | ) |   |   | (49 | ) |
| Intracompany      charges reclassification, changes in other income    |   |   | (3      | ) |   |   | 7 |   |   |   | (9 | ) |   |   | (7 | ) |   |   | (12 | ) |
| Reclassification      of expenses previously netted with revenue       |   |   | 4       |   |   |   | 5 |   |   |   | 6 |   |   |   | 3 |   |   |   | 18 |   |
| Additional      legal reserve                                          |   |   | – |   |   |   | – |   |   |   | – |   |   |   | (3 | ) |   |   | (3 | ) |
| Net      (loss) income, as restated                                    |   |   | (53     | ) |   |   | 14 |   |   |   | 162 |   |   |   | (10 | ) |   |   | 113 |   |

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|   | Notes     |
|--------|-------------------------------|

|   | (1) | Prior to the second      quarter of 2007, TVA reported certain items not directly associated with      the sale of electricity as Sales of electricity.  This revenue      of $7 million for the first quarter of 2007 has been reclassified from      Sales of electricity to Other revenue.  See Note 1 — Reclassifications. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Prior to the third      quarter of 2007, TVA reported certain revenue not directly associated with      revenue derived from electric operations as Other revenue.  This      loss of $3 million for the second quarter of 2007 has been reclassified      from Other revenue to Other income.  See Note 1 — Reclassifications. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Prior to the fourth      quarter of 2007, TVA reported certain revenue realized from pre-commercial      plant operations as an increase to Operating and maintenance      expense.  This revenue of $23 million for the third quarter of      2007 has been reclassified from Operating and maintenance expense to      Revenue capitalized during pre-commercial plant operations.  See      Note 1 — Capitalized      Revenue During Pre-Commercial Plant      Operations. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4)             | Prior to 2007, TVA      reported certain revenue not directly associated with revenue derived from      electric operations as Other revenue.  This income (loss) of $2      million, ($7 million), $8 million, and $7 million for the first quarter of      2006, the second quarter of 2006, the third quarter of 2006, and the      fourth quarter of 2006, respectively, has been reclassified from Other      revenue to Other income.  Additionally, certain items not      directly associated with the sale of electricity were previously reported      as Sales of electricity.  This revenue of $5 million, $6      million, $5 million, and $6 million for the first quarter of 2006, the      second quarter of 2006, the third quarter of 2006, and the fourth quarter      of 2006, respectively, has been reclassified from Sales of electricity to      Other revenue.  See Note 1 — Reclassifications. |
|-----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                               |   | 2007               |   |
|------------------------------------|--------|--------------------|--------|
|                               |   | September      30* |   |   | October      30* |   |   | November      30* |   |   | Percent      Change SinceSeptember      30 |   |
| Retirement      System             |   | $                  | 7,977  |   |   | $ | 8,082 |   |   | $ | 7,797 |   |   |   | (2.26 | %) |
| Nuclear      Decommissioning Trust |   |               | 1,086  |   |   |   | 1,115 |   |   |   | 1,065 |   |   |   | (1.93 | %) |

|   | * | Investment      balances at September 30, 2007, as reported in Notes 14 and      15.  Investment balances at October 31, 2007, are based on final      trustee statements, and investment balances at November 30, 2007, are      based on preliminary trusteebalances. |
|--------|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Report of Independent Registered Public AccountingFirm

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ITEM9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGANDFINANCIAL DISCLOSURE

ITEM 9A.  CONTROLS AND PROCEDURES

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ITEM 9B.  OTHER INFORMATION

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PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE

Directors

| Directors                        | Age | Year      Appointed | Year      Term Expires   |
|----------------------------------|-----|---------------------|--------------------------|
| William      B. Sansom, Chairman | 66  | 2006                | 2009                     |
| Bishop      William Graves       | 70  | 2006                |         2007 * |
| Susan      Richardson Williams   | 62  | 2006                |         2007 * |
| Skila      S. Harris             | 57  | 1999                | 2008                     |
| Donald      R. DePriest          | 68  | 2006                | 2009                     |
| Howard      A. Thrailkill        | 68  | 2006                | 2010                     |
| Dennis      C. Bottorff          | 63  | 2006                | 2011                     |
| Robert      M. Duncan            | 56  | 2006                | 2011                     |

|   | * | Although      the terms of Directors Graves and Williams expired in May 2007, they are      entitled to remain in office until the end of the current session of      Congress.  Both directors have been nominated by President      George W. Bush for new terms. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Executive Officers

|  Executive      Officers |  Title                                                                                  |  Age | Employment      Commenced |
|-------------------------------|----------------------------------------------------------------------------------------------|-----------|---------------------------|
| Tom      D. Kilgore           | President      and Chief Executive Officer                                                   | 59        | 2005                      |
| Kimberly      S. Greene       | Chief      Financial Officer & Executive Vice President, Financial      Services         | 41        | 2007                      |
| William      R. McCollum, Jr. | Chief      Operating Officer                                                                 | 56        | 2007                      |
| Maureen      H. Dunn          | Executive      Vice President and General Counsel                                            | 58        | 1978                      |
| John      E. Long, Jr.        | Chief      Administrative Officer and Executive Vice President, Administrative      Services | 55        | 1980                      |
| Kenneth      R. Breeden       | Executive      Vice President, Customer Resources                                            | 59        | 2004                      |
| William      T. Boston        | Executive      Vice President, Power System Operations                                       | 57        | 1972                      |
| William      R. Campbell      | Chief      Nuclear Officer and Executive Vice President                                      | 56        | 2007                      |
| Preston      D. Swafford      | Executive      Vice President, Fossil Power Group                                            | 47        | 2006                      |
| Ashok      S. Bhatnagar       | Senior      Vice President, Nuclear Generation Development and      Construction             | 51        | 1999                      |
| Janet      C. Herrin          | Senior      Vice President, River Operations                                                 | 53        | 1978                      |
| John      M. Hoskins          | Senior      Vice President and Treasurer                                                     | 52        | 1978                      |
| Peyton      T. Hairston, Jr.  | Senior      Vice President, Corporate Responsibility  and      Diversity           | 52        | 1993                      |
| Emily      J. Reynolds        | Senior      Vice President, Communications, Government and Valley      Relations             | 51        | 2007                      |
| Bridgette      Ellis          | Senior      Vice President, Office of Environment and Research                               | 51        | 1979                      |
| Randy      Trusley            | Vice      President and Controller                                                           | 51        | 1978                      |

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Disclosure and Financial Code of Ethics

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Committees of the TVA Board

| •   | Human      Resources Committee |
|---------------------|--------------------------------|

| •   | Corporate      Governance Committee |
|---------------------|-------------------------------------|

| •   | Finance,      Strategy and Rates Committee |
|---------------------|--------------------------------------------|

| •   | Operations,      Environment and Safety Committee |
|---------------------|---------------------------------------------------|

| •   | Community      Relations Committee |
|---------------------|------------------------------------|

ITEM 11.  EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

| •   | Specifies      all compensation (including salary or any other pay, bonuses, benefits,      incentives, and any other form of remuneration) for the CEO and TVA      employees; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | Is      based on an annual survey of the prevailing compensation for similar      positions in private industry, including engineering and electric utility      companies, publicly owned electric utilities, and federal, state and local      governments; and |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Provides      that education, experience, level of responsibility, geographic      differences, and retention and recruitment needs will be taken into      account in determining compensation of  employees. |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      TVA Board will annually approve all compensation (including salary or any      other pay, bonuses, benefits, incentives, and any other form of      remuneration) of all managers and technical personnel who report directly      to the CEO (including any adjustment to  compensation); |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | On      the recommendation of the CEO, the TVA Board will approve the salaries of      employees whose salaries would be in excess of Level IV of the Executive      Schedule ($145,400 in 2007); and |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | The      CEO will determine the salary and benefits of employees whose annual      salary is not greater than Level IV of the Executive Schedule ($145,400 in      2007). |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Provide a competitive level of      compensation that enables TVA to attract, retain, and motivate highly      competent employees.  Each position in TVA has a pay      level determined by market pricing based on a level needed to attract,      retain, and motivate employees critical to TVA’s success in achieving its      mission.  Overall compensation levels are targeted at the median      (50th      percentile) of the relevant labor market for most      positions.  However, for positions affected by market scarcity,      recruitment and retention issues, and other business reasons, overall      compensation levels are targeted above the median (typically between the      50th      and 75th      percentile).  Certain generation and transmission positions, for      example, are targeted at higher overall compensation levels because of      these factors.  Information about TVA’s peer group and      benchmarking practices is provided below under the heading “Use of Market      Data and Benchmarking.” |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Encourage and reward      executives for their performance and contributions to the successful      achievement of financial and operational goals.  A key      component of the Compensation Plan is a strong orientation toward “pay for      performance,” which rewards improvement in TVA’s overall performance, as      well as that of individual business units and individual      participants.  Approximately 40 to 50 percent of overall      compensation for the Named Executive Officers is performance-based      compensation.  “At risk” incentive pay for 2007 was directly      linked to the achievement of performance goals at the TVA level and the      business unit level.  In 2007, the TVA Board approved the TVA      level performance goals and delegated authority to approve the business      level performance goals to TVA’s CEO, Mr. Kilgore.  This      substantial emphasis on performance-based goals provides incentives to      executives to perform at the highest levels to achieve the goals that are      important for TVA. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | Provide executives with the      focus to achieve short-term and long-term business goals that are      important to TVA, TVA’s customers, and the people TVA      serves.  TVA seeks to hire and retain executives who are      focused on both the short-term and long-term success of      TVA.  The Compensation Plan is designed to achieve this goal by      providing a mix of fixed base compensation and at-risk annual and      long-term incentive compensation.  Base compensation is fixed      and designed to provide an immediate financial incentive to      executives.  Annual and long-term incentive compensation is      at-risk based on performance and is designed to focus executives on the      short-term and long-term goals ofTVA. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Improve overall company      performance through productivity enhancement.  No      executive can help meet TVA’s goals and improve performance without the      work of all employees of TVA.  For this reason, the performance      goals set at the TVA level and business unit level are the same for both      executives and all non-executive employees.  In this way, all      TVA employees receive compensation in a manner that aligns their work with      the same goals and encourages and rewards them for the successful      achievement of TVA’s goals. |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Published      and customized compensation surveys reflecting the relevant labor markets      identified for designated positions,and |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| •   | Publicly      disclosed information from the proxy statements and annual reports on Form      10-K of energy services companies with revenues of $3 billion and      greater. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Test      compensation level and incentive opportunity    competitiveness, |
|---------------------|----------------------------------------------------------------------------|

| •   | Serve      as a point of reference for establishing pay packages for recruiting      executives, and |
|---------------------|------------------------------------------------------------------------------------------------------|

| •   | Determine      appropriate adjustments to compensation levels and incentive opportunities      to maintain the desired degree of market  competitiveness. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

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| AES      Corp.*                              | Energy      East Corp.               | PPL      Corp.*                                                                     |
|----------------------------------------------|--------------------------------------|-------------------------------------------------------------------------------------|
| Allegheny      Energy, Inc.                  | Entergy      Corp.*                  | Progress      Energy, Inc.*                                                         |
| Ameren      Corp.*                           | Exelon      Corp.*                   | Public      Service Enterprise Group, Inc.*                                         |
| American      Electric Power Co., Inc.*      | FirstEnergy      Corp.*              | Reliant      Energy, Inc.*                                                          |
| Atmos      Energy Corp.                      | FPL      Group, Inc.*                | SCANA      Corp.                                                                    |
| CenterPoint      Energy, Inc.                | MDU      Resources, Inc.             | Sempra      Energy*                                                                 |
| CMS      Energy Corp.*                       | Mirant      Corp.                    | The      Southern Company*                                                          |
| Consolidated      Edison, Inc.*              | Nicor      Inc.                      | SUEZ      Energy North America                                                      |
| Constellation      Energy Group, Inc.*       | NSTAR      Electric Co.              | TECO      Energy, Inc.                                                              |
| Dominion      Resources, Inc.*               | OGE      Energy Corp.                | TXU      Corp.*                                                                     |
| DTE      Energy Co.*                         | ONEOK      Inc.                      | The      Williams Companies, Inc.                                                   |
| Duke      Energy Corp.*                      | Pacific      Gas & Electric Co.* | Wisconsin      Energy Corp.                                                         |
| Edison      International*El      Paso Corp. | PacifiCorpPepco      Holdings, Inc.* | WPS      Resources Corp. (now Intergrys Energy Group, Inc.)*Xcel      Energy, Inc.* |

| •   | base      compensation, consisting entirely of annual salary paid biweekly, and a      combination of annual salary paid biweekly and additional annual      compensation paid in quarterly installments prior to May 31, 2007, as      described more fully below; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | annual      incentive compensation, which is at-risk and based on the attainment of      certain pre-established performancegoals; |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------|

| •   | long-term      incentive compensation, which is at-risk and based on the attainment of      certain pre-established performancegoals; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| •   | long-term      deferred compensation, which is awarded to participating executives in the      form of annual credits that vest after a specified period of time,      typically three to five years; and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | pension      plans, both qualified and supplemental, which provide compensation      beginning with retirement or termination of employment, provided certain      eligibility and vesting requirements aremet. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   Performance      Metric                                                                                                                                                                                                                                                                                                                                                                                             |   Weight |  ResultsAchieved | Goals  |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|-----------------------|--------|
| Threshold(75%)                                                                                                                                                                                                                                                                                                                                                                                                                  | Target(100%)       | Maximum(125%)         |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Safe      Workplace 1      (Recordable Injuries/Hours Worked)                                                                                                                                                                                                                                                                                                                                                                   | 10%                | 1.58                  | 1.82   | 1.56 | 1.30 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Productivity      ($/MWh Sales)                                                                                                                                                                                                                                                                                                                                                                                                 | 10%                | 9.73                  | 9.47   | 9.42 | 9.37 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Connection      Point Interruptions(Interruptions      per Connection Point)                                                                                                                                                                                                                                                                                                                                                    | 15%                | 0.81                  | 0.84   | 0.81 | 0.78 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Customer      Satisfaction Survey(Percent      Satisfied)                                                                                                                                                                                                                                                                                                                                                                       | 10%                | 89.2                  | 82.0   | 84.0 | 86.0 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Economic      Development(Jobs      + Investments + Job impact)                                                                                                                                                                                                                                                                                                                                                                 | 5%                 | 142                   | 100    | 115 | 130 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Equivalent      Availability Factor (Ratio)                                                                                                                                                                                                                                                                                                                                                                                     | 15%                | 87.8                  | 87.2   | 87.7 | 88.2 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Environmental      Impact (Index)                                                                                                                                                                                                                                                                                                                                                                                               | 10%                | 79.8                  | 65.2   | 58.3 | 50.6 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| Delivered      Cost of Power Excluding FCA 2      Costs ($/MWh Sales)                                                                                                                                                                                                                                                                                                                                                           | 20%                | 32.26      3          | 32.61  | 32.41 | 32.21 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| FCA      2      Costs ($/MWh Sales)                                                                                                                                                                                                                                                                                                                                                                                             | 5%                 | 19.29                 | 17.54  | 17.19 | 16.84 |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                            |               |                  |   |   |   |
| 1 Any TVA employee or      staff augmentation contractor fatality will prevent payout for this      indicator.2 Fuel Cost      Adjustment.3 Based upon restated      2007 results, the delivered cost of power, which includes a component of      revenue, was $32.13 per MWh sold, which equaled 125 percent of the target      goal.  The 2007 performance payment was considered final upon      payment in 2007. |

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| •   | Defined      benefit plan |
|---------------------|---------------------------|

| –   | Original      Benefit Structure (“OBS”) for employees covered under the plan prior to      January 1, 1996, with a pension based on a final average pay      formula |
|---------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| –   | Cash      Balance Benefit Structure (“CBBS”) for employees first hired on or after      January 1, 1996, with a pension based on an account that receives pay      credits equal to six percent of compensation plus  interest |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | 401(k)      plan |
|---------------------|------------------|

| –   | For      OBS members, TVA provides matching contributions of 25 cents on every      dollar up to 1.5 percent of annualsalary. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------|

| –   | For      CBBS members, TVA provides matching contributions of 75 cents on every      dollar up to 4.5 percent of annualsalary. |
|---------------------|--------------------------------------------------------------------------------------------------------------------------------|

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Executive Compensation Tables and NarrativeDisclosures

|    Name      and Principal Position(a)                                                                   |   |  Year(b) |   | Salary($)(c) |            | Bonus      1($)(d) |   | StockAwards($)(e) |   |  OptionAwards($)(f) |           | Non-Equity      Incentive Plan Compensation($)(g) |   | Change      in Pension Value and Nonqualified Deferred CompensationEarnings      2($)(h) |   | All      Other Compensation($)(i) |                            |  Total($)(j) |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|---------------|--------|--------------|-----------------|--------------------|--------|-------------------|--------|--------------------------|----------------|---------------------------------------------------|--------|------------------------------------------------------------------------------------------|--------|-----------------------------------|---------------------------------|-------------------|--------|
|                                                                                                                    |   |          |   |         |            |               |   |              |   |                     |           |                                              |   |                                                                                     |   |                              |                            |              |   |   |   |
| Tom      D. KilgorePresident      andChief      Executive Officer                                                  |   | 20072006      |   | $       | 308,693$140,000 |               | $      | 341,293$511,984   |   |                     | –– |                                              |   | ––                                                                           |   | $                                 | 890,5073 $627,861      6   |              | $      | 138,2744 $98,172      7 |   | $ | 309,9005      $306,300 |   | $ | 1,988,667$1,684,317 |   |
| Kimberly      S. GreeneChief      Financial Officer andExecutive      Vice President,Financial      Services       |   | 20072006      |   | $            | 38,462–   |               |   | ––    |   |                     | –– |                                              |   | ––                                                                           |   | $                                 | 36,1598      –            |              | $      | 242,7529      – |   | $ | 370,90010 – |   | $ | 688,273– |   |
| John      M. HoskinsInterim      Chief Financial Officer andExecutive      Vice President,Financial      Services  |   | 20072006      |   | $            | 178,888–  |               | $      | 72,608–     |   |                     | –– |                                              |   | ––                                                                           |   | $                                 | 169,15811 –          |              | $      | 75,61612      – |   | $ | 62,61913 – |   | $ | 558,889– |   |
| Michael      E. RescoeChief      Financial Officer andExecutive      Vice President,Financial      Services        |   | 20072006      |   | $            | 26,250$140,000  |               | $      | 23,935$286,109    |   |                     | –– |                                              |   | ––                                                                           |   |                              | –14 $295,096      17 |              |   | –15            –      15 |   | $ | 1,646,87516 $6,300 |   | $ | 1,697,060$727,505 |   |
| William      R. McCollum, Jr.Chief      Operating Officer                                                          |   | 20072006      |   | $            | 293,461–  |               |   | ––    |   |                     | –– |                                              |   | ––                                                                           |   | $                                 | 1,042,13218 –        |              | $      | 1,430,16219 – |   | $ | 468,72720      – |   | $ | 3,234,482– |   |
| Karl      W. SingerChief      Nuclear Officer andExecutive      Vice President,TVA      Nuclear                    |   | 20072006      |   | $            | 253,000$140,000 |               | $      | 227,528$341,323   |   |                     | –– |                                              |   | ––                                                                           |   | $                                 | 724,00021      $580,275      24 |              | $      | 357,49022      $365,355      25 |   | $ | 221,60023      $211,250 |   | $ | 1,783,618$1,638,203 |   |
| Ashok      S. BhatnagarSenior      Vice President,Nuclear      Generation Developmentand      Construction              |   | 20072006      |   | $            | 236,608$140,000 |               | $      | 189,384$276,070   |   |                     | –– |                                              |   | ––                                                                           |   | $                                 | 470,66826 $390,648      29 |              | $      | 154,93727      $160,615      30 |   | $ | 165,40528 $158,655 |   | $ | 1,217,002$1,125,988 |   |
|                                                                                                                    |   |          |   |         |            |               |   |              |   |                     |           |                                              |   |                                                                                     |   |                              |                            |              |   |   |   |   |   |   |   |   |   |   |   |

| (1)       Represents additional annual compensation paid in quarterly installments      through May 31, 2007. |
|--------------------------------------------------------------------------------------------------------------------|

| (2)       Represents the aggregate change in pension value under TVA’s qualified      defined benefit plan and TVA’s Supplemental Executive Retirement Plan      (“SERP”). |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)       Includes $427,382 paid out under the EAIP and $463,125 paid out under the      ELTIP. |
|------------------------------------------------------------------------------------------------------|

| (4)       Includes increases of $11,088 under TVA’s qualified defined benefit plan      and $127,186 under the SERP. |
|---------------------------------------------------------------------------------------------------------------------------------|

| (5)       Includes an unvested annual credit in the amount of $300,000 provided      under a LTDCP agreement with Mr. Kilgore.  Mr. Kilgore will      become vested in the $300,000 credit in accordance with the terms of the      LTDCP agreement.  See information regarding the details of the      LTDCP agreement under “Long-Term Deferred Compensation Plan      Agreements.” |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6)       Includes $334,152 paid out under the EAIP and $293,709 paid out under the      ELTIP. |
|------------------------------------------------------------------------------------------------------|

| (7)       Includes increases of $8,882 under TVA’s qualified defined benefit plan      and $89,290 under the SERP.  The $98,172 amount represents a      correction of the $169,614 amount reported in TVA’s 2006 Annual Report on      Form 10-K/A, which included increases of $8,882 under TVA’s qualified      defined benefit plan and $160,732 under the  SERP. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (8)       Includes $25,439 paid out under the EAIP and $10,720 paid out under the      ELTIP.  Ms. Greene joined TVA on September 1, 2007, and both the      EAIP and ELTIP incentive awards were prorated based on the number of      months she participated in the performance  cycles. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (9)       Includes increases of $5,598 under TVA’s qualified defined benefit plan      and $237,154 under the SERP. |
|--------------------------------------------------------------------------------------------------------------------------------|

| (10)       Includes a vested credit in the amount of $280,000 provided under a LTDCP      agreement with Ms. Greene, a relocation incentive in the amount of      $90,000, and $900 in vehicle allowance payments.  Ms. Greene was      vested in the $280,000 LTDCP credit at the time it was made to her account      in accordance with the terms of the LTDCP agreement.  See      information regarding the details of the LTDCP agreement under “Long-Term      Deferred Compensation PlanAgreements.” |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (11)       Includes $94,494 paid out under the EAIP and $74,664 paid out under the      ELTIP. |
|-----------------------------------------------------------------------------------------------------|

| (12)       Includes an increase of $76,893 under TVA’s qualified defined benefit plan      and a decrease of $1,277 under theSERP. |
|-----------------------------------------------------------------------------------------------------------------------------------------------|

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| (13)       Includes an unvested annual credit in the amount of $60,000 provided under      a LTDCP agreement with Mr. Hoskins.  Mr. Hoskins will become      vested in the $60,000 credit in accordance with the terms of the LTDCP      agreement.  See information regarding the details of the LTDCP      agreement under “Long-Term Deferred Compensation Plan      Agreements.” |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (14)       Mr. Rescoe left TVA effective November 13, 2006, and was not eligible to      receive awards under the EAIP or ELTIP in2007. |
|----------------------------------------------------------------------------------------------------------------------------------------------|

| (15)       Mr. Rescoe left TVA effective November 13, 2006, and did not meet the      minimum five years of creditable service required to become vested in      TVA’s qualified retirement plan and theSERP. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (16)       Includes an initial installment in the amount of $823,437.50 provided      under the April 2004 agreement with Mr. Rescoe and accrual of an      additional installment in the amount of $823,437.50 paid in November      2007.  See information regarding the details of the April 2004      agreement under “Other Agreements.” |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (17)       Includes $195,075 paid out under the EAIP and $100,021 paid out under the      ELTIP. |
|-------------------------------------------------------------------------------------------------------|

| (18)       Includes $460,257 paid out under the EAIP and $581,875 paid out under the      ELTIP. |
|-------------------------------------------------------------------------------------------------------|

| (19)       Includes increases of $5,385 under TVA’s qualified defined benefit plan      and $1,424,777 under the SERP. |
|-----------------------------------------------------------------------------------------------------------------------------------|

| (20)       Includes a vested credit in the amount of $350,000 provided under a LTDCP      agreement with Mr. McCollum, a relocation incentive in the amount of      $75,000, $33,169 in relocation assistance payments which includes $2,390      in tax reimbursements, and $4,500 in vehicle allowance      payments.  Mr. McCollum was vested in the $350,000 LTDCP credit      at the time it was made to his account in accordance with the terms of the      LTDCP agreement.  See information regarding the details of the      LTDCP agreement under “Long-Term Deferred Compensation Plan      Agreements.” |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (21)       Includes $336,000 paid out under the EAIP, $288,000 paid out under the      ELTIP, and a credit in the amount of $100,000 made to Mr. Singer’s      deferred compensation account, as provided under a separation agreement      with Mr. Singer.  See information regarding the details of the      separation agreement under “OtherAgreements.” |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (22)       Includes increases of $21,276 under TVA’s qualified defined benefit plan      and $336,214 under the SERP. |
|----------------------------------------------------------------------------------------------------------------------------------|

| (23)       Includes an unvested annual credit in the amount of $200,000 provided      under a LTDCP agreement with Mr. Singer and $11,700 in vehicle allowance      payments.  Mr. Singer was vested in the $200,000 credit in      accordance with the terms of his separation agreement.  See      information regarding the details of the separation agreement under “Other      Agreements.” |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (24)       Includes $283,382 paid out under the EAIP, $216,893 paid out under the      ELTIP, and a credit in the amount of $80,000 made to Mr. Singer’s deferred      compensation account provided under a LTDCP agreement with Mr. Singer for      achievement of major milestones in 2006 associated with the Browns Ferry      Unit 1 Recovery Project.  See information regarding the details      of the LTDCP agreement under “Browns Ferry Unit 1 Recovery Milestone LTDCP      Agreements.” |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (25)       Includes increases of $17,905 under TVA’s qualified defined benefit plan      and $347,450 under the SERP. |
|----------------------------------------------------------------------------------------------------------------------------------|

| (26)       Includes $199,572 paid out under the EAIP, $227,644 paid out under the      ELTIP, and a credit in the amount of $43,452 made to Mr. Bhatnagar’s      deferred compensation account provided under a LTDCP agreement with Mr.      Bhatnagar for achievement of major milestones in 2007 associated with the      Browns Ferry Unit 1 Recovery Project.  See information regarding      the details of the LTDCP agreement under “Browns Ferry Unit 1 Recovery      Milestone LTDCP Agreements.” |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (27)       Includes increases of $16,030 under TVA’s qualified defined benefit plan      and $138,907 under the SERP. |
|----------------------------------------------------------------------------------------------------------------------------------|

| (28)       Includes an unvested annual credit in the amount of $150,000 provided      under a LTDCP agreement with Mr. Bhatnagar and $11,700 in vehicle      allowance payments.  Mr. Bhatnagar will become vested in the      $150,000 credit in accordance with the terms of the LTDCP      agreement.  See information regarding the details of the LTDCP      agreement under “Long-Term Deferred Compensation Plan      Agreements.” |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (29)       Includes $210,007 paid out under the EAIP, $140,641 paid out under the      ELTIP, and a credit in the amount of $40,000 made to Mr. Bhatnagar’s      deferred compensation account provided under a LTDCP agreement with Mr.      Bhatnagar for achievement of major milestones in 2006 associated with the      Browns Ferry Unit 1 Recovery Project.  See information regarding      the details of the LTDCP agreement under “Browns Ferry Unit 1 Recovery      Milestone LTDCP Agreements.” |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (30)       Includes increases of $12,945 under TVA’s qualified defined benefit plan      and $147,670 under the SERP. |
|----------------------------------------------------------------------------------------------------------------------------------|

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|  Name(a)                             |  GrantDate(b)                        | Estimated      Possible Payouts Under      Non-Equity Incentive Plan Awards | Estimated      Future Payouts Under      Equity Incentive Plan Awards | All      Other Stock Awards: Number of Shares of Stock or Units(#)(i) | All      Other Option Awards:Number      of Securities Underlying Options(#)(j) | Exercise      or Base Price of Option Awards($/Sh)(k) | Grant      Date Fair Value of Stock and Option Awards($)(l) |
|-------------------------------------------|-------------------------------------------|-----------------------------------------------------------------------------|-----------------------------------------------------------------------|-----------------------------------------------------------------------|---------------------------------------------------------------------------------|-------------------------------------------------------|-------------------------------------------------------------|
| Threshold($)(c)                           | Target($)(d)                              | Maximum($)(e)                                                               | Threshold($)(f)                                                       | Target($)(g)                                                          | Maximum($)(h)                                                                   |
|                                      |                                      |                                                                        |                                                                  |                                                                  |                                                                            |                                                  |                                                        |   |   |   |   |
| Tom      D. Kilgore             | EAIP      1ELTIP2                         | $341,250$292,500                                                            | $455,000$390,000                                                      | $568,750$487,500                                                      |                                                            |                                  |                                        |   |   |   |   |
| Kimberly      S. Greene 3       | EAIP      1ELTIP      2              | $20,313$6,771                                                               | $27,083$9,028                                                         | $33,854$11,285                                                        |                                                            |                                  |                                        |   |   |   |   |
| John      M. Hoskins            | EAIP      1ELTIP      2              | $75,450$47,156                                                              | $100,600$62,875                                                       | $125,750$78,594                                                       |                                                            |                                  |                                        |   |   |   |   |
| Michael      E. Rescoe 4        | EAIP      1ELTIP      2                   |                                                        |                                                  |                                                  |                                                            |                                  |                                        |   |   |   |   |
| William      R. McCollum, Jr.   | EAIP      1ELTIP      2                   | $367,500$367,500                                                            | $490,000$490,000                                                      | $612,500$612,500                                                      |                                                            |                                  |                                        |   |   |   |   |
| Karl      W. Singer        | EAIP      1ELTIP      2BFNU1-LTDCP      5 | $252,000$216,000                                               | $336,000$288,000 $100,000      6                                 | $420,000$360,000                                         |                                                    |                          |                                |   |   |   |   |
| Ashok      S. Bhatnagar         | EAIP      1ELTIP      2BFNU1-LTDCP      5 | $191,700$143,775                                               | $255,600$191,700$50,000      7                                   | $319,500$239,625                                         |                                                    |                          |                                |   |   |   |   |
|                                      |                                      |                                                                        |                                                                  |                                                                  |                                                                            |                                                  |                                                        |   |   |   |   |

|   | (1)       Actual awards earned for performance in 2007 are reported for each of the      Named Executive Officers under “Non-Equity Incentive Plan Compensation” in      the Summary Compensation Table. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2)       Actual awards earned for the performance cycle ended on September 30,      2007, are reported for each of the Named Executive Officers under      “Non-Equity Incentive Plan Compensation” in the Summary Compensation      Table. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3)       Ms. Greene joined TVA on September 1, 2007, and the awards she earned in      2007 were to be prorated based on the number of months she participated in      each performance cycle.  The amounts presented represent the      possible prorated awards she was eligible to receive for the performance      cycles ending on September 30,2007. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4)       Mr. Rescoe left TVA on November 13, 2006, and was not eligible to receive      a payout under either the EAIP or ELTIP in2007. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5)       In accordance with the agreements administered under TVA’s LTDCP, Mr.      Singer and Mr. Bhatnagar were eligible to receive these credits based on      the achievement of major milestones in association with the Browns Ferry      Unit 1 Recovery Project.  The actual credits earned and vested      are reported under “Non-Equity Incentive Plan Compensation” in the Summary      Compensation Table. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6)       In accordance with the terms set forth in his separation agreement, Mr.      Singer was entitled to receive the full payout of $100,000 for 2007      without regard to the achievement of the milestone.  See      information regarding the details of the separation agreement under “Other      Agreements.” |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7)       For 2007, payout was based on the date of successful restart of Browns      Ferry Unit 1 with a $50,000 payout for restart by May 22, 2007, a $37,500      payout for restart by June 15, 2007, and no payout for restart after June      15, 2007, with amounts for dates in between determined by straight-line      interpolation. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|  Name                    |   | EAIPIncentive      Opportunity 1             |
|-------------------------------|--------|----------------------------------------------|
|                          |   |                                         |
| Tom      D. Kilgore           |   |    70%                        |
| Kimberly      S. Greene       |   |    65%                        |
| John      M. Hoskins          |   |    40%                        |
| Michael      E. Rescoe        |   |      –      2 |
| William      R. McCollum, Jr. |   |    70%                        |
| Karl      W. Singer           |   |    70%                        |
| Ashok      S. Bhatnagar       |   |    60%                        |
|                          |   |                                         |

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|  Name                                                                                                                                                                                                      |   | ELTIPIncentive      Opportunity 1            |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|
|                                                                                                                                                                                                            |   |                                         |
| Tom      D. Kilgore                                                                                                                                                                                             |   |    60%                        |
| Kimberly      S. Greene                                                                                                                                                                                         |   |    65%                        |
| John      M. Hoskins                                                                                                                                                                                            |   |    25%                        |
| Michael      E. Rescoe                                                                                                                                                                                          |   |      –      2 |
| William      R. McCollum, Jr.                                                                                                                                                                                   |   |    70%                        |
| Karl      W. Singer                                                                                                                                                                                             |   |    60%                        |
| Ashok      S. Bhatnagar                                                                                                                                                                                         |   |    45%                        |
|                                                                                                                                                                                                            |   |                                         |
|  Note:                                                                                                                                                                                                     |   |                                         |
| (1)   Represents      a percentage of each participant’s base compensation. (2)  Mr. Rescoe left TVA in November 2006 and      was not eligible to receive an award in2007. |

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|                                      |                                                                           |                                                      |
|-------------------------------------------|--------------------------------------------------------------------------------|-----------------------------------------------------------|
| Name(a)                                   | Plan      Name(b)                                                              | Number      of Years of Credited Service 1(#)(c)          |   | Present      Value of Accumulated Benefit($)(d) |   |  Payments      During Last Fiscal Year($)(e) |
|                                      |                                                                           |                                                      |   |   |   |   |
| Tom      D. Kilgore             | (1)      Qualified Plan – CBBS(2)      Non-Qualified – SERP Tier 1 |   2.58     8.00      2 |   |     $24,577$1,584,884 |   | $0$0 |
| Kimberly      S. Greene         | (1)      Qualified Plan – CBBS(2)      Non-Qualified – SERP Tier 1 |   0.08  15.08      3                  |   |        $5,598   $237,154 |   | $0$0 |
| John      M. Hoskins            | (1)      Qualified Plan – OBS(2)      Non-Qualified – SERP Tier 2  | 32.7229.67                                                |   |    $930,841   $421,806 |   | $0$0 |
| Michael      E. Rescoe          | (1)      Qualified Plan – CBBS(2)      Non-Qualified – SERP Tier 1 |   3.33  3.33                          |   |                  $0      4                 $0      4 |   | $0$0 |
| William      R. McCollum, Jr.   | (1)      Qualified Plan – CBBS(2)      Non-Qualified – SERP Tier 1 | 0.42 10.42      5                                    |   |        $5,385$1,424,777 |   | $0$0 |
| Karl      W. Singer             | (1)      Qualified Plan – CBBS(2)      Non-Qualified – SERP Tier 1 | 14.50       16.50 6                                  |   |   $190,614$1,570,874 |   | $0$0 |
| Ashok      S. Bhatnagar         | (1)      Qualified Plan – CBBS(2)      Non-Qualified – SERP Tier 1 | 8.088.08                                                  |   |      $98,277   $554,988 |   | $0$0 |
|                                      |                                                                           |                                                      |   |   |   |   |

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|   | Notes          |
|--------|-------------------------------|

|  (1) | Limited      to 24 years when determining supplemental benefits available under SERP      Tier 1. |
|-----------|---------------------------------------------------------------------------------------------------|

| (2) | Mr.      Kilgore has been granted three additional years of credited service for      pre-TVA employment following five years of actual TVA      service.  In the event his employment is terminated during the      first five years (other than for cause), the five-year vesting requirement      will be waived and he will receive credit for eight years of      service.  In addition, the offset for prior employer pension      benefits will be waived, and the offset for benefits provided under TVA’s      defined benefit plan will be calculated based on the actual pension      benefit he will receive as a participant in the CBBS.  Without      the additional years of credited service, the present value of Mr.      Kilgore’s accumulated benefit would be$0. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Ms.      Greene has been granted 15 additional years of credited service for      pre-TVA employment and the offset for prior employment pension benefits      has been waived.  The offset for benefits provided under TVA’s      defined benefit plan will be calculated based on the benefit she will be      eligible to receive as a participant in the CBBS taking into account the      additional years of credited service being used for SERP benefit      calculation purposes.  In the event that she voluntarily      terminates her employment with TVA, or is terminated for cause, prior to      satisfying the minimum five-year vesting requirement, no benefits will be      provided to her under the SERP.  In the event of termination for      any other reason, prior to five years of employment, the five-year vesting      requirement will be waived and the benefit Ms. Greene will be eligible to      receive will be payable no earlier than age 55.  As of September      30, 2007, the present value of this benefit is      $237,154.  Without the additional years of credited service, the      present value of Ms. Greene’s accumulated benefit would be    $0. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | Mr.      Rescoe left TVA in November 2006 and did not have the minimum five years      of vesting service required to become vested and receive a retirement      benefit under TVA’s defined benefit plan or the  SERP. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  (5) | Mr.      McCollum has been granted 10 additional years of credited service for      pre-TVA employment and the offset for prior employment benefits has been      waived.  The additional years of credited service will be used      for SERP benefit calculation purposes only and will not count toward the      minimum five-year vesting requirement.  In the event Mr.      McCollum voluntarily terminates his employment with TVA or is terminated      for cause prior to satisfying the minimum five-year vesting requirement,      no benefits will be provided under the SERP.  In the event of      termination for any other reason, prior to five years of employment, the      five-year vesting requirement will be waived as long as the termination is      considered acceptable to TVA, and Mr. McCollum would be eligible to      receive benefits payable in five annual installments following      termination.  The present value of this benefit as of September      30, 2007, is $1,424,777.  Without the additional years of      credited service, the present value of Mr. McCollum’s accumulated benefit      would be $0. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (6) | TVA      granted Mr. Singer one additional year of service for each year of TVA      service on each of August 17, 2006, and August 17,      2007.  Therefore, as of September 30, 2007, Mr. Singer has been      granted two years of additional service for purposes of the calculation of      his benefits under the SERP.  Without the additional two years      of credited service, the present value of Mr. Singer’s accumulated benefit      would have been $1,368,549. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|    Name(a)           | ExecutiveContributions      inLast      FY($)(b) | RegistrantContributions      inLast      FY($)(c) | AggregateEarnings      inLast      FY 1($)(d)  | AggregateWithdrawals/Distributions($)(e)                 | AggregateBalance      atLast      FYE 2($)(f)            |
|-------------------------------------|--------------------------------------------------|---------------------------------------------------|------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------|
|                                |                                             |                                              |                                           |                                                     |                                                     |
| Tom      D. Kilgore            | $783,661      3                                  | $300,000      4                                   | $149,527                                       |          $0 | $1,957,547      5                                        |
| Kimberly      S. Greene        |        $0     | $280,000      6                                   |        $976 |         $0       | $280,976                                                 |
| John      M. Hoskins           | $84,579      7                                   | $60,000      8                                    |   $48,530                            | $340,243      9                                          | $1,021,492      10                                       |
| Michael      E. Rescoe         |        $0     |        $0      |    $28,913                      | $457,328      11                                         |          $0 |
| William      R. McCollum, Jr.  | $781,599      12                                 | $350,000      13                                  |      $7,187           |         $0       |   $357,187      14                             |
| Karl      W. Singer            |        $0     | $300,000      15                                  | $168,986                                       |         $0       | $2,852,164      16                                       |
| Ashok      S. Bhatnagar        |        $0     | $193,452      17                                  | $333,811                                       |         $0       | $2,385,674      18                                       |
|                                |                                             |                                              |                                           |                                                     |                                                     |

|   |  (1)      Includes vested and unvested earnings. None of these amounts are included      in the Summary Compensation Table. |
|--------|----------------------------------------------------------------------------------------------------------------------------------|

|   | (2)      Includes vested and unvestedamounts. |
|--------|-----------------------------------------------|

|   | (3)      Mr. Kilgore elected to defer 75 percent of the $427,382 paid out under the      EAIP for 2007 and 100 percent of the $463,125 paid out under the ELTIP for      the performance period that ended on September 30, 2007.  These      amounts are reported in the “Non-Equity Incentive Plan Compensation”      column in the Summary CompensationTable. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4)      Represents an unvested annual credit in the amount of $300,000 provided      under a LTDCP agreement with Mr. Kilgore (reported in the “All Other      Compensation” column in the Summary Compensation  Table). |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5)      Represents the balance of Mr. Kilgore’s account, including unvested      credits and earnings totaling $643,293, as of September 30,      2007.  The amount in the “Aggregate Balance at Last FYE” column      includes $927,861 reported in the Summary Compensation Table for      2006.  The amount reported in the “Executive Contributions in      Last FY” column was credited to his account in the first quarter of 2008      and is not included in the balance. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (6)      Represents a vested credit in the amount of $280,000 provided under a      LTDCP agreement with Ms. Greene (reported in the “Non-Equity Incentive      Plan Compensation” column in the Summary Compensation    Table). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7)      Mr. Hoskins elected to defer 50 percent of the $94,494 paid out under the      EAIP for 2007 and 50 percent of the $74,664 paid out under the ELTIP for      the performance period that ended on September 30, 2007.  These      amounts are reported in the “Non-Equity Incentive Plan Compensation”      column in the Summary CompensationTable. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (8)      Represents an unvested annual credit in the amount of $60,000 provided      under a LTDCP agreement with Mr. Hoskins (reported in the “All Other      Compensation” column in the Summary Compensation  Table). |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (9)      Represents a lump sum distribution of the balance of Mr. Hoskins’ LTDCP      account, including interest and/or return on investments, upon expiration      of a LTDCP agreement on September 30,2006. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (10)      Represents the balance of Mr. Hoskins’ account, including unvested credits      and earnings totaling $63,088, as of September 30, 2007.  The      amount reported in the “Executive Contributions in Last FY” column was      credited to his account in the first quarter of 2008 and is not included      in the balance. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (11)      Represents a lump sum distribution of the balance of Mr. Rescoe’s deferred      compensation account, including interest and/or return on investments, at      the time of termination. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | (12)      Mr. McCollum elected to defer 75 percent of the $460,257 paid out under      the EAIP for 2007 and 75 percent of the $581,875 paid out under the ELTIP      for the performance period that ended on September 30,      2007.  These amounts are reported in the “Non-Equity Incentive      Plan Compensation” column in the Summary Compensation    Table. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (13)      Represents a vested credit in the amount of $350,000 provided under a      LTDCP agreement with Mr. McCollum (reported in the “Non-Equity Incentive      Plan Compensation” column in the Summary Compensation    Table). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (14)      Represents the balance of Mr. McCollum’s account.  The amount      reported in the “Executive Contributions in Last FY” column was credited      to his account in the first quarter of 2008 and is not included in the      balance. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (15)      Represents (1) an unvested annual credit in the amount of $200,000      provided under a LTDCP agreement with Mr. Singer (reported in the “All      Other Compensation” column in the Summary Compensation Table) and (2) a      vested credit in the amount of $100,000 provided under a separation      agreement with Mr. Singer based on his second LTDCP agreement for      achievement of major milestones in 2007 associated with the Browns Ferry      Unit 1 Recovery Project (reported in the “Non-Equity Incentive Plan      Compensation” column in the Summary Compensation Table).  Mr.      Singer was vested in the $200,000 credit under the LTDCP agreement in      accordance with the terms of his separation  agreement. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (16)      Represents the balance of Mr. Singer’s account, including unvested credits      and earnings totaling $648,938, as of September 30, 2007.  The      amount in the “Aggregate Balance at Last FYE” column includes $280,000      reported in the Summary Compensation Table for 2006.  The      $100,000 credit provided under a separation agreement with Mr. Singer      based on his second LTDCP agreement for the achievement of major      milestones in 2007 associated with the Browns Ferry Unit 1 Recovery      Project, reported in the “Registrant Contributions in the Last FY” column,      was credited to his account in the first quarter of 2008 and is not      included in the balance. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (17)      Represents (1) an unvested annual credit in the amount of $150,000      provided under a LTDCP agreement with Mr. Bhatnagar (reported in the “All      Other Compensation” column in the Summary Compensation Table) and (2) a      vested credit in the amount of $43,452 provided under a second LTDCP      agreement with Mr. Bhatnagar for achievement of major milestones in 2007      associated with the Browns Ferry Unit 1 Recovery Project (reported in the      “Non-Equity Incentive Plan Compensation” column in the Summary      Compensation Table). |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (18)      Represents the balance of Mr. Bhatnagar’s account, including unvested      credits and earnings totaling $519,774, as of September 30,      2007.  The amount in the “Aggregate Balance at Last FYE” column      includes $190,000 reported in the Summary Compensation Table for      2006.  The $43,452 credit provided under the LTDCP agreement      with Mr. Bhatnagar for the achievement of major milestones in 2007      associated with the Browns Ferry Unit 1 Recovery Project, reported in the      “Registrant Contributions in the Last FY” column, was credited to his      account  in the first quarter of 2008 and is not included in the      balance. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Severance Agreements

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Other Agreements

|   | • | TVA      agreed to award Mr. Singer EAIP and ELTIP award payouts assuming      achievement of 100 percent of the target goals for the EAIP for 2007 and      the ELTIP for the performance period ended September 30, 2007, without      regard to actual performance; |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Mr.      Singer would receive the full $100,000 credit associated with the Browns      Ferry Unit 1 Recovery Project for 2007, without regard to the actual      milestone achievement; |
|--------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Mr.      Singer would become vested in the balance of his LTDCP account as of      September 30, 2007, and this amount would be distributed to Mr. Singer in      a lump sum, in accordance with his previous election, within 30 days of      the effective date of hisresignation; |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | • | Mr.      Singer’s resignation would be considered an approved termination under the      SERP; and |
|--------|---------|----------------------------------------------------------------------------------------------------------|

|   | • | Mr.      Singer would be eligible to continue TVA medical insurance available to      active employees for 12 months after the effective date of his resignation      (October 2007 through September 2008) at the cost an active employee would      pay for such insurance. |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Director Compensation

|                           |   |                         |
|--------------------------------|--------|------------------------------|
|  Name                     |   |  Annual      Stipend($) |
|                           |   |                         |
| Dennis      C. Bottorff        |   | $46,000                      |
| Donald      R. DePriest        |   | $46,000                      |
| Robert      M. Duncan          |   | $46,000                      |
| Bishop      William H. Graves  |   | $45,800                      |
| Skila      S. Harris           |   | $46,000                      |
| William      B. Sansom         |   | $50,000                      |
| Howard      A. Thrailkill      |   | $46,000                      |
| Susan      Richardson Williams |   | $46,000                      |
|                           |   |                         |

|        Name(a) |   |     Fees      Earned or Paid in Cash($)(b) |      StockAwards($)(c) |      OptionAwards($)(d) |     Non-EquityIncentive      PlanCompensation($)(e) | Change      inPension      ValueandNonqualifiedDeferredCompensationEarnings 1($)(f) |      All      Other Compensation($)(g) |       Total($)(h) |
|---------------------------------------------------|--------|----------------------------------------------------------------|-------------------------------------------------|--------------------------------------------------|-------------------------------------------------------------------------|-------------------------------------------------------------------------------------|-----------------------------------------------------------------|-------------------------------------------------|
|                                              |   |                                                           |                                            |                                             |                                                                    |                                                                                |                                                            |                                            |
| William      W. Baxter 2                          |   | $13,846                                                        |                                         |                                          |                                                                 |                                                                             |   $250                                                | $14,096                                         |
| Dennis      C. Bottorff                           |   | $46,176                                                        |                                         |                                          |                                                                 |                                                                             |   $739                                                | $46,915                                         |
| Donald      R. DePriest                           |   | $46,176                                                        |                                         |                                          |                                                                 |                                                                             | $2,154                                                          | $48,330                                         |
| Robert      M. Duncan                             |   | $46,176                                                        |                                         |                                          |                                                                 |                                                                             |    $739                                          | $46,915                                         |
| Bishop      William H. Graves 3                   |   | $44,685                                                        |                                         |                                          |                                                                 |                                                                             |    $356                                          | $45,041                                         |
| Skila      S. Harris                              |   | $46,176                                                        |                                         |                                          |                                                                 |                                                                             | $2,597                                                          | $48,773                                         |
| William      B. Sansom                            |   | $50,190                                                        |                                         |                                          |                                                                 |                                                                             |    $804                                          | $50,994                                         |
| Howard      A. Thrailkill                         |   | $46,176                                                        |                                         |                                          |                                                                 |                                                                             | $2,225                                                          | $48,401                                         |
| Susan      Richardson Williams                    |   | $46,176                                                        |                                         |                                          |                                                                 |                                                                             | $2,211                                                          | $48,387                                         |
|                                              |   |                                                           |                                            |                                             |                                                                    |                                                                                |                                                            |                                            |

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|   | (1)       TVA directors do not participate in the TVA Retirement System, TVA’s      Supplemental Executive Retirement Plan, or any non-qualified deferred      compensation plan available to TVA employees.  However, as      appointed officers of the United States government, the directors are      members of the Federal Employees Retirement System      (“FERS”).  FERS is administered by the federal Office of      Personnel Management (“OPM”), and information regarding the value of FERS      pension benefits is not available toTVA. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2)       Mr. Baxter resigned as a director as of January 24,  2007. |
|--------|---------------------------------------------------------------------------|

|   |  (3)       Bishop William H. Graves did not become a director until October 10,      2006. |
|--------|------------------------------------------------------------------------------------------------------|

Compensation Committee Interlocks and InsiderParticipation

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Tableof Contents

Compensation Committee Report

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,AND DIRECTOR INDEPENDENCE

|   | Director      Independence |
|--------|----------------------------|

|   | Related      Party Transactions |
|--------|---------------------------------|

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| 1.   | For      purposes of this policy, “financial interest” means an interest of a      person, or of a person’s spouse or minor child, arising by virtue of      investment or credit relationship, ownership, employment, consultancy, or      fiduciary relationship such as director, trustee, or partner. However,      financial interest does not include an interest in TVA or any      interest: |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | comprised      solely of a right to payment of retirement benefits resulting from former      employment or fiduciaryrelationship, |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------|

| •   | arising      solely by virtue of cooperative membership or similar interest as a      consumer in a distributor of TVA power,or |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------|

| •   | arising      by virtue of ownership of publicly traded securities in any single entity      with a value of $25,000 or less, or within a diversified mutual fund      investment in any amount. |
|---------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.   | Directors      and the Chief Executive Officer shall not hold a financial interest in any      distributor of TVA power. |
|----------------|--------------------------------------------------------------------------------------------------------------------------|

| 3.   | Directors      and the Chief Executive Officer shall not hold a financial interest in any      entity engaged in the wholesale or retail generation, transmission, or      sale of electricity. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.   | Directors      and the Chief Executive Officer shall not hold a financial interest in any      entity that may reasonably be perceived as likely to be adversely affected      by the success of TVA as a producer or transmitter of electric      power. |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 5.   | Any      action taken or interest held that creates, or may reasonably be perceived      as creating, a conflict of interest restricted by this additional policy      applicable to TVA Directors and the Chief Executive Officer should      immediately be disclosed to the Chairman of Board of Directors and the      Chairman of the Audit and Ethics Committee.  The Audit and      Ethics Committee shall be responsible for initially reviewing all such      disclosures and making recommendations to the entire Board on what action,      if any, should be taken.  The entire Board, without the vote of      any Director(s) involved, shall determine the appropriate action to be      taken. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6.   | Any      waiver of this additional policy applicable to TVA Directors and the Chief      Executive Officer may be made only by the Board, and will be disclosed      promptly to the public, subject to the limitations on disclosure imposed      by law. |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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ITEM 14.  PRINCIPAL ACCOUNTANT FEES ANDSERVICES

|                       |   | 2007   |      |   | 2006   |   |
|----------------------------|--------|--------|-----------|--------|--------|--------|
|                       |   |   |      |   |   |   |
| Audit      Fees 1          |   | $      | 1,409,876 |   |   | $      | 1,125,992 | 4 |
| Audit-Related      Fees 2  |   |   | 68,843    |   |   |   | 259,038 | 5 |
| All      Other Fees      3 |   |   | –   |   |   |   | 14,000 |   |
| Total                      |   | $      | 1,478,719 |   |   | $      | 1,399,030 |   |

|   | (1) | Audit      fees consist of fees for professional services rendered for the audit of      TVA’s annual financial statements, the fees for review of the interim      financial statements included in TVA’s quarterly reports, and fees for      Bond offering comfort letters. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Audit-related      fees are fees for services which are usually performed by the auditor and      consist primarily of accounting assistance on proposed transactions and      accounting standards, accounting assistance related to reviewing internal      control over financial reporting, and assistance in preparing for the      filing of TVA’s initial Annual Report on Form  10-K. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | All      other fees relate to in-house training of TVA  personnel. |
|--------|-----|--------------------------------------------------------------------|

|   | (4) | Fees      of $15,250 for the SEC advisory services for 2006 have been reclassified      from Audit-Related Fees. |
|--------|-----|------------------------------------------------------------------------------------------------------------------|

|   | (5) | The      Audit-Related Fees for 2006 include an adjustment of $920 related to an      invoice which was not included in the 2006 Annual Reports on Forms 10-K      and 10-K/A. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| •   | The      aggregate amount of all such non-audit services provided to TVA does not      exceed five percent of the total amount TVA pays the external auditor      during the fiscal year in which the non-audit services are      provided; |
|---------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Such      services were not recognized by TVA at the time of the engagement to be      non-audit services or non-audit related services;  and |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Such      services are promptly brought to the attention of the Audit and Ethics      Committee and approved at the next scheduled Audit and Ethics Committee      meeting or by one or more members of the Audit and Ethics Committee to      whom the authority to grant such approvals has been    delegated. |
|---------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| •   | Bookkeeping      or other services related to the accounting records or financial      statements of TVA; |
|---------------------|-----------------------------------------------------------------------------------------------------------|

| •   | Financial      information system design andimplementation; |
|---------------------|-------------------------------------------------------------|

| •   | Appraisal      or valuation services, fairness opinions, and contribution-in-kind      reports; |
|---------------------|-------------------------------------------------------------------------------------------------|

| •   | Actuarial      services; |
|---------------------|--------------------------|

| •   | Internal      audit outsourcing services; |
|---------------------|-------------------------------------------|

| •   | Management      functions or human resources; |
|---------------------|-----------------------------------------------|

| •   | Broker      or dealer, investment adviser, or investment banking    services; |
|---------------------|-------------------------------------------------------------------------------|

| •   | Legal      services and expert services unrelated to the audit;  and |
|---------------------|----------------------------------------------------------------------|

| •   | Any      other services that the Public Company Accounting Oversight Board      determines, by regulation, isimpermissible. |
|---------------------|-----------------------------------------------------------------------------------------------------------------------------|

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENTSCHEDULES

|   | Schedules      not included are omitted because they are not required or because the      required information is provided in the financial statements, including      the notes thereto. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Schedule      II — Valuation and Qualifying Accounts(in      millions) |   |
|------------------------------------------------------------------------------|--------|
|   Description                                                      |   |  Balance      at beginning of year |   |   | Additions      charged to expense |   |   |   Deductions |   |   | Balance      at end of year |   |
| For      the year ended September 30, 2007                                   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for doubtful accounts                                         |   |   |   |   |   |   |   |   |   |   |   |   |
|     Receivables                                          |   | $ | 10 |   |   | $ | – |   |   | $ | (8 | ) |   | $ | 2 |   |
|     Loans                                                |   |   | 15 |   |   |   | – |   |   |   | – |   |   |   | 15 |   |
| Inventories                                                                  |   |   | 38 |   |   |   | 7 |   |   |   | (2 | ) |   |   | 43 |   |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      allowances deducted from assets                                   |   | $ | 63 |   |   | $ | 7 |   |   | $ | (10 | ) |   | $ | 60 |   |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For      the year ended September 30, 2006                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for doubtful accounts                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Receivables                                          |   | $ | 7 |   |   | $ | 3 |   |   | $ | – |   |   | $ | 10 |   |
|     Loans                                                |   |   | 15 |   |   |   | 1 |   |   |   | (1 | ) |   |   | 15 |   |
| Inventories                                                                  |   |   | 36 |   |   |   | 13 |   |   |   | (11 | ) |   |   | 38 |   |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      allowances deducted from assets                                   |   | $ | 58 |   |   | $ | 17 |   |   | $ | (12 | ) |   | $ | 63 |   |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| For      the year ended September 30, 2005                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance      for doubtful accounts                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Receivables                                          |   | $ | 8 |   |   | $ | – |   |   | $ | (1 | ) |   | $ | 7 |   |
|     Loans                                                |   |   | 14 |   |   |   | 1 |   |   |   | – |   |   |   | 15 |   |
| Inventories                                                                  |   |   | 36 |   |   |   | 15 |   |   |   | (15 | ) |   |   | 36 |   |
|                                                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      allowances deducted from assets                                   |   | $ | 58 |   |   | $ | 16 |   |   | $ | (16 | ) |   | $ | 58 |   |

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|  Exhibit  No. |  Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.1                    |  Tennessee      Valley Authority Act of 1933, as amended, 16 U.S.C.      §§ 831-831ee (Incorporated by reference to Exhibit 3.1 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                   |
| 3.2                          | By-laws      of Tennessee Valley Authority Adopted by the TVA Board of Directors on May      18, 2006 (Incorporated by reference to Exhibit 3.2 to TVA’s Annual Report      on Form 10-K for the year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                            |
| 4.1                          | Basic      Tennessee Valley Authority Power Bond Resolution Adopted by the TVA Board      of Directors on October 6, 1960, as amended on September 28, 1976, October      17, 1989, and March 25, 1992 (Incorporated by reference to Exhibit 4.1 to      TVA’s Annual Report on Form 10-K for the year ended September 30, 2006,      File No. 000-52313)                                                                                                                                                                                                                                                      |
| 10.1                         | $1,250,000,000      Fall Maturity Credit Agreement Dated as of May 17, 2006, Among TVA, Bank      of America, N.A., as Administrative Agent, Bank of America, N.A., as a      Lender, and the Other Lenders Party Thereto (Incorporated by reference to      Exhibit 10.1 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                  |
| 10.2                         | $1,250,000,000      Spring Maturity Credit Agreement Dated as of May 17, 2006, Among TVA, Bank      of America, N.A., as Administrative Agent, Bank of America, N.A., as a      Lender, and the Other Lenders Party Thereto (Incorporated by reference to      Exhibit 10.2 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                |
| 10.3                         | Amendment      Dated as of November 2, 2006, to $1,250,000,000 Fall Maturity Credit      Agreement Dated as of May 17, 2006, Among TVA, Bank of America, N.A.,      as Administrative Agent, Bank of America, N.A., as a Lender, and the Other      Lenders Party Thereto (Incorporated by reference to Exhibit 10.1 to TVA’s      Quarterly Report on Form 10-Q for the quarter ended December 31, 2006,      File No. 000-52313)                                                                                                                                                                   |
| 10.4                         | Amendment      dated as of May 11, 2007, to $1,250,000,000 Spring Maturity Credit      Agreement Dated as of May 17, 2006, Among TVA, Bank of America, N.A.,      as Administrative Agent, Bank of America, N.A., as a Lender, and the Other      Lenders Party Thereto (Incorporated by reference to Exhibit 10.1 to TVA’s      Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File      No. 000-52313)                                                                                                                                                                         |
| 10.5                         | Second      Amendment dated as of November 2, 2007, to $1,250,000,000 Fall Maturity      Credit Agreement Dated as of May 17, 2006, and amended as of November      2, 2006, Among TVA, Bank of America, N.A., as Administrative Agent, Bank      of America, N.A., as a Lender, and the Other Lenders Party      Thereto  *                                                                                                                                                                                                                                                                          |
| 10.6                         | TVA      Discount Notes Selling Group Agreement (Incorporated by reference to      Exhibit 10.3 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.7                         | Electronotes®      Selling Agent Agreement Dated as of June 1, 2006, Among TVA, LaSalle      Financial Services, Inc., A.G. Edwards & Sons, Inc., Citigroup Global      Markets Inc., Edward D. Jones & Co., L.P., First Tennessee Bank      National Association, J.J.B. Hilliard, W.L. Lyons, Inc., Merrill Lynch,      Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.      Incorporated, and Wachovia Securities, LLC (Incorporated by reference to      Exhibit 10.4 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)   |
| 10.8                         | Commitment      Agreement Among Memphis Light, Gas and Water Division, the City of      Memphis, Tennessee, and TVA Dated as of November 19, 2003 (Incorporated by      reference to Exhibit 10.5 to TVA’s Annual Report on Form 10-K for the year      ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                          |
| 10.9                         | Power      Contract Supplement No. 95 Among Memphis Light, Gas and Water Division,      the City of Memphis, Tennessee, and TVA Dated as of November 19, 2003      (Incorporated by reference to Exhibit 10.6 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                              |
| 10.10                        | Void      Walk Away Agreement Among Memphis Light, Gas and Water Division, the City      of Memphis, Tennessee, and TVA Dated as of November 20, 2003 (Incorporated      by reference to Exhibit 10.7 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                      |

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| 10.11        | Power      Contract Supplement No. 96 Among Memphis Light, Gas and Water Division,      the City of Memphis, Tennessee, and TVA Dated as of November 20, 2003      (Incorporated by reference to Exhibit 10.8 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12        | Overview      of TVA’s September 26, 2003, Lease and Leaseback of Control, Monitoring,      and Data Analysis Network with Respect to TVA’s Transmission System in      Tennessee, Kentucky, Georgia, and Mississippi (Incorporated by reference      to Exhibit 10.9 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.13**      | Participation      Agreement Dated as of September 22, 2003, Among (1) TVA, (2) NVG Network I      Statutory Trust, (3) Wells Fargo Delaware Trust Company, Not in Its      Individual Capacity, Except to the Extent Expressly Provided in the      Participation Agreement, But as Owner Trustee, (4) Wachovia Mortgage      Corporation, (5) Wilmington Trust Company, Not in Its Individual Capacity,      Except to the Extent Expressly Provided in the Participation Agreement,      But as Lease Indenture Trustee, and (6) Wilmington Trust Company, Not in      Its Individual Capacity, Except to the Extent Expressly Provided in the      Participation Agreement, But as Pass Through Trustee (Incorporated by      reference to Exhibit 10.10 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)   |
| 10.14**      | Network      Lease Agreement Dated as of September 26, 2003, Between NVG Network I      Statutory Trust, as Owner Lessor, and TVA, as Lessee (Incorporated by      reference to Exhibit 10.11 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.15**      | Head      Lease Agreement Dated as of September 26, 2003, Between TVA, as Head      Lessor, and NVG Network I Statutory Trust, as Head Lessee (Incorporated by      reference to Exhibit 10.12 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.16**      | Leasehold      Security Agreement Dated as of September 26, 2003, Made by NVG Network I      Statutory Trust to TVA (Incorporated by reference to Exhibit 10.13 to      TVA’s Annual Report on Form 10-K for the year ended September 30, 2006,      File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.17† | TVA      Compensation Plan Approved by the TVA Board on May 31, 2007 (Incorporated      by reference to Exhibit 99.3 to TVA’s Current Report on Form 8-K filed on      December 11, 2007, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.18† | TVA      Vehicle Allowance Guidelines, Effective April 1, 2006 *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19† | Tennessee      Valley Authority Supplemental Executive Retirement Plan, Effective as of      October 1, 1995 (Incorporated by reference to Exhibit 10.15 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.20† | Tennessee      Valley Authority Executive Annual Incentive Plan, Effective in Fiscal Year      1999 (Incorporated by reference to Exhibit 10.16 to TVA’s Annual Report on      Form 10-K for the year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.21† | Tennessee      Valley Authority Executive Long-Term Incentive Plan, Effective in Fiscal      Year 1999 (Incorporated by reference to Exhibit 10.17 to TVA’s Annual      Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.22† | Tennessee      Valley Authority Long Term Deferred Compensation Plan (Incorporated by      reference to Exhibit 10.18 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.23† | TVA      Merit Incentive Supplemental Retirement Income Plan, Effective January      1996  *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 10.24† | Offer      Letter to Tom D. Kilgore Accepted as of January 19, 2005 (Incorporated by      reference to Exhibit 10.19 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 10.25† | Offer      Letter to Michael E. Rescoe Accepted as of April 21, 2004 (Incorporated by      reference to Exhibit 10.20 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

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| 10.26†       | Offer      Letter to William R. McCollum, Jr., Accepted as of March 9,      2007  *                                                                                                                                                                      |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.27†       | Offer      Letter to Kimberly S. Greene Accepted as of August 3, 2007 *                                                                                                                                                                                            |
| 10.28†       | Deferral      Agreement Between TVA and Tom D. Kilgore Dated as of March 29, 2005      (Incorporated by reference to Exhibit 10.24 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No. 000-52313)                       |
|  10.29† | First      Deferral Agreement Between TVA and Karl W. Singer Dated as of May 7, 2004      (Incorporated by reference to Exhibit 10.25 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No. 000-52313)                    |
| 10.30†       | Second      Deferral Agreement Between TVA and Karl W. Singer Dated as of May 7, 2004      (Incorporated by reference to Exhibit 10.26 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No. 000-52313)                   |
| 10.31†       | First      Deferral Agreement Between TVA and Ashok S. Bhatnagar Dated as of      September 28, 2004 (Incorporated by reference to Exhibit 10.21 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)    |
| 10.32†       | Second      Deferral Agreement Between TVA and Ashok S. Bhatnagar Dated as of      September 28, 2004 (Incorporated by reference to Exhibit 10.22 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)   |
| 10.33†       | Deferral      Agreement Between TVA and William R. McCollum, Jr., Dated as of May 3,      2007  *                                                                                                                                                        |
| 10.34†       | Deferral      Agreement Between TVA and Kimberly S. Greene Dated as of September 4, 2007      *                                                                                                                                                                    |
| 10.35†       | Deferral      Agreement Between TVA and John M. Hoskins Dated as of October 30,      2006  *                                                                                                                                                             |
| 10.36†       | Separation      Agreement Between TVA and Karl W. Singer Dated as of March 28, 2007      (Incorporated by reference to Exhibit 99.1 to TVA’s Current Report on Form      8-K filed on December 11, 2007, File No. 000-52313)                                 |
| 14                 | Disclosure      and Financial Ethics Code (Incorporated by reference to Exhibit 14 to      TVA’s Annual Report on Form 10-K for the year ended September 30, 2006,      File No. 000-52313)                                                                  |
| 31.1               | Rule      13a-14(a)/15d-14(a) Certification Executed by the Chief Executive      Officer                                                                                                                                                                           |
| 31.2               | Rule      13a-14(a)/15d-14(a) Certification Executed by the Chief Financial      Officer                                                                                                                                                                           |
| 32.1               | Section      1350 Certification Executed by the Chief Executive Officer                                                                                                                                                                                            |
| 32.2               | Section      1350 Certification Executed by the Chief Financial Officer                                                                                                                                                                                            |

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SIGNATURES

| By:   | /s/      Tom D. Kilgore                                                            |   |
|-----------------|------------------------------------------------------------------------------------|--------|
|            | Tom      D. Kilgore                                                                |   |
|            | President      and Chief Executive Officer                                         |   |
|            |                                                                               |   |
|            |                                                                               |   |
|            | /s/      Kimberly S. Greene                                                        |   |
|            | Kimberly      S. Greene                                                            |   |
|            | Chief      Financial Officer and Executive Vice      President, Financial Services |   |

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EXHIBIT INDEX

|  Exhibit  No. |  Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  3.1                    |  Tennessee      Valley Authority Act of 1933, as amended, 16 U.S.C.      §§ 831-831ee (Incorporated by reference to Exhibit 3.1 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                  |
| 3.2                          | By-laws      of Tennessee Valley Authority Adopted by the TVA Board of Directors on May      18, 2006 (Incorporated by reference to Exhibit 3.2 to TVA’s Annual Report      on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                      |
| 4.1                          | Basic      Tennessee Valley Authority Power Bond Resolution Adopted by the TVA Board      of Directors on October 6, 1960, as amended on September 28, 1976, October      17, 1989, and March 25, 1992 (Incorporated by reference to Exhibit 4.1 to      TVA’s Annual Report on Form 10-K for the year ended September 30, 2006,      File No. 000-52313)                                                                                                                                                                                                                                                     |
| 10.1                         | $1,250,000,000      Fall Maturity Credit Agreement Dated as of May 17, 2006, Among TVA, Bank      of America, N.A., as Administrative Agent, Bank of America, N.A., as a      Lender, and the Other Lenders Party Thereto (Incorporated by reference to      Exhibit 10.1 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                 |
| 10.2                         | $1,250,000,000      Spring Maturity Credit Agreement Dated as of May 17, 2006, Among TVA, Bank      of America, N.A., as Administrative Agent, Bank of America, N.A., as a      Lender, and the Other Lenders Party Thereto (Incorporated by reference to      Exhibit 10.2 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                               |
| 10.3                         | Amendment      Dated as of November 2, 2006, to $1,250,000,000 Fall Maturity Credit      Agreement Dated as of May 17, 2006, Among TVA, Bank of America, N.A.,      as Administrative Agent, Bank of America, N.A., as a Lender, and the Other      Lenders Party Thereto (Incorporated by reference to Exhibit 10.1 to TVA’s      Quarterly Report on Form 10-Q for the quarter ended December 31, 2006,      File No. 000-52313)                                                                                                                                                                  |
| 10.4                         | Amendment      dated as of May 11, 2007, to $1,250,000,000 Spring Maturity Credit      Agreement Dated as of May 17, 2006, Among TVA, Bank of America, N.A.,      as Administrative Agent, Bank of America, N.A., as a Lender, and the Other      Lenders Party Thereto (Incorporated by reference to Exhibit 10.1 to TVA’s      Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File      No. 000-52313)                                                                                                                                                                        |
| 10.5                         | Second      Amendment dated as of November 2, 2007, to $1,250,000,000 Fall Maturity      Credit Agreement Dated as of May 17, 2006, and amended as of November      2, 2006, Among TVA, Bank of America, N.A., as Administrative Agent, Bank      of America, N.A., as a Lender, and the Other Lenders Party      Thereto  *                                                                                                                                                                                                                                                                         |
| 10.6                         | TVA      Discount Notes Selling Group Agreement (Incorporated by reference to      Exhibit 10.3 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.7                         | Electronotes®      Selling Agent Agreement Dated as of June 1, 2006, Among TVA, LaSalle      Financial Services, Inc., A.G. Edwards & Sons, Inc., Citigroup Global      Markets Inc., Edward D. Jones & Co., L.P., First Tennessee Bank      National Association, J.J.B. Hilliard, W.L. Lyons, Inc., Merrill Lynch,      Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.      Incorporated, and Wachovia Securities, LLC (Incorporated by reference to      Exhibit 10.4 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)  |
| 10.8                         | Commitment      Agreement Among Memphis Light, Gas and Water Division, the City of      Memphis, Tennessee, and TVA Dated as of November 19, 2003 (Incorporated by      reference to Exhibit 10.5 to TVA’s Annual Report on Form 10-K for the year      ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                         |
| 10.9                         | Power      Contract Supplement No. 95 Among Memphis Light, Gas and Water Division,      the City of Memphis, Tennessee, and TVA Dated as of November 19, 2003      (Incorporated by reference to Exhibit 10.6 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                        |
| 10.10                        | Void      Walk Away Agreement Among Memphis Light, Gas and Water Division, the City      of Memphis, Tennessee, and TVA Dated as of November 20, 2003 (Incorporated      by reference to Exhibit 10.7 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                     |

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| 10.11        | Power      Contract Supplement No. 96 Among Memphis Light, Gas and Water Division,      the City of Memphis, Tennessee, and TVA Dated as of November 20, 2003      (Incorporated by reference to Exhibit 10.8 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.12        | Overview      of TVA’s September 26, 2003, Lease and Leaseback of Control, Monitoring,      and Data Analysis Network with Respect to TVA’s Transmission System in      Tennessee, Kentucky, Georgia, and Mississippi (Incorporated by reference      to Exhibit 10.9 to TVA’s Annual Report on Form 10-K for the year ended      September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| 10.13**      | Participation      Agreement Dated as of September 22, 2003, Among (1) TVA, (2) NVG Network I      Statutory Trust, (3) Wells Fargo Delaware Trust Company, Not in Its      Individual Capacity, Except to the Extent Expressly Provided in the      Participation Agreement, But as Owner Trustee, (4) Wachovia Mortgage      Corporation, (5) Wilmington Trust Company, Not in Its Individual Capacity,      Except to the Extent Expressly Provided in the Participation Agreement,      But as Lease Indenture Trustee, and (6) Wilmington Trust Company, Not in      Its Individual Capacity, Except to the Extent Expressly Provided in the      Participation Agreement, But as Pass Through Trustee (Incorporated by      reference to Exhibit 10.10 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)  |
| 10.14**      | Network      Lease Agreement Dated as of September 26, 2003, Between NVG Network I      Statutory Trust, as Owner Lessor, and TVA, as Lessee (Incorporated by      reference to Exhibit 10.11 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.15**      | Head      Lease Agreement Dated as of September 26, 2003, Between TVA, as Head      Lessor, and NVG Network I Statutory Trust, as Head Lessee (Incorporated by      reference to Exhibit 10.12 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.16**      | Leasehold      Security Agreement Dated as of September 26, 2003, Made by NVG Network I      Statutory Trust to TVA (Incorporated by reference to Exhibit 10.13 to      TVA’s Annual Report on Form 10-K for the year ended September 30, 2006,      File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.17† | TVA      Compensation Plan Approved by the TVA Board on May 31, 2007 (Incorporated      by reference to Exhibit 99.3 to TVA’s Current Report on Form 8-K filed on      December 11, 2007, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 10.18† | TVA      Vehicle Allowance Guidelines, Effective April 1, 2006 *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.19† | Tennessee      Valley Authority Supplemental Executive Retirement Plan, Effective as of      October 1, 1995 (Incorporated by reference to Exhibit 10.15 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 10.20† | Tennessee      Valley Authority Executive Annual Incentive Plan, Effective in Fiscal Year      1999 (Incorporated by reference to Exhibit 10.16 to TVA’s Annual Report on      Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.21† | Tennessee      Valley Authority Executive Long-Term Incentive Plan, Effective in Fiscal      Year 1999 (Incorporated by reference to Exhibit 10.17 to TVA’s Annual      Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.22† | Tennessee      Valley Authority Long Term Deferred Compensation Plan (Incorporated by      reference to Exhibit 10.18 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.23† | TVA      Merit Incentive Supplemental Retirement Income Plan, Effective January      1996  *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.24† | Offer      Letter to Tom D. Kilgore Accepted as of January 19, 2005 (Incorporated by      reference to Exhibit 10.19 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| 10.25† | Offer      Letter to Michael E. Rescoe Accepted as of April 21, 2004 (Incorporated by      reference to Exhibit 10.20 to TVA’s Annual Report on Form 10-K for the      year ended September 30, 2006, File No. 000-52313)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

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Tableof Contents

| 10.26†       | Offer      Letter to William R. McCollum, Jr., Accepted as of March 9,      2007  *                                                                                                                                                                     |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.27†       | Offer      Letter to Kimberly S. Greene Accepted as of August 3, 2007 *                                                                                                                                                                                           |
| 10.28†       | Deferral      Agreement Between TVA and Tom D. Kilgore Dated as of March 29, 2005      (Incorporated by reference to Exhibit 10.24 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No.      000-52313)                 |
|  10.29† | First      Deferral Agreement Between TVA and Karl W. Singer Dated as of May 7, 2004      (Incorporated by reference to Exhibit 10.25 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No.      000-52313)              |
| 10.30†       | Second      Deferral Agreement Between TVA and Karl W. Singer Dated as of May 7, 2004      (Incorporated by reference to Exhibit 10.26 to TVA’s Annual Report on Form      10-K for the year ended September 30, 2006, File No.      000-52313)             |
| 10.31†       | First      Deferral Agreement Between TVA and Ashok S. Bhatnagar Dated as of      September 28, 2004 (Incorporated by reference to Exhibit 10.21 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)   |
| 10.32†       | Second      Deferral Agreement Between TVA and Ashok S. Bhatnagar Dated as of      September 28, 2004 (Incorporated by reference to Exhibit 10.22 to TVA’s      Annual Report on Form 10-K for the year ended September 30, 2006, File No.      000-52313)  |
| 10.33†       | Deferral      Agreement Between TVA and William R. McCollum, Jr., Dated as of May 3,      2007  *                                                                                                                                                       |
| 10.34†       | Deferral      Agreement Between TVA and Kimberly S. Greene Dated as of September 4, 2007      *                                                                                                                                                                   |
| 10.35†       | Deferral      Agreement Between TVA and John M. Hoskins Dated as of October 30,      2006  *                                                                                                                                                            |
| 10.36†       | Separation      Agreement Between TVA and Karl W. Singer Dated as of March 28, 2007      (Incorporated by reference to Exhibit 99.1 to TVA’s Current Report on Form      8-K filed on December 11, 2007, File No. 000-52313)                                |
| 14                 | Disclosure      and Financial Ethics Code (Incorporated by reference to Exhibit 14 to      TVA’s Annual Report on Form 10-K for the year ended September 30, 2006,      File No. 000-52313)                                                                 |
| 31.1               | Rule      13a-14(a)/15d-14(a) Certification Executed by the Chief Executive      Officer                                                                                                                                                                          |
| 31.2               | Rule      13a-14(a)/15d-14(a) Certification Executed by the Chief Financial      Officer                                                                                                                                                                          |
| 32.1               | Section      1350 Certification Executed by the Chief Executive Officer                                                                                                                                                                                           |
| 32.2               | Section      1350 Certification Executed by the Chief Financial Officer                                                                                                                                                                                           |

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