##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13, 15(d), OR 37 OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-52313
 
 TENNESSEE VALLEY AUTHORITY
 (Exact name of registrant as specified in its charter)
 A corporate agency of the United States created by 
an act of Congress
    
    62-0474417(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 400 W. Summit Hill Drive 
Knoxville, Tennessee
    
    37902(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code
   o þ
 o þ
  o þ
 þ
  o o þ
  o þ
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Table of Contents
 Forward-Looking Information
    
    
    4General Information
    
    
    5Part IItem 1.
    
    Business
    
    
    6The Corporation
    
    
    6Governance
    
    
    6Service Area
    
    
    6Customers
    
    
    8Rate Authority
    
    
    10Rate Actions
    
    
    11Power and Energy Forecasts
    
    
    11Power Supply
    
    
    11Nuclear
    
    
    15Fuel Supply
    
    
    16Transmission Operations
    
    
    18Stewardship Activities
    
    
    19Seasonality
    
    
    19Competition
    
    
    20Regulation
    
    
    21Payments in Lieu of Taxes
    
    
    22Environmental Matters
    
    
    22Employee Relations
    
    
    26Item 1A.
    
    Risk Factors
    
    
    26Strategic Risks
    
    
    26Operational Risks
    
    
    28Financial Risks
    
    
    30Item 1B.
    
    Unresolved Staff Comments
    
    
    32Item 2.
    
    Properties
    
    
    32Generating Properties
    
    
    32Transmission Properties
    
    
    33Resource Stewardship Properties
    
    
    33Buildings
    
    
    33Disposal of Property
    
    
    33Item 3.
    
    Legal Proceedings
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    37Part IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    38Item 6.
    
    Selected Financial Data
    
    
    38Statements of Income Data
    
    
    38Balance Sheets Data
    
    
    39Financial Obligations
    
    
    39Reconciliation of Non-GAAP Items Required by Securities and Exchange Commission Rules
    
    
    39Comparative Five-Year Data Statistical and Financial Summaries
    
    
    41Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    42Business Overview
    
    
    42Liquidity and Capital Resources
    
    
    45Results of Operations
    
    
    51Off-Balance Sheet Arrangements
    
    
    56Critical Accounting Policies and Estimates
    
    
    57New Accounting Standards and Interpretations
    
    
    61Legislative and Regulatory Matters
    
    
    64Environmental Matters
    
    
    65
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Legal Proceedings
    
    
    68Risk Management Activities
    
    
    68Management Changes
    
    
    74Subsequent Events
    
    
    74Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    74Item 8.
    
    Financial Statements and Supplementary Data
    
    
    75Statements of Income
    
    
    75Balance Sheets
    
    
    76Statements of Cash Flows
    
    
    77Statements of Changes in Proprietary Capital
    
    
    78Notes to Financial Statements
    
    
    79Report of
Independent Registered Public Accounting Firm
    
    
    119Item 9.
    
    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    120Item 9A.
    
    Controls and Procedures
    
    
    121Item 9B.
    
    Other Information
    
    
    121Part IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    122Directors
    
    
    122Executive Officers
    
    
    123Code of Ethics
    
    
    126Audit Committee
    
    
    126Other Committees
    
    
    126Item 11.
    
    Executive Compensation
    
    
    126Director Compensation
    
    
    126Executive Compensation
    
    
    128Retirement Benefits
    
    
    131Long-Term Deferred Compensation Plan Agreements
    
    
    135Other Agreements
    
    
    135Compensation Committee Interlocks and Insider Participation
    
    
    136Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    136Item 13.
    
    Certain Relationships and Related Transactions
    
    
    136Item 14.
    
    Principal Accountant Fees and Services
    
    
    136Part IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    138Signatures
    
    
    
    
    
    
    141Ex-3.1 Tennessee Valley Authority Act, As AmendedEx-3.2 TVA By-lawsEx-4.1 October 6, 1960 Power Bond ResolutionEx-10.1 Fall Credit AgreementEx-10.2 Spring Maturity Credit AgreementEx-10.3 TVA Discount Notes Selling Group AgreementEx-10.4 Electronotes Selling Agent AgreementEx-10.5 Commitment AgreementEx-10.6 Power Contract Supplement No. 95Ex-10.7 Void Walk Away AgreementEx-10.8 Power Contract Supplement No. 96Ex-10.9 Overview of TVA's 09/26/03 LeaseEx-10.10 Participation AgreementEx-10.11 Network Lease AgreementEx-10.12 Head Lease AgreementEx-10.13 Leasehold Security AgreementEx-10.14 Directors/Officers Compensation OverviewEx-10.15 Supplemental Executive Retirement PlanEx-10.16 Executive Annual Incentive PlanEx-10.17 Executive Long-Term Incentive PlanEx-10.18 Long Term Deferred Compensation PlanEx-10.19 Tom D. Kilgore Employment ContractEx-10.20 Michal E. Rescoe Employment ContractEx-10.21 Ashok S. Bhatnagar First Deferral AgreementEx-10.22 Ashok S. Bhatnagar Second Deferral AgreementEx-10.23 Joseph R. Bynum Deferral AgreementEx-10.24 Tom D. Kilgore Deferral AgreementEx-10.25 Karl W. Singer First Deferral AgreementEx-10.26 Karl W. Singer Second Deferral AgreementEx-14 Disclosure and financial Ethics CodeEx-31.1 Section 302 CertificationEx-31.2 Section 302 CertificationEx-32.1 Section 906 CertificationEx-32.2 Section 906 Certification
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FORWARD-LOOKING INFORMATION
    
    
    Statements regarding strategic objectives;
    
    Projections regarding potential rate actions;
    
    Estimates of costs of certain retirement obligations;
    
    Estimates regarding power and energy forecasts;
    
    Expectations about the adequacy of TVAs pension plans and nuclear decommissioning trust;
    
    Estimates regarding the reduction of total financing obligations;
    
    The impact of new accounting pronouncements and interpretations, including
Statement of Financial Accounting Standards No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No.
87, 88, 106, and 132(R);
    
    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 returning Browns Ferry Unit 1 to 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 River system,

 TVAs credit rating, and

 TVAs debt ceiling;
 
    
    Performance of TVAs generation and transmission assets;
    
    Availability of fuel supplies;
    
    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;
    
    Failure of transmission facilities;
    
    An accident at any nuclear facility, even one unaffiliated with TVA;
    
    Catastrophic events such as fires, earthquakes, floods, pandemics, wars, terrorist
activities, and other similar events, especially if these events occur in or near TVAs
service area;
    
    Changes in the market price of commodities such as coal, uranium, natural gas, fuel
oil, electricity, and emission allowances;
    
    Changes in the prices of equity securities, debt securities, and other investments;
    
    Changes in interest rates;
    
    Creditworthiness of TVA or its counterparties;
    
    Rising pension costs and health care expenses;
    
    Increases in TVAs financial liability for decommissioning its nuclear facilities;
    
    Limitations on TVAs ability to borrow money;
    
    Changes in economic environments;
    
    Ineffectiveness of TVAs disclosure controls and procedures;
    
    Changes in accounting standards;
    
    The loss of TVAs ability to use regulatory accounting;
    
    Loss of key personnel;
    
    Changes in technology; and
    
    Unforeseeable events.
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GENERAL INFORMATION
 Fiscal Year
  Notes
  Available Information
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PART I
 
 ITEM 1. BUSINESS
 
 The Corporation
 as amended
  
    
    TVA was created by an act of the U.S. Congress and is a wholly-owned corporate
agency of the United States.
    
    TVAs board of directors (the TVA Board) is appointed by the President with
the advice and consent of the U.S. Senate.
    
    TVA holds its real properties as an agent for 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 program (the 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.
    
    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.
    
    TVA is exempt from paying federal income taxes and state and local taxes but
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 exchange sales with other utilities,
with a provision for minimum payments under certain circumstances.
 Business Overview.
 
 Governance
  
 Service Area
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Electricity Sales by State
 2006
    
    
    2005
    
    
    2004Alabama
    
    $
    1,268
    
    
    $
    1,054
    
    
    $
    1,033Georgia
    
    
    228
    
    
    
    186
    
    
    
    182Kentucky
    
    
    909
    
    
    
    832
    
    
    
    731Mississippi
    
    
    826
    
    
    
    674
    
    
    
    658North Carolina
    
    
    47
    
    
    
    39
    
    
    
    38Tennessee
    
    
    5,764
    
    
    
    4,820
    
    
    
    4,734Virginia
    
    
    7
    
    
    
    4
    
    
    
    49,049
    
    
    
    7,609
    
    
    
    7,380Sale for resale
    
    
    13
    
    
    
    95
    
    
    
    59$
    9,062
    
    
    $
    7,704
    
    
    $
    7,439
 TVA SERVICE AREA
 
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Customers
  Industries
Directly Served Federal Agencies and Other
 Operating Revenues by Customer Type
 2006
    
    
    2005
    
    
    2004Municipalities and cooperatives
    
    $
    7,880
    
    
    $
    6,561
    
    
    $
    6,457Industries directly served
    
    
    1,066
    
    
    
    962
    
    
    
    842Federal agencies and otherFederal agencies directly served
    
    
    103
    
    
    
    86
    
    
    
    81Exchange sales
    
    
    13
    
    
    
    95
    
    
    
    59Total
    
    $
    9,062
    
    
    $
    7,704
    
    
    $
    7,439
 Municipalities and Cooperatives
   
    
    Contracts that require five years notice to terminate;
    
    Contracts that require 10 years notice to terminate; and
    
    Contracts that require 15 years notice to terminate.
  TVA Distributor Customer Contracts
 Number of
    
    
    Sales to
    
    
    Percentage of TotalDistributor
    
    
    Distributor
    
    
    Operating RevenuesContract Arrangement
    
    Customers
    
    
    Customers in 2006
    
    
    in 2006(in millions)15-Year Termination Notice
    
    
    5
    
    
    $
    92
    
    
    
    1.0
    %10-Year Termination Notice
    
    
    48
    
    
    
    2,625
    
    
    
    28.6
    %5-Year Termination Notice *
    
    
    99
    
    
    
    4,893
    
    
    
    53.3
    %Notice Given
- Less than 5
YearsRemaining*
    
    
    6
    
    
    
    270
    
    
    
    2.9
    %158
    
    
    $
    7,880
    
    
    
    85.8
    %
 
 *
    
    Ordinarily the distributor customer and TVA have the same
termination notice period; however, in contracts with six of the
distributor customers with a five-year termination notice, TVA has a
10-year termination notice (which becomes a five-year termination notice
if TVA loses its discretionary wholesale rate-setting authority).  Page 8 of 141




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Energy Prepayment Obligations
   Termination Notices
   Distributor Customers with Termination Notices in Effect
 TVA Sales toDistributor
    
    
    PercentageDate of Termination
    
    Customer
    
    
    of TVA OperatingDistributor Customer
    
    Location
    
    of Power Contract
    
    in 2006
    
    
    Revenues in 2006(in millions)Monticello Electric Plant Board
    
    Kentucky
    
    November 2008
    
    $
    6
    
    
    
    0.1
    %Glasgow Electric Plant Board
    
    Kentucky
    
    November 2008
    
    
    21
    
    
    
    0.2
    %Warren Rural Electric
Cooperative Corporation
    
    Kentucky
    
    April 2009
    
    
    97
    
    
    
    1.0
    %Paducah Power System
    
    Kentucky
    
    December 2009
    
    
    39
    
    
    
    0.4
    %Princeton Electric Plant Board
    
    Kentucky
    
    January 2010
    
    
    6
    
    
    
    0.1
    %Duck River Electric Membership
Corporation
    
    Tennessee
    
    August 2010
    
    
    101
    
    
    
    1.1
    %Total
    
    
    
    
    
    $
    270
    
    
    
    2.9
    %
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Other Customers
   
 Rate Authority
   
    
    Operation, maintenance, and administration of its power system;
    
    Payments to states and counties in lieu of taxes;
    
    Debt service on outstanding indebtedness;
    
    Payments to the U.S. Treasury in repayment of and as a return on the Appropriation
Investment in TVAs power facilities; and
    
    Such additional margin as the TVA Board may consider desirable for investment in
power system assets, retirement of outstanding indebtedness, additional reduction of
the Appropriation Investment, and other purposes connected with TVAs power business.
  Revenue Requirements
   1)
    
    Fuel and purchased power costs;2)
    
    Operating and maintenance costs;3)
    
    Taxes; and4)
    
    Debt service coverage.
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Rate Actions
   
 Power and Energy Forecasts
  
 Power Supply
 General
  TVA-Owned Generation Facilities
  Power Supply from TVA-Owned Generation Facilities
 2006
    
    
    
    2005
    
    
    
    2004
    
    
    
    2003
    
    
    
    2002Coal-fired
    
    
    99,630
    
    
    
    64
    %
    
    
    
    98,404
    
    
    
    62
    %
    
    
    
    94,648
    
    
    
    61
    %
    
    
    
    90,975
    
    
    
    60
    %
    
    
    
    94,930
    
    
    
    63
    %Nuclear
    
    
    45,313
    
    
    
    29
    %
    
    
    
    45,156
    
    
    
    28
    %
    
    
    
    46,003
    
    
    
    30
    %
    
    
    
    43,167
    
    
    
    29
    %
    
    
    
    45,179
    
    
    
    30
    %Hydroelectric
    
    
    9,961
    
    
    
    6
    %
    
    
    
    15,723
    
    
    
    10
    %
    
    
    
    13,916
    
    
    
    9
    %
    
    
    
    16,103
    
    
    
    11
    %
    
    
    
    10,205
    
    
    
    6
    %Combustion turbine
and diesel
generators
    
    
    613
    
    
    
    <1
    %
    
    
    
    595
    
    
    
    <1
    %
    
    
    
    278
    
    
    
    <1
    %
    
    
    
    817
    
    
    
    <1
    %
    
    
    
    1,190
    
    
    
    1
    %Renewable resources
    
    
    19
    
    
    
    <1
    %
    
    
    
    18
    
    
    
    <1
    %
    
    
    
    18
    
    
    
    <1
    %
    
    
    
    15
    
    
    
    <1
    %
    
    
    
    18
    
    
    
    <1
    %Total
    
    
    155,536
    
    
    
    100
    %
    
    
    
    159,896
    
    
    
    100
    %
    
    
    
    154,863
    
    
    
    100
    %
    
    
    
    151,077
    
    
    
    100
    %
    
    
    
    151,522
    
    
    
    100
    %
 Coal-Fired.
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Nuclear. Nuclear.
 Hydroelectric.
 Combustion Turbines. Other Financing Obligations
 Diesel Generators.
 Renewable Resources.
 Purchased Power
  Risk Management Activities  Credit
Risk
 
    
    Tapoco, Inc.Four hydroelectric plants owned by Tapoco, Inc. (Tapoco), a
subsidiary of Alcoa, Inc. (Alcoa), are operated in coordination with the TVA system.
Under contractual arrangements with Tapoco which terminate on June 20, 2010, TVA
purchases the electric power generated at these facilities and uses it to partially
supply Alcoas energy needs. TVAs arrangement with Tapoco provides 362 megawatts of
winter net dependable capacity.
    
    Southeastern Power Administration.Under arrangements among TVA, the U.S. Army
Corps of Engineers, and the Southeastern Power Administration (SEPA), eight
hydroelectric plants of the U.S. Army Corps of Engineers on the Cumberland River system
are operated in coordination with the TVA system. These arrangements provide for 405
megawatts of winter net dependable capacity as well as
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
    
    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.
   Purchased Power
 2006
    
    2005
    
    2004
    
    2003
    
    200220,017
    
    16,637
    
    15,148
    
    15,760
    
    12,241
  Commitments 
Power Purchase Obligations.
 Net Dependable Capacity
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TVA WINTER NET DEPENDABLE CAPACITY
 Winter Net
    
    Date First Unit
    
    Date Last UnitNumber of
    
    Dependable
    
    Placed in
    
    Placed inSource of Capacity
    
    Location
    
    Units
    
    Capacity (MW)1
    
    Service
    
    ServiceCoal-FiredAllen
    
    Tennessee
    
    
    3
    
    
    
    750
    
    
    
    1959
    
    
    
    1959Bull Run
    
    Tennessee
    
    
    1
    
    
    
    889
    
    
    
    1967
    
    
    
    1967Colbert
    
    Alabama
    
    
    5
    
    
    
    1,201
    
    
    
    1955
    
    
    
    1965Cumberland
    
    Tennessee
    
    
    2
    
    
    
    2,524
    
    
    
    1973
    
    
    
    1973Gallatin
    
    Tennessee
    
    
    4
    
    
    
    988
    
    
    
    1956
    
    
    
    1959John Sevier
    
    Tennessee
    
    
    4
    
    
    
    712
    
    
    
    1955
    
    
    
    1957Johnsonville
    
    Tennessee
    
    
    10
    
    
    
    1,254
    
    
    
    1951
    
    
    
    1959Kingston
    
    Tennessee
    
    
    9
    
    
    
    1,448
    
    
    
    1954
    
    
    
    1955Paradise
    
    Kentucky
    
    
    3
    
    
    
    2,318
    
    
    
    1963
    
    
    
    1970Shawnee
    
    Kentucky
    
    
    10
    
    
    
    1,369
    
    
    
    1953
    
    
    
    1956Widows Creek
    
    Alabama
    
    
    8
    
    
    
    1,628
    
    
    
    1952
    
    
    
    1965Total Coal-Fired
    
    
    
    
    59
    
    
    
    15,081NuclearBrowns Ferry
    
    Alabama
    
    
    2
    
    
    
    2,269
    
    
    
    1974
    
    
    
    1977Sequoyah
    
    Tennessee
    
    
    2
    
    
    
    2,333
    
    
    
    1981
    
    
    
    1982Watts Bar
    
    Tennessee
    
    
    1
    
    
    
    1,168
    
    
    
    1996
    
    
    
    1996Total Nuclear
    
    
    
    
    5
    
    
    
    5,770HydroelectricConventional Plants
    
    Alabama
    
    
    36
    
    
    
    1,146
    
    
    
    1925
    
    
    
    1962Georgia
    
    
    2
    
    
    
    32
    
    
    
    1931
    
    
    
    1956Kentucky
    
    
    5
    
    
    
    165
    
    
    
    1944
    
    
    
    1948North Carolina
    
    
    8
    
    
    
    536
    
    
    
    1940
    
    
    
    1956Tennessee
    
    
    58
    
    
    
    1,647
    
    
    
    1912
    
    
    
    1972Pumped Storage
    
    Tennessee
    
    
    4
    
    
    
    1,618
    
    
    
    1978
    
    
    
    1979Total Hydroelectric
    
    
    
    
    113
    
    
    
    5,144Combustion TurbineAllen
    
    Tennessee
    
    
    20
    
    
    
    575
    
    
    
    1971
    
    
    
    1972Colbert
    
    Alabama
    
    
    8
    
    
    
    486
    
    
    
    1972
    
    
    
    1972Gallatin
    
    Tennessee
    
    
    8
    
    
    
    730
    
    
    
    1975
    
    
    
    2000Johnsonville
    
    Tennessee
    
    
    20
    
    
    
    1,372
    
    
    
    1975
    
    
    
    2000Kemper
    
    Mississippi
    
    
    4
    
    
    
    374
    
    
    
    2001
    
    
    
    2001Lagoon Creek
    
    Tennessee
    
    
    12
    
    
    
    1,126
    
    
    
    2002
    
    
    
    2002Total Combustion Turbine
    
    
    
    
    72
    
    
    
    4,663
    2Diesel GeneratorMeridian
    
    Mississippi
    
    
    5
    
    
    
    9
    
    
    
    1998
    
    
    
    1998Albertville
    
    Alabama
    
    
    4
    
    
    
    4
    
    
    
    2000
    
    
    
    2000Total Diesel Generators
    
    
    
    
    9
    
    
    
    13Renewable Resources Owned by TVA
    
    
    
    
    
    
    
    
    5Total TVA-Owned Generation Facilities
    
    
    
    
    
    
    
    
    30,676Power Purchase AgreementsTapoco
    
    
    
    
    
    
    
    
    362SEPA
    
    
    
    
    
    
    
    
    405Choctaw
    
    
    
    
    
    
    
    
    440Other Power Purchase Agreements
    
    
    
    
    
    
    
    
    3,068Total Power Purchase Agreements
    
    
    
    
    
    
    
    
    4,275Total Winter Net Dependable Capacity
    
    
    
    
    
    
    
    
    34,951
 
 Notes(1)
    
    Net dependable capacity is the net power output which can be obtained for a period
adequate to satisfy the daily load patterns under expected conditions of operation with
equipment in an average state of maintenance excluding any fluctuations in capacity that
may occur due to planned outages, unplanned outages, and deratings. TVA currently
estimates gas, combustion turbine, and diesel generator capacity at 95 degrees
Fahrenheit for summer net dependable capacity and at 25 degrees Fahrenheit for winter
net dependable capacity. For planning purposes, TVA estimated total summer net
dependable capacity at September 30, 2006 to be approximately 33,653 megawatts,
including hydroelectric capacity of approximately 5,458 megawatts, coal-fired capacity
of approximately 14,709 megawatts, nuclear power capacity of approximately 5,611
megawatts, combustion turbine capacity of approximately 3,708 megawatts, diesel
generator capacity of approximately 13 megawatts, capacity from renewable assets of
approximately five megawatts, and capacity from power purchase agreements of
approximately 4,149 megawatts.(2)
    
    As of September 30, 2006, 24 of TVAs combustion turbine units were leased to private
entities and leased back to TVA under long-term leases. Page 14 of 141




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Nuclear
 Overview
  TVA Nuclear Power
 InstalledCapacity
    
    Net Capacity
    
    Date of Expiration of
    
    Date of Expiration ofNuclear Unit
    
    Status
    
    (Megawatts)
    
    Factor for 2006
    
    Operating License
    
    Construction LicenseSequoyah Unit 1
    
    Operating
    
    
    1,221
    
    
    
    88.9
    
    
    
    2020
    
    
    
    Sequoyah Unit 2
    
    Operating
    
    
    1,221
    
    
    
    98.0
    
    
    
    2021
    
    
    
    Browns Ferry Unit 2
    
    Operating
    
    
    1,190
    
    
    
    96.4
    
    
    
    2034
    3
    
    
    Browns Ferry Unit 3
    
    Operating
    
    
    1,190
    
    
    
    84.7
    
    
    
    2036
    3
    
    
    Watts Bar Unit 1
    
    Operating
    
    
    1,270
    
    
    
    84.0
    
    
    
    2035
    
    
    
    Watts Bar Unit 2
    
    Deferred 1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2010Bellefonte Unit 1
    
    Canceled 2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bellefonte Unit 2
    
    Canceled 2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Browns Ferry Unit 1
    
    Recovery 4
    
    
    1,150
    
    
    
    
    
    
    
    2033
    3
    
    
    
 
 Notes(1)
    
    Per the Nuclear Regulatory Commissions definition of deferred nuclear units. TVA is
planning to perform a detailed scoping, estimating, and planning study at Watts Bar Nuclear
Plant Unit 2 during 2007 and 2008 and has budgeted $30 million for the study. Watts Bar
Unit 2 is a partially completed nuclear unit similar in design to the operating Watts Bar
Unit 1. The purpose of the study is to provide accurate cost, schedule, and risk
information to enable a more informed future decision regarding new base load generation.
No decision has been made to actually complete Watts Bar Unit 2.(2)
    
    In September 2006, the Nuclear Regulatory Commission (NRC) approved TVAs request to
terminate the construction permits for unfinished Bellefonte Units 1 and 2. The TVA Board
approved canceling the Bellefonte construction project in November 2005. Neither of these
actions interferes in any way with TVAs ability to use the site for future projects.(3)
    
    On May 3, 2006, the NRC approved TVAs applications for 20-year license extensions for
these units. (The expiration dates listed in the table reflect the extensions.)(4)
    
    Browns Ferry Unit 1 is expected to return to service in 2007 and is expected initially
to provide additional generating capacity of approximately 1,150 megawatts and eventually
to provide 1,280 megawatts of capacity. At September 30, 2006, the restart construction at
Browns Ferry Unit 1 was approximately 94 percent complete. Spent Nuclear Fuel
 Property, plant, and equipment
 Low-Level Radioactive Waste
  Page 15 of 141




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Nuclear Decommissioning Trust
 Contingencies  Decommissioning Costs.
 Nuclear Insurance
   Contingencies Nuclear Insurance.
 Tritium-Related Services
 Commitments  Tritium-Related Services.
 
 Fuel Supply
 General
  Fuel cost
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Coal
    
    $
    1,835
    
    
    $
    1,495
    
    
    $
    1,254
    
    
    $
    1,242
    
    
    $
    1,233Natural Gas
    
    
    60
    
    
    
    63
    
    
    
    22
    
    
    
    42
    
    
    
    50Fuel Oil
    
    
    46
    
    
    
    28
    
    
    
    17
    
    
    
    40
    
    
    
    14Uranium
    
    
    71
    
    
    
    44
    
    
    
    16
    
    
    
    42
    
    
    
    38Total
    
    $
    2,012
    
    
    $
    1,630
    
    
    $
    1,309
    
    
    $
    1,366
    
    
    $
    1,335
  Page 16 of 141




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Fuel Cost Per kWh
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Coal
    
    
    2.02
    
    
    
    1.65
    
    
    
    1.48
    
    
    
    1.43
    
    
    
    1.39Natural gas and fuel oil
    
    
    10.65
    
    
    
    11.44
    
    
    
    9.01
    
    
    
    7.61
    
    
    
    4.65Nuclear
    
    
    0.38
    
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.41Aggregate fuel cost per
kWh net thermal
generation
    
    
    1.54
    
    
    
    1.30
    
    
    
    1.14
    
    
    
    1.14
    
    
    
    1.11
 Rate Actions
 Coal
   
    
    37 percent from the Illinois Basin;
    
    25 percent from the Powder River Basin in Wyoming;
    
    19 percent from the Uinta Basin of Utah and Colorado; and
    
    19 percent from the Appalachian Basin of Kentucky, Pennsylvania, Tennessee,
Virginia, and West Virginia.
  Natural Gas and Fuel Oil
  Nuclear Fuel
  Page 17 of 141




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Blended Low Enriched Uranium Program,
   Nuclear  Spent Nuclear Fuel
 
 Transmission Operations
  
    
    Approximately 17,000 circuit miles of transmission lines, including 2,400 miles of
extra-high-voltage (500,000 volt) transmission lines;
    
    537 substations, power switchyards, and switching stations;
    
    1,045 individual interchange and customer connection points; and
    
    260,000 right-of-way acres.
     Page 18 of 141




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Reliability Coordinator Map
 
 
 Stewardship Activities
   
 Seasonality
   Page 19 of 141




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Heating and Cooling Degree Days
 
 
 Competition
  Customers Termination Notices Customers
  Page 20 of 141




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
    
    Simultaneous repeal, on the effective date of the restructuring legislation, of
the fence and the anti-cherrypicking provision,
    
    A distributor customer option to gradually take up to a maximum of 30 percent
of its power requirements from other suppliers with advance notice to TVA,
    
    New limitations on TVA retail sales in TVAs current service area,
    
    Stranded cost recovery through 2007,
    
    FERC regulation to ensure that TVA charges others transmission service rates
and imposes on others terms and conditions of service comparable to those TVA charges
and imposes on itself,
    
    TVA to be subject to antitrust laws (with the exception of monetary damages and
attorneys fees),
    
    At individual distributor customer election, a reduction in TVAs existing
regulation of distributor customers, and
    
    New TVA generation to be limited to that needed to meet demand within the
current TVA service area.
  
 Regulation
 Congress
  Securities and Exchange Commission
  Federal Energy Regulatory Commission
  Nuclear Regulatory Commission
  Page 21 of 141




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Environmental Protection Agency
 Environmental Matters.
 States
  Governmental Entities
  
 Payments in Lieu of Taxes
  TVA In Lieu of Tax Payments by State
 2006
    
    
    2005
    
    
    2004Alabama
    
    $
    93
    
    
    $
    89
    
    
    $
    81Georgia
    
    
    6
    
    
    
    6
    
    
    
    5Illinois
    
    
    <1
    
    
    
    <1
    
    
    
    <1Kentucky
    
    
    33
    
    
    
    30
    
    
    
    27Mississippi
    
    
    20
    
    
    
    20
    
    
    
    19North Carolina
    
    
    2
    
    
    
    2
    
    
    
    2Tennessee
    
    
    221
    
    
    
    218
    
    
    
    203Virginia
    
    
    <1
    
    
    
    <1
    
    
    
    <1$
    376
    
    
    $
    365
    
    
    $
    338
 
 Environmental Matters
  .
 2 x
 Page 22 of 141




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2
 Clean Air Developments
 2 x x 2
 Sulfur Dioxide
 2 2 2 2 X 2 2 x 2
 2 2
 Nitrogen Oxides
 x x x x x x
 Page 23 of 141




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x
 x x x
 Particulates/Opacity
  2 x
 Mercury
   Page 24 of 141




---



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Carbon Dioxide
 2 2 2 2
 2 2 2 2
 Clean Water Developments
    Hazardous Substances
  Page 25 of 141




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##### Table of Contents



Other
Liabilities
 Coal-Combustion Wastes
  
 Employee Relations
  
 ITEM 1A. RISK FACTORS
   
 Strategic Risks
 New laws and regulations may negatively affect TVAs cash flows, results of operations, and
financial condition as well as the way TVA conducts its business.
  
    
    TVA could lose its protected service territory.
 Page 26 of 141




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TVAs service area is primarily defined by two provisions of law.
 
    
    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 its
transmission lines for the purpose of delivering power to customers within TVAs
defined service area. 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 be subject to additional regulatory oversight that could impede TVAs
ability to manage its business.
    
    TVA could become subject to increased environmental regulation.
 Environmental Matters
 
    
    TVA could become subject to increased regulation by the NRC.
  
    
    TVA could lose responsibility for managing the Tennessee River system.
  
    
    Congress could take actions that lead to a downgrade of TVAs credit rating.
  Page 27 of 141




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
    
    TVAs debt ceiling could become more restrictive.
  TVA may lose some of its customers.
 Customers Termination Notices
 
 Operational Risks
 TVAs generation and transmission assets may not operate as planned.
  
    
    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.
  TVAs fuel supply might be disrupted.
  Compliance with existing environmental laws and regulations may affect TVAs operations in
unexpected ways.
  
    
    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 existing environmental laws, which may cause TVA to shut
down those facilities.
    
    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.
 Page 28 of 141




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
    
    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 or penalties.
  Environmental Matters
 TVA is the sole power provider for customers within its service area, and if demand for power in
TVAs service area increases, TVA is contractually obligated to take steps to meet this increased
demand.
  TVA may incur delays and additional costs in power plant construction.
 Nuclear
 TVA is involved in various legal proceedings whose outcomes may affect TVAs finances and
operations.
  TVAs ability to supply power and its customers demands for power are influenced by weather
conditions.
  TVAs transmission reliability could be affected by problems at other utilities or its own
facilities.
  An incident at any nuclear facility, even one unaffiliated with TVA, could result in increased
expenses and oversight.
  Page 29 of 141




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Catastrophic events could affect TVAs ability to supply electricity or reduce demand for
electricity.
  Demand for electricity supplied by TVA could be reduced by changes in technology.
  
 Financial Risks
 TVA is subject to a variety of market risks that could negatively affect TVAs cash flows, results
of operations, and financial position.
  
    
    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, customers may look for alternative power suppliers.
    
    Investment Price Risk.TVA is exposed to investment price risk in both its nuclear
decommissioning 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 financial condition.
    
    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
nuclear decommissioning trust, 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.
 Risk Management Activities
 TVA and owners of TVA securities could be impacted by a downgrade of TVAs credit rating.
  
    
    A downgrade would increase TVAs interest expense by increasing the interest rates that
TVA pays on new 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.
 Page 30 of 141




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
    
    A significant downgrade could result in TVAs having to post collateral under certain
physical and financial contracts that contain rating triggers.
    
    A downgrade below a contractual threshold would prevent TVA from borrowing under two
credit facilities totaling $2.5 billion without the consent of the national bank that is
the counterparty to the credit facilities.
    
    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.
  Liquidity and Capital Resources.
 TVA may have to make significant unplanned contributions to fund its pension and other
postretirement benefit plans.
  
    
    Provisions of the pension and postretirement benefit plans;
    
    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.
  TVA may have to make significant unplanned contributions to its nuclear decommissioning trust.
  
    
    The value of the investments in the trust declines significantly;
    
    The laws or regulations regarding nuclear decommissioning change the decommissioning
funding requirements;
    
    The assumed rate of return on plan assets, which is currently five percent, has been
approved by the TVA Board;
    
    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.
  TVA may be unable to meet its current cash requirements if its access to the debt markets is
limited.
  Page 31 of 141




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Approaching or reaching its debt ceiling could limit TVAs ability to carry out its business.
  TVAs cash flows, results of operations, and financial condition could be negatively affected by
economic downturns.
  TVAs financial control system cannot guarantee that all control issues and instances of fraud will
be detected.
  TVA could lose the ability to use regulatory accounting and be required to write off a significant
amount of regulatory assets.
 Accounting for the Effects of
Certain Types of Regulation.
 
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 Generating Properties
  Power Supply
 Other Financing Obligations.
 Page 32 of 141




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Transmission Properties
  
    
    Approximately 17,000 circuit miles of transmission lines, including 2,400 miles of
extra-high-voltage (500,000 volt) transmission lines;
    
    537 substations, power switchyards, and switching stations;
    
    1,045 individual interchange and customer connection points; and
    
    260,000 right-of-way acres.
   Other Financing Obligations.
 
 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 areas.
 
 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 to provide 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 distribution
lines.
    
    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.
  Page 33 of 141




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ITEM 3. LEGAL PROCEEDINGS
  Economy Surplus Power Case
  Case Against TVA and 22 Electric Cooperatives
  Global Warming Cases
  Page 34 of 141




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Case Involving Modifications to the Colbert Fossil Plant
  Case Involving Modifications to Bull Run Fossil Plant
  Case Involving Opacity at Colbert
 United States v. Duke
Energy
 Case Brought by North Carolina Alleging Public Nuisance
  Page 35 of 141




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Case Involving North Carolinas Petition to the EPA
  Case Arising out of Hurricane Katrina
  Claim Involving Areva Fuel Fabrication
  Notification of Potential Liability for Ward Transformer Site
    Accounting for Contingencies,
 Page 36 of 141




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Page 37 of 141




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  
 ITEM 6. SELECTED FINANCIAL DATA
  
 Statements of Income Data
 
 2006
    
    2005
    
    2004
    
    2003
    
    2002Operating revenues
    
    $
    9,185
    
    
    $
    7,794
    
    
    $
    7,533
    
    
    $
    6,953
    
    
    $
    6,798Operating expenses
    
    
    (7,582
    ) 1
    
    
    (6,503
    ) 1
    
    
    (5,873
    ) 2
    
    
    (5,398
    )
    
    
    (5,323
    ) 3Operating income
    
    
    1,603
    
    
    
    1,291
    
    
    
    1,660
    
    
    
    1,555
    
    
    
    1,475Other income, net4
    
    
    65
    
    
    
    52
    
    
    
    43
    
    
    
    32
    
    
    
    19Unrealized (loss)/gain on
derivative contracts, net
    
    
    (15
    )
    
    
    3
    
    
    
    (7
    )
    
    
    (7
    )
    
    
    Interest expense, net 4
    
    
    (1,215
    )
    
    
    (1,261
    )
    
    
    (1,310
    )
    
    
    (1,353
    )
    
    
    (1,431
    )Cumulative effect of accounting changes
    
    
    (109
    ) 5
    
    
    
    
    
    
    
    
    
    
    217
    6
    
    
    Total net income
    
    $
    329
    
    
    $
    85
    
    
    $
    386
    
    
    $
    444
    
    
    $
    63
 
 Notes(1)
    
    During 2006 and 2005, TVA recognized a total of $9 million and $24 million,
respectively, in impairment losses related to its property, plant, and equipment. The
losses included a $2 million and an $8 million write-down in 2006 and 2005,
respectively, 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. TVA also
recognized a $7 million and a $16 million write-down in 2006 and 2005, respectively,
of 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.(2)
    
    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 Regenesys project. See Note 1  Project
Cancellation.(3)
    
    Due to changes in the market forecast, TVA elected not to complete a gas-fired
combined cycle plant in 2002. TVA recognized a $154 million loss related to the
cancellation of this project.(4)
    
    Prior to 2006, TVA reported short-term investment interest income with interest
expense. Interest income of $19 million, $6 million, $3 million, and $2 million for
2005, 2004, 2003, and 2002, respectively, has been reclassified from Interest
expense, net to Other Income.(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 1  Impact of New Accounting Standards and
Interpretations.(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. See Note 1  Impact of New Accounting Standards and
Interpretations. Page 38 of 141




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Balance Sheets Data
 
 2006
    
    2005
    
    2004
    
    2003 1
    
    20021AssetsCurrent assets 2
    
    $
    2,669
    
    
    $
    2,176
    
    
    $
    2,295
    
    
    $
    2,238
    
    
    $
    1,626Property, plant, and equipment, net
    
    
    24,434
    
    
    
    23,888
    
    
    
    23,699
    
    
    
    23,125
    
    
    
    22,175Investment funds
    
    
    972
    
    
    
    858
    
    
    
    744
    
    
    
    638
    
    
    
    510Regulatory and other long-term assets
    
    
    6,445
    
    
    
    7,551
    
    
    
    7,451
    
    
    
    7,027
    
    
    
    6,522Total assets
    
    $
    34,520
    
    
    $
    34,473
    
    
    $
    34,189
    
    
    $
    33,028
    
    
    $
    30,833Liabilities and proprietary capitalCurrent liabilities 2
    
    $
    5,203
    
    
    $
    6,724
    
    
    $
    5,420
    
    
    $
    5,8193
    
    
    $
    4,755Regulatory and other liabilities
    
    
    7,074
    
    
    
    7,606
    
    
    
    7,168
    
    
    
    5,114
    
    
    
    3,304Long-term debt, net of discount
    
    
    19,544
    
    
    
    17,751
    
    
    
    19,337
    
    
    
    20,201
    
    
    
    21,358Total liabilities
    
    
    31,821
    
    
    
    32,081
    
    
    
    31,925
    
    
    
    31,134
    
    
    
    29,417Retained earnings
    
    
    1,565
    
    
    
    1,244
    
    
    
    1,162
    
    
    
    783
    
    
    
    349Other proprietary capital
    
    
    1,134
    
    
    
    1,148
    
    
    
    1,102
    
    
    
    1,111
    
    
    
    1,067Total proprietary capital
    
    
    2,699
    
    
    
    2,392
    
    
    
    2,264
    
    
    
    1,894
    
    
    
    1,416Total liabilities and proprietary capital
    
    $
    34,520
    
    
    $
    34,473
    
    
    $
    34,189
    
    
    $
    33,028
    
    
    $
    30,833
 
 Notes(1)
    
    Prior to 2004, TVA presented 2 balance sheets  one for its power program and one for all
programs. The 2003 and 2002 Balance Sheets presented above are for all programs which is
consistent with the presentation for 2004, 2005, and 2006.(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, $83 million in 2003, and $56 million in 2002 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
 
 2006
    
    2005
    
    2004
    
    2003
    
    2002Long-term debt, including current maturities
    
    $
    20,529
    
    
    $
    20,444
    
    
    $
    21,337
    
    
    $
    22,537
    
    
    $
    21,358Other long-term obligationsCapital leases *
    
    
    128
    
    
    
    150
    
    
    
    138
    
    
    
    151
    
    
    
    162Lease/leaseback commitments
    
    
    1,108
    
    
    
    1,143
    
    
    
    1,178
    
    
    
    1,238
    
    
    
    561Energy prepayment obligations
    
    
    1,244
    
    
    
    1,350
    
    
    
    1,455
    
    
    
    47
    
    
    
    Total other financing obligations
    
    
    2,480
    
    
    
    2,643
    
    
    
    2,771
    
    
    
    1,436
    
    
    
    723Discount notes
    
    
    2,376
    
    
    
    2,469
    
    
    
    1,924
    
    
    
    2,080
    
    
    
    3,492Financial obligations
    
    $
    25,385
    
    
    $
    25,556
    
    
    $
    26,032
    
    
    $
    26,053
    
    
    $
    25,573
 
 Note*
    
    Included in Nuclear fuel and Capital leases on the Balance Sheets. 
 Reconciliation of Non-GAAP Items Required by Securities and Exchange Commission Rules
 Net Cash Flow
  Page 39 of 141




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Non-GAAP Cash Flow
 2006Net change in cash and cash equivalents
    
    $
    (2
    )Energy prepayment
    
    
    105Net cash (used in) provided by financing activities
    
    
    289Total
    
    $
    392
 Total Financing Obligations
   Non-GAAP Financing Obligations
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Financial Obligations
    
    $
    25,385
    
    
    $
    25,556
    
    
    $
    26,032
    
    
    $
    26,053
    
    
    $
    25,573Less foreign currency valuations
    
    
    (195
    )
    
    
    (52
    )
    
    
    (113
    )
    
    
    35
    
    
    
    220Plus discount on bonds
    
    
    178
    
    
    
    227
    
    
    
    102
    
    
    
    223
    
    
    
    185Capital leases
    
    
    (128
    )
    
    
    (150
    )
    
    
    (138
    )
    
    
    (151
    )
    
    
    (162
    )Total
    
    $
    25,240
    
    
    $
    25,581
    
    
    $
    25,883
    
    
    $
    26,160
    
    
    $
    25,816
 Page 40 of 141




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Comparative Five Year Data
 Statistical and Financial Summaries
 2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Sales of electricity(millions of kWh) 1Municipalities and cooperatives
    
    
    143,343
    
    
    
    136,640
    
    
    
    133,161
    
    
    
    130,769
    
    
    
    128,600Industries directly served
    
    
    30,987
    
    
    
    30,872
    
    
    
    29,344
    
    
    
    27,756
    
    
    
    26,478Federal agencies and other
    
    
    2,040
    
    
    
    3,986
    
    
    
    3,353
    
    
    
    3,009
    
    
    
    3,579Total sales
    
    
    176,370
    
    
    
    171,498
    
    
    
    165,858
    
    
    
    161,534
    
    
    
    158,657Operating revenues(millions of dollars)1ElectricMunicipalities and cooperatives
    
    $
    7,880
    
    
    $
    6,561
    
    
    $
    6,457
    
    
    $
    5,974
    
    
    $
    5,856Industries directly served
    
    
    1,066
    
    
    
    962
    
    
    
    842
    
    
    
    781
    
    
    
    732Federal agencies and other
    
    
    116
    
    
    
    181
    
    
    
    140
    
    
    
    120
    
    
    
    120Other
    
    
    123
    
    
    
    90
    
    
    
    94
    
    
    
    78
    
    
    
    90Total revenues
    
    $
    9,185
    
    
    $
    7,794
    
    
    $
    7,533
    
    
    $
    6,953
    
    
    $
    6,798Electric revenue per kWh (cents)
    
    
    5.14
    
    
    
    4.49
    
    
    
    4.49
    
    
    
    4.26
    
    
    
    4.23Winter net dependable generating capacity
(megawatts) 2Coal-fired
    
    
    15,081
    
    
    
    15,075
    
    
    
    15,076
    
    
    
    15,029
    
    
    
    15,023Nuclear units in service
    
    
    5,770
    
    
    
    5,790
    
    
    
    5,777
    
    
    
    5,776
    
    
    
    5,751Hydroelectric
    
    
    5,144
    
    
    
    5,104
    
    
    
    4,981
    
    
    
    5,022
    
    
    
    4,924Combustion turbine 3 and other 4
    
    
    4,681
    
    
    
    4,675
    
    
    
    4,685
    
    
    
    4,655
    
    
    
    4,643TVA facilities
    
    
    30,676
    
    
    
    30,644
    
    
    
    30,519
    
    
    
    30,482
    
    
    
    30,341Power purchase agreements
    
    
    4,275
    
    
    
    3,337
    
    
    
    2,670
    
    
    
    1,176
    
    
    
    1,176Total available capacity 5
    
    
    34,951
    
    
    
    33,981
    
    
    
    33,189
    
    
    
    31,658
    
    
    
    31,517System peak load (megawatts)summer
    
    
    32,008
    
    
    
    31,924
    
    
    
    29,966
    
    
    
    28,530
    
    
    
    29,052System peak load (megawatts)winter
    
    
    27,718
    
    
    
    29,278
    
    
    
    27,997
    
    
    
    29,866
    
    
    
    26,061Percent gross generation by fuel sourceCoal-fired
    
    
    64
    %
    
    
    62
    %
    
    
    61
    %
    
    
    60
    %
    
    
    63
    %Nuclear
    
    
    29
    %
    
    
    28
    %
    
    
    30
    %
    
    
    29
    %
    
    
    30
    %Hydroelectric
    
    
    6
    %
    
    
    10
    %
    
    
    9
    %
    
    
    11
    %
    
    
    6
    %Combustion turbine and other
    
    
    <1
    %
    
    
    <1
    %
    
    
    <1
    %
    
    
    <1
    %
    
    
    1
    %Fuel cost per kWh(cents)Coal
    
    
    2.02
    
    
    
    1.65
    
    
    
    1.48
    
    
    
    1.43
    
    
    
    1.39Natural gas and fuel oil
    
    
    10.65
    
    
    
    11.44
    
    
    
    9.01
    
    
    
    7.61
    
    
    
    4.65Nuclear
    
    
    0.38
    
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.39
    
    
    
    0.41Aggregate fuel cost per kWh
net thermal generation
    
    
    1.54
    
    
    
    1.30
    
    
    
    1.14
    
    
    
    1.14
    
    
    
    1.11
 
 Notes(1)
    
    Sales and revenues have been adjusted to include sales to other utilities and to
exclude interdivisional sales.(2)
    
    See Item I, Business  Power Supply.(3)
    
    As of September 30, 2006, includes twenty-four 85-megawatt combustion turbine units
subject to lease/leaseback arrangements.(4)
    
    See Item I, Business  Power Supplyfor a discussion of TVAs diesel generators
and renewable resources.(5)
    
    Total summer net dependable capacity at September 30, 2006, 2005, 2004, 2003, and
2002 was approximately 33,653 megawatts, 32,259 megawatts, 32,059 megawatts, 30,743
megawatts, and 30,477 megawatts, respectively. Page 41 of 141




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 (Dollars in millions except where noted)
 
 Business Overview
 Distinguishing Features of TVAs Business
  Defined Service Area.
 Rate Authority.
 Funding.
 Liquidity and Capital Resources 
Sources of Liquidity.
 Stewardship Activities.
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Strategy and Performance Indicators
 Strategy
 Performance Indicators.
 Category
    
    Performance Indicator
    
    Description of Performance IndicatorFinancial
    
    Delivered Cost of Power
Excluding FCA * Costs
    
    Measures the cost per megawatt-hour of power sold to customers
excluding costs covered by the FCAFinancial
    
    FCA Costs
    
    Measures costs covered by the FCA per megawatt-hour of power soldFinancial
    
    Productivity
    
    Measures total TVA labor costs and contract labor costsCustomer
    
    Connection Point Interruptions
    
    Measure interruptions of power caused by TVAs transmission systemCustomer
    
    Customer Satisfaction Survey
    
    Measures the satisfaction of TVAs customers with TVA in a
variety of areasCustomer
    
    Economic Development
    
    Measures job growth, the quality of jobs, and capital invested by
economic development partners in the TVA service areaOperations
    
    Equivalent Availability Factor
    
    Measures availability of generationOperations
    
    Environmental Impact
    
    Measures 23 environmental elements to assess the impact of TVAs
operations on air quality, water quality, land, waste production,
and energy consumptionPeople
    
    Safe Workplace
    
    Measures recordable injuries per hours worked
 
 Note*
    
    FCA  Fuel Cost Adjustment Challenges During 2006
  Performance of Certain Generation Assets During the Summer.
 
    
    On May 30, 2006, operators at Unit 1 of Watts Bar Nuclear Plant (Watts Bar)
detected a problem involving the main turbine and took the reactor offline safely
without further incident. The low-pressure turbine from Unit 2 at Watts Bar, which has
never been put in service, was modified and used to repair the damaged turbine. The
unit returned to service on June 25, 2006. Watts Bar Unit 1 was taken offline again on
July 31, 2006, when the main generator shut down, and it returned to full power
operation on August 4, 2006. Watts Bar Unit 1 has a net winter dependable capacity of
approximately 1,168 megawatts.
    
    Bull Run Fossil Plant (Bull Run), which has a winter net dependable capacity
of approximately 889 megawatts, was taken offline on July 25, 2006, due to a broken
turbine stub shaft. The plant returned to service on August 5, 2006, following
replacement of the stub shaft and associated repairs and inspection.
 Page 43 of 141




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##### Table of Contents



Increased Fuel and Purchased Power Costs.
 Weather. .
 Future Challenges
  New Generation.
  Total Financing Obligations.
 Retention of Customers.
 Page 44 of 141




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Challenges to TVAs Service Area. Customers
 Legislation.
 
 Liquidity and Capital Resources
 Sources of Liquidity
  Summary Cash Flows.
 Summary Cash Flows
 2006
    
    
    2005
    
    
    2004Cash provided by (used in):Operating activities
    
    $
    2,014
    
    
    $
    1,462
    
    
    $
    3,290Investing activities
    
    
    (1,727
    )
    
    
    (1,188
    )
    
    
    (1,718
    )Financing activities
    
    
    (289
    )
    
    
    (255
    )
    
    
    (1,586
    )Net (decrease) increase in cash and cash equivalents
    
    $
    (2
    )
    
    $
    19
    
    
    $
    (14
    )
 Issuance of Debt.
 Risk Management Activities  Credit Risk
  Page 45 of 141




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$150 Million Note with U.S. Treasury. Debt  Short-Term Debt.
 Credit Facilities. Subsequent Events  Revolving Credit Facility Agreement.
 Call Monetization Transactions.
 
    
    In 2002, 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.
    
    In 2003, TVA monetized the call provisions on a second Bond issue of $476
million by entering into a swaption agreement with a third party in exchange for $81
million.
    
    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.
 Swaptions
and Related Interest Rate Swap.
 Sales of Receivables/Loans. Cash Flows from Investing
Activities
 Cash Flows from Investing Activities Other Income, net
 Sales of
Receivables/Loans
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2006 Compared to 2005
  
    
    An increase in cash provided by operating revenues of $1.4 billion resulting
primarily due to higher average rates from rate actions effective in October 2005 and
April 2006 and, to a lesser extent, by 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 during 2006.
  
    
    An increase in cash paid for fuel and purchased power of $734 million due to
higher volume and increased market prices;
    
    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; and
    
    An increase in other deferred items of $55 million primarily due to $22 million
of increased contributions to the TVA Retirement System and $15 million related to
customer advances for construction.
  
    
    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.
  
    
    A $125 million increase in accounts payable and accrued liabilities in 2006
compared to a $16 million decrease in 2005 primarily due to changes in the amount of
collateral held by TVA of $88 million 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
increase in 2005 due to timing of interest payments on Bonds issued relative to Bonds
retired during 2006.
  
    
    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 $60 million was 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 hydro 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
 Page 47 of 141




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##### Table of Contents




    
    A smaller increase in collateral deposits in 2006 of $16 million as compared
to 2005. See Note 1  Summary of Significant Accounting Policies  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.
 2005 Compared to 2004
  
    
    Proceeds of $1.5 billion received in 2004 for energy prepayments with no
comparable prepayment in 2005;
    
    Increased cash paid for fuel and purchased power of $521 million due to
higher volume and increased market prices;
    
    An increase in expenditures for nuclear refueling outages of $36 million
due to the number and timing of outages;
    
    An increase in other deferred items of $28 million primarily due to
increased contributions to the TVA Retirement System;
    
    An increase in payments in lieu of taxes of $27 million; and
    
    Decreased cash provided from net income components of $199 million.
  
    
    An increase in cash provided by operating revenues of $251 million
resulting primarily from increased sales volume;
    
    A decrease in cash outlays for interest of $47 million; and
    
    A decrease in cash outlays for operating and maintenance costs of $38
million primarily due to $33 million in severance and restructuring costs that were
recognized in 2004.
  
    
    An increase in accounts receivable of $69 million in 2005 due to
increased sales volume during the summer months of 2005;
    
    A larger payment of accrued interest of $17 million in 2005 than in 2004
due to the timing of interest payments on Bonds issued relative to Bonds retired;
and
    
    An increase in inventories and other of $12 million in 2005 compared to a
decrease in inventories and other of $10 million in 2004 primarily due to purchases
of emission allowances and prepayment of insurance premiums for new programs in
2005.
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##### Table of Contents




    
    Maturity of short-term investments of $335 million in 2005 compared to
an increase in short-term investments of $68 million in 2004;
    
    A decrease in expenditures for capital projects of $213 million
primarily due to decreases in clean air expenditures of $210 million partially
offset by increases in expenditures for the Browns Ferry Unit 1 restart;
    
    Proceeds received in 2005 from the sale of certain power distributor
customer loans receivable of $55 million (see Note 1  Sale of Receivables/Loans);
and
    
    Cash provided by net collections on loans and long-term receivables of
$6 million in 2005 compared to $5 million in 2004, and net proceeds from investment
activity of $1 million.
  
    
    An increase in expenditures for the enrichment and fabrication of
nuclear fuel of $22 million as four nuclear units completed refueling outages in
2005;
    
    A payment of $15 million in 2004 from Regenesys Technologies Limited in
connection with cancellation of the Regenesys project due to inability of
manufacturer to supply materials; and
    
    An increase in restricted cash of $107 million resulting from
collateral deposits in 2005 (see Note 1  Restricted Cash and Investments).
  
    
    An increase in issuances of long-term debt of $878 million in 2005;
    
    Net issuances of short-term debt of $546 million in 2005 compared to
net redemptions of short-term debt of $157 million in 2004;
    
    A decrease in payments to the U.S. Treasury of $2 million due to lower interest rates in 2005; and
    
    A decrease in lease payments of $26 million in 2005.
  
    
    An increase in redemptions of long-term debt of $117 million primarily
due to the refinancing of callable debt at lower interest rates;
    
    A decrease in bond premium received of $97 million in 2005;
    
    A decrease in swap receivable monetization of $55 million in 2005; and
    
    An increase in net financing costs of $14 million in 2005 related to Bond transactions.
 Cash Requirements and Contractual Obligations
   Future Planned Construction Expenditures 1
 Actual
    
    
    Estimated Construction Expenditures2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011Browns Ferry Unit 1 Restart
    
    $
    428
    
    
    $
    76
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Clean Air Expenditures
    
    
    182
    
    
    
    286
    
    
    
    357
    
    
    
    306
    
    
    
    290
    
    
    
    368Transmission Expenditures 2
    
    
    232
    
    
    
    203
    
    
    
    231
    
    
    
    319
    
    
    
    312
    
    
    
    278Other Capital Expenditures 3
    
    
    406
    
    
    
    487
    
    
    
    611
    
    
    
    510
    
    
    
    560
    
    
    
    534Total Capital Projects Requirements4
    
    $
    1,248
    
    
    $
    1,052
    
    
    $
    1,199
    
    
    $
    1,135
    
    
    $
    1,162
    
    
    $
    1,180
 Page 49 of 141




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Notes(1)
    
    This table shows only expenditures that are currently planned. TVA is updating its
strategic plan. When completed, the strategic plan could indicate that it is desirable for
TVA to acquire additional generation rather than depend on market purchases. Such new
generation could require significant capital expenditures in order to meet the needs of
TVAs service area. The table does not include any projects to provide additional
generation which may be identified in the strategic planning process.(2)
    
    Transmission Expenditures include reimbursable projects.(3)
    
    Other Capital Expenditures are primarily associated with short lead time construction
expenditure projects aimed at the continued safe and reliable operation of generating
assets.(4)
    
    Actual 2006 capital projects requirements excludes allowance for funds used during
construction of $151 million.    Commitments and Contingencies
 Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterDebt
    
    $
    22,888
    *
    
    $
    3,361
    
    
    $
    90
    
    
    $
    2,030
    
    
    $
    63
    
    
    $
    1,015
    
    
    $
    16,329Interest payments relating to debt
    
    
    21,555
    
    
    
    1,188
    
    
    
    1,152
    
    
    
    1,096
    
    
    
    1,042
    
    
    
    1,011
    
    
    
    16,066LeasesNon-cancelable operating
    
    
    135
    
    
    
    45
    
    
    
    41
    
    
    
    26
    
    
    
    12
    
    
    
    4
    
    
    
    7Capital
    
    
    272
    
    
    
    63
    
    
    
    59
    
    
    
    57
    
    
    
    57
    
    
    
    30
    
    
    
    6Power purchase obligations
    
    
    4,354
    
    
    
    205
    
    
    
    146
    
    
    
    148
    
    
    
    152
    
    
    
    154
    
    
    
    3,549Purchase obligationsFuel purchase obligations
    
    
    3,015
    
    
    
    1,083
    
    
    
    509
    
    
    
    496
    
    
    
    400
    
    
    
    249
    
    
    
    278Other obligations
    
    
    327
    
    
    
    199
    
    
    
    111
    
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    7Payments on other financings
    
    
    1,557
    
    
    
    85
    
    
    
    89
    
    
    
    85
    
    
    
    89
    
    
    
    95
    
    
    
    1,114Payment to U.S. Treasury
    
    
    432
    
    
    
    40
    
    
    
    43
    
    
    
    42
    
    
    
    41
    
    
    
    40
    
    
    
    226Retirement plans
    
    
    90
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    54,625
    
    
    $
    6,359
    
    
    $
    2,240
    
    
    $
    3,985
    
    
    $
    1,859
    
    
    $
    2,600
    
    
    $
    37,582
 
 Note*
    
    Does not include noncash items of foreign currency valuation loss of $195 million and net
discount on sale of bonds of $178 million.  Energy Prepayment Obligations.
 Page 50 of 141




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##### Table of Contents



Energy Prepayment Obligations
 Total
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    ThereafterEnergy Prepayment Obligations
    
    $
    1,244
    
    
    
    $
    106
    
    
    $
    106
    
    
    $
    105
    
    
    $
    105
    
    
    $
    105
    
    
    $
    717
 
 Results of Operations
 Financial Results
  Summary Statements of Income
 2006
    
    
    2005
    
    
    2004Operating revenues
    
    $
    9,185
    
    
    $
    7,794
    
    
    $
    7,533Operating expenses
    
    
    (7,582
    )
    
    
    (6,503
    )
    
    
    (5,873
    )Operating income
    
    
    1,603
    
    
    
    1,291
    
    
    
    1,660Other income
    
    
    67
    
    
    
    56
    
    
    
    44Other expense
    
    
    (2
    )
    
    
    (4
    )
    
    
    (1
    )Unrealized (loss)/gain on derivative contracts, net
    
    
    (15
    )
    
    
    3
    
    
    
    (7
    )Interest expense, net
    
    
    (1,215
    )
    
    
    (1,261
    )
    
    
    (1,310
    )Income before cumulative effects of accounting changes
    
    
    438
    
    
    
    85
    
    
    
    386Cumulative effect of change in accounting for
conditional asset retirement obligations
    
    
    (109
    )
    
    
    
    
    
    
    Net income
    
    $
    329
    
    
    $
    85
    
    
    $
    386Sales (millions of kWh)
    
    
    176,370
    
    
    
    171,498
    
    
    
    165,858
 2006 Compared to 2005
  Operating Revenues.
 Page 51 of 141




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Electricity Sales and Operating Revenue
 Sales of Electricity
    
    
    Operating Revenues(millions of kWh)
    
    
    (millions of dollars)Percent
    
    
    
    
    
    
    
    
    
    
    Percent2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeSales of electricity and operating revenuesMunicipalities and cooperatives
    
    
    143,343
    
    
    
    136,640
    
    
    
    4.9
    %
    
    $
    7,880
    
    
    $
    6,561
    
    
    
    20.1
    %Industries directly served
    
    
    30,987
    
    
    
    30,872
    
    
    
    0.4
    %
    
    
    1,066
    
    
    
    962
    
    
    
    10.8
    %Federal agencies and other
    
    
    2,040
    
    
    
    3,986
    
    
    
    (48.8
    %)
    
    
    116
    
    
    
    181
    
    
    
    (35.9
    %)Other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123
    
    
    
    90
    
    
    
    36.7
    %Total sales of electricity and operating revenues
    
    
    176,370
    
    
    
    171,498
    
    
    
    2.8
    %
    
    $
    9,185
    
    
    $
    7,794
    
    
    
    17.8
    %
  
    
    A $1,319 million increase in revenue from municipalities and cooperatives
reflecting increased sales of 4.9 percent and average rates rising 14.5 percent of
which $822 million relates to the rate adjustments effective October 1, 2005, and
April 1, 2006;
    
    A $104 million increase in revenue from industries attributable to sales
increasing 0.4 percent and average rates rising 10.4 percent of which $41 million
relates to the rate adjustments effective October 1, 2005, and April 1, 2006; and
    
    A $33 million increase in other revenue primarily due to increased
transmission revenues from wheeling activity.
  Federal agencies and other
 
    
    An $82 million decrease in exchange power 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 in 2006; offset by
    
    A $17 million increase in revenues from federal agencies directly served
due to increased sales of 4.9 percent and average rates rising 14.3 percent of which
$10 million relate to the rate adjustments effective October 1, 2005, and April 1,
2006.
  
    
    A 6,703 million kilowatt-hour increase in sales to municipalities and
cooperatives attributable to 4,707 million kilowatt-hours related to the unbilled
estimate methodology used in 2005 (see Note 1  Accounts Receivable) and a 1,996
kilowatt-hour increase in sales demand by municipalities and cooperatives during
2006;
    
    A 115 million kilowatt-hour increase in sales to directly served industries
as a result of increased firm and Firm Power Interruptible demand of 48.3 percent and
93.6 percent, respectively, offset by decreased Economy Surplus Power/Variable Priced
Interruptible and Preferred Interruptible Power/Firm Power Interruptible demand of
29.2 percent and 32.3 percent respectively; and
    
    An 85 million kilowatt-hour increase in sales to federal agencies primarily
due to increased demand of 34.5 percent for other miscellaneous products.
 Page 52 of 141




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Federal agencies and Other
 Operating Expenses.
 TVA Operating Expenses
 Percent2006
    
    
    2005
    
    
    ChangeOperating expensesFuel and purchased power
    
    $
    3,333
    
    
    $
    2,601
    
    
    
    28.1
    %Operating and maintenance
    
    
    2,372
    
    
    
    2,359
    
    
    
    <1
    %Depreciation, amortization and accretion
    
    
    1,492
    
    
    
    1,154
    
    
    
    29.3
    %Payments in lieu of taxes
    
    
    376
    
    
    
    365
    
    
    
    3.0
    %Loss on asset impairment/project cancellation
    
    
    9
    
    
    
    24
    
    
    
    (62.5
    %)Total operating expenses
    
    $
    7,582
    
    
    $
    6,503
    
    
    
    16.6
    %
  
    
    A $377 million increase in fuel expense 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;
    
    A $355 million increase in purchased power expense reflecting 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 planned; and
    
    An $11 million increase in payments in lieu of taxes due to increased gross
revenues of 3.1 percent from the sale of power (excluding sales or deliveries to
other federal agencies and exchange sales with other utilities) during 2005 as
compared to 2004. See Item 1, Business  Payments in Lieu of Taxes.
   Other Income Restricted Cash and Investments.
 Other Expense.
 Unrealized (Loss)/Gain on Derivative Contracts, Net.
 
    
    A $45 million net gain on the mark-to-market valuation adjustment of an interest rate swap contract;
    
    A $108 million net gain on the mark-to-market valuation adjustment of swaption contracts; 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.
 Interest Expense
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Interest Expense
 Percent2006
    
    
    2005
    
    
    ChangeInterest expenseInterest on debt
    
    $
    1,357
    
    
    $
    1,356
    
    
    
    (0.0
    %)Amortization of debt discount, issue, and reacquisition costs, net
    
    
    21
    
    
    
    21
    
    
    
    0.0
    %Allowance for funds used during construction
    
    
    (163
    )
    
    
    (116
    )
    
    
    40.5
    %Net interest expense
    
    $
    1,215
    
    
    $
    1,261
    
    
    
    (3.6
    %)
 (percent)Percent2006
    
    2005
    
    ChangeInterest 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 higher level of construction work-in-progress in 2006.
  2005 Compared to 2004
  Operating Revenues.
 Electricity Sales and Operating Revenue
 Sales of Electricity
    
    
    Operating Revenues(millions of kWh)
    
    
    (millions of dollars)Percent
    
    
    
    
    
    
    
    
    
    
    Percent2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    2004
    
    
    ChangeSales of electricity and operating revenueMunicipalities and cooperatives
    
    
    136,640
    
    
    
    133,161
    
    
    
    2.6
    %
    
    $
    6,561
    
    
    $
    6,457
    
    
    
    1.6
    %Industries directly served
    
    
    30,872
    
    
    
    29,344
    
    
    
    5.2
    %
    
    
    962
    
    
    
    842
    
    
    
    14.3
    %Federal agencies and other
    
    
    3,986
    
    
    
    3,353
    
    
    
    18.9
    %
    
    
    181
    
    
    
    140
    
    
    
    29.3
    %Other revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    94
    
    
    
    (4.3
    %)Total sales of electricity and operating
revenue
    
    
    171,498
    
    
    
    165,858
    
    
    
    3.4
    %
    
    $
    7,794
    
    
    $
    7,533
    
    
    
    3.5
    %
  
    
    A $104 million increase in revenues from municipalities and cooperatives
due to increased sales of 2.6 percent although average rates decreased 1.0 percent;
 Page 54 of 141




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
    
    A $120 million increase in revenues from industries directly served
reflecting increased sales of 5.2 percent and average rates rising 8.6 percent;
    
    A $5 million increase in revenues from federal agencies directly served as
a result of increased sales of 2.0 percent and average rates rising 4.1 percent; and
    
    A $36 million increase in revenues from exchange power sales (included in
Federal Agencies and Other) attributable to increased total generation of
3.3 percent reflecting favorable market conditions. Favorable market conditions
relate to electricity demands both inside and outside the TVA service area in
addition to advantageous market rates.
  
    
    A 3,479 million kilowatt-hour increase in sales to municipalities and
cooperatives primarily as a result of increased demand due to warmer summer weather
reflecting higher combined degree days of 0.7 percent. During 2005, there were 325,
or 18.6 percent, more cooling degree days offset by 291, or 9.0 percent, less
heating degree days;
    
    A 1,528 million kilowatt-hour increase in sales to industries directly
served largely attributable to increased demand of 19.1 percent from one of TVAs
largest industrial consumers of power;
    
    A 34 million kilowatt-hour increase in sales to federal agencies directly
served as a result of increased demand of 3.4 percent by firm-based customers; and
    
    A 599 million kilowatt-hour increase in exchange power sales (included in
Federal agencies and other) due to increased total generation of 3.3
percent reflecting favorable market conditions.
 Operating Expenses.
 TVA Operating Expenses
 Percent2005
    
    
    2004
    
    
    ChangeOperating expensesFuel and purchased power
    
    $
    2,601
    
    
    $
    2,081
    
    
    
    25.0
    %Operating and maintenance
    
    
    2,359
    
    
    
    2,319
    
    
    
    1.7
    %Depreciation, amortization, and accretion
    
    
    1,154
    
    
    
    1,115
    
    
    
    3.5
    %Payments in lieu of taxes
    
    
    365
    
    
    
    338
    
    
    
    8.0
    %Loss on asset impairment/project cancellation
    
    
    24
    
    
    
    20
    
    
    
    20.0
    %Total operating expenses
    
    $
    6,503
    
    
    $
    5,873
    
    
    
    10.7
    %
  
    
    A $269 million increase in fuel expense attributable to higher aggregate
fuel cost per kilowatt-hour, net thermal generation of 14.1 percent, increased fuel
handling costs of $8 million, and increased generation of 4.0 percent and 114.0
percent at coal-fired and combustion turbine plants, respectively;
    
    A $251 million increase in purchased power expense as a result of the
average purchase price increasing 43.6 percent and higher volume acquired of 6.2
percent;
    
    A $77 million increase in pension and post retirement expense due primarily
to increased interest cost coupled with increased amortization of actuarial loss (see
Note 12);
    
    A $29 million increase in depreciation expense attributable to capital
projects placed in service;
    
    A $9 million increase in amortization expense related to the amortization
of the capital lease recognized for the blended low enriched uranium program (see
Note 1  Blended Low Enriched Uranium Program); and
    
    A $24 million impairment loss related to the $16 million write-down of
certain assets related to a new technology that had not been proven effective and a
$8 million loss equal to the difference in the book value and market price of the
East Tower of the Knoxville Office Complex (see Note 1  Impairment of Assetsand
Note 6  Asset Impairment).
  Page 55 of 141




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Other Income.
 Other Expense.
 Unrealized Gain on Derivative Contracts, Net.
  
    
    A $9 million net loss on the mark-to-market valuation adjustment of an interest rate swap contract;
    
    A $71 million net loss on the mark-to-market valuation adjustment of swaption contracts; and
    
    A $12 million unrealized net loss related to the mark-to-market valuation
of sulfur dioxide emission allowance call options.
 Interest Expense
 TVA Interest Expense
 Percent2005
    
    
    2004
    
    
    ChangeInterest expenseInterest on debt
    
    $
    1,356
    
    
    $
    1,385
    
    
    
    (2.1
    %)Amortization of debt discount, issue, and reacquisition costs, net
    
    
    21
    
    
    
    24
    
    
    
    (12.5
    %)Allowance for funds used during construction
    
    
    (116
    )
    
    
    (99
    )
    
    
    17.2
    %Net interest expense
    
    $
    1,261
    
    
    $
    1,310
    
    
    
    (3.7
    %)
 (percent)Percent2005
    
    2004
    
    ChangeInterest rates (average)Long-term
    
    
    6.25
    
    
    
    6.36
    
    
    
    (1.7
    %)Discount notes
    
    
    2.70
    
    
    
    1.14
    
    
    
    136.8
    %Blended
    
    
    5.93
    
    
    
    6.12
    
    
    
    (3.1
    %)
  
    
    A decrease in the average long-term interest rate from 6.36 percent to 6.25 percent;
    
    A reduction of approximately $1,089 million in the average balance of long-term debt outstanding; and
    
    A $17 million increase in AFUDC due to a higher level of construction work-in-progress in 2005.
  
    
    An increase in the average discount note interest rate from 1.14 percent to 2.70 percent; and
    
    An increase of $995 million in the average balance of discount notes outstanding.
 
 Off-Balance Sheet Arrangements
  Page 56 of 141




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New Accounting Standards and
Interpretations  Variable Interest Entities.





Critical Accounting Policies and Estimates


Summary of
Significant Accounting Policies.


Regulatory Accounting


Accounting for the Effects of Certain Types of Regulation Regulated
EnterprisesAccounting for the Discontinuation of Application of FASB Statement No. 71 .


Long-Lived Assets




Long-Lived Asset Impairments


Accounting
for the Impairment or Disposal of Long-Lived Assets,


Page 57 of 141



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Revenue Recognition
  Revenues.
 Asset Retirement Obligations
 Accounting for Asset Retirement
Obligations Accounting for Conditional Asset Retirement Obligationsan
Interpretation of FASB Statement No. 143
 Nuclear Decommissioning
 Asset Retirement Obligations Other Regulatory Assets
    
    
    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. Afterwards, it is
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  Because of the age of the nuclear plants in the
United States, 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
 Page 58 of 141




---



##### Table of Contents



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s decommissioning fund uses a blended rate of 5.65 percent
to calculate the present value of the weighted estimated cash flows required to satisfy
TVAs decommissioning obligation.
    
    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 4 percent
annually.
 Pension and Other Postretirement Benefits
   
    
    Interest and discount rates used in determining the future benefit obligations;
    
    Projected health care cost trend rates;
    
    Expected long-term rate of return on plan assets; and
    
    Rate of increase in future compensation levels.
     Page 59 of 141
    Table of Contents      Impact on 2006Change in
    
    Impact on 2007
    
    Projected BenefitActuarial Assumption
    
    Assumption
    
    Pension Cost
    
    Obligation(Increase in millions)Discount rate
    
    
    (0.25
    %)
    
    $
    18
    
    
    $
    248Rate of return on plan assets
    
    
    (0.25
    %)
    
    $
    16
    
    
    NARate of compensation
    
    
    0.25
    %
    
    $
    12
    
    
    $
    67
  Impact on 2006Impact on 2007
    
    ProjectedChange in
    
    Postretirement
    
    PostretirementActuarial Assumption
    
    Assumption
    
    Benefit Cost
    
    Benefit Obligation(Increase in millions)Discount rate
    
    
    (0.25
    %)
    
    $
    1
    
    
    $
    14Health care cost trend
    
    
    0.25
    %
    
    $
    1
    
    
    $
    15
  Accounting Mechanisms Employers Accounting for Pensions,
  Costs and Funding
 Other Comprehensive Income Other comprehensive income
 Page 60 of 141




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Medicare Prescription Drug, Improvement and Modernization Act of 2003
 
 New Accounting Standards and Interpretations
 Variable Interest Entities
 Consolidation of Variable Interest Entities, Consolidated Financial Statements
  Determining the Variability
to Be Considered in Applying FASB Interpretation No. 46R
 Conditional Asset Retirement Obligations
 Accounting for Conditional Asset Retirement
Obligationsan interpretation of FASB Statement No. 143 Accounting for Asset Retirement Obligations,
 Page 61 of 141




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Accounting
for Conditional Asset Retirement Obligations,


Accounting Changes and Error Corrections


Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3 Accounting Changes Reporting Accounting
Changes in Interim Financial Statements.


Accounting for Inventory Transactions


Accounting for Purchases and Sales of Inventory with the Same
Counterparty. Accounting for Nonmonetary
Transactions


Put and Call Options


Embedded Derivatives: Evaluation of Net
Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put
Option or Call Option, Embedded Derivatives: Application of Paragraph 13(b)
to Call Page 62 of 141




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Options That Are Exercisable Only by the Debtor,
 Accounting for Rental Costs
 Accounting for Rental Costs Incurred during
a Construction Period Issues Relating to Accounting for Leases, Accounting for Leases, Accounting for Operating Leases
with Scheduled Rent Increases,
 Impairment of Investments
 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
 Fair Value Measurements
 Fair Value Measurements.
 Accounting for Defined Benefit Pension and Other Postretirement Plans
 Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106,
and 132(R).
  Page 63 of 141




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Accounting for Misstatements
 Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements.
 
 Legislative and Regulatory Matters
 Competition
   Environmental Matters
  Page 64 of 141




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Environmental Matters
  .
 2 x 2
 Clean Air Developments
 2 x x 2
 Sulfur Dioxide
 2 2 2 2 X 2 2 x 2
 2 2
 Page 65 of 141




---



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Nitrogen Oxides
 x x x x x x x
 x x x
 Particulates/Opacity
  2 x
 Page 66 of 141




---



##### Table of Contents



Mercury
   Carbon Dioxide
 2 2 2 2 2 2
 2 2 2 2
 Clean Water Developments
  Page 67 of 141




---



##### Table of Contents



Hazardous Substances
  Other Liabilities
 Coal-Combustion Wastes
  
 Legal Proceedings
  
 Risk Management Activities
 Risk Governance
  Page 68 of 141




---



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Commodity Price Risk
   Value at Risk
   2 x
 Page 69 of 141




---



##### Table of Contents



Value at Risk
 September 30,2006
    
    Average
    
    High
    
    LowElectricity 1
    
    $
    45
    
    
    $
    75
    
    
    $
    124
    
    
    $
    19Natural Gas 2
    
    
    34
    
    
    
    26
    
    
    
    61
    
    
    
    3SO2 Emission Allowances 3
    
    
    21
    
    
    
    20
    
    
    
    59
    
    
    
    3NOx Emission Allowances 4
    
    
    1
    
    
    
    5
    
    
    
    10
    
    
    
    1
 
 Notes1
    
    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
emissions allowances.  Electricity
   Natural Gas.
   Emission Allowances. 2 x 2 x
 Fuel Oil
 Page 70 of 141




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##### Table of Contents



Sensitivity Analysis
  Coal
 Uranium  Fuel Supply  Nuclear Fuel.
 Cash Flow at Risk
   Investment Price Risk
  Nuclear Decommissioning Trust
 Critical Accounting Policies and Estimates 
Nuclear Decommissioning
 Pension Fund
 Critical Accounting Policies and Estimates  Pension and Other Postretirement
Benefits
 Interest Rate Risk
  Page 71 of 141




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Short-Term Investments
 Risk Management Activities  Investment Price Risk
 Debt Portfolio
 Short-Term Debt.
 Long-Term Debt.
 Swaption Agreements and Related Interest Rate Swap
 Unrealized Gain/Loss on Derivative
Transactions, Net Other
Liabilities
 Currency Exchange Rate Risk
  Inflation Risk
  Credit Risk
  Page 72 of 141




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Credit of Customers
   Customer Credit Risk
 Trade Accounts Receivable1Municipalities and Cooperative Distributor CustomersInvestment Grade
    
    $
    845Internally Rated  Investment Grade
    
    
    433Industries and Federal Agencies Directly ServedInvestment Grade
    
    
    37Non-investment Grade
    
    
    (1
    )Internally Rated  Investment Grade
    
    
    4Internally Rated  Non-investment Grade
    
    
    10Exchange Power ArrangementsInvestment Grade
    
    
    4Non-investment Grade
    
    
    Internally Rated  Investment Grade
    
    
    1Internally Rated  Non-investment Grade
    
    
    1Subtotal
    
    
    1,334Other Accounts ReceivableMiscellaneous Accounts
    
    
    35Provision for Uncollectible Accounts
    
    
    (10
    )Subtotal
    
    
    25Total
    
    $
    1,359
 
 (1)
    
    Includes unbilled power receivables of $1,031 million.  Credit of Other Counterparties
  Credit of Suppliers.
 Credit of Derivative Counterparties.
 Page 73 of 141




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##### Table of Contents



Credit of TVA
  
    
    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s having to post collateral under certain
physical and financial contracts that contain rating triggers.
    
    A downgrade below a contractual threshold would prevent TVA from borrowing under two
credit facilities totaling $2.5 billion without the consent of the national bank that is
the counterparty to the credit facilities.
    
    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.
  
 Management Changes
  
 Subsequent Events
 .
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Risk
Management Activities
 Page 74 of 141




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 TENNESSEE VALLEY AUTHORITY
 
 STATEMENTS OF INCOME
 2006
    
    
    2005
    
    
    2004Operating revenuesSales of electricityMunicipalities and cooperatives
    
    $
    7,880
    
    
    $
    6,561
    
    
    $
    6,457Industries directly served
    
    
    1,066
    
    
    
    962
    
    
    
    842Federal agencies and other
    
    
    116
    
    
    
    181
    
    
    
    140Other revenue
    
    
    123
    
    
    
    90
    
    
    
    94Total operating revenues
    
    
    9,185
    
    
    
    7,794
    
    
    
    7,533Operating expensesFuel and purchased power
    
    
    3,333
    
    
    
    2,601
    
    
    
    2,081Operating and maintenance
    
    
    2,372
    
    
    
    2,359
    
    
    
    2,319Depreciation, amortization and accretion (Note 1 and Note 2)
    
    
    1,492
    
    
    
    1,154
    
    
    
    1,115Tax-equivalents
    
    
    376
    
    
    
    365
    
    
    
    338Loss on asset impairment/project cancellation
    
    
    9
    
    
    
    24
    
    
    
    20Total operating expenses
    
    
    7,582
    
    
    
    6,503
    
    
    
    5,873Operating income
    
    
    1,603
    
    
    
    1,291
    
    
    
    1,660Other income
    
    
    67
    
    
    
    56
    
    
    
    44Other expense
    
    
    (2
    )
    
    
    (4
    )
    
    
    (1
    )Unrealized (loss)/gain on derivative contracts, net
    
    
    (15
    )
    
    
    3
    
    
    
    (7
    )Interest expenseInterest on debt
    
    
    1,357
    
    
    
    1,356
    
    
    
    1,385Amortization of debt discount, issue, and reacquisition costs, net
    
    
    21
    
    
    
    21
    
    
    
    24Allowance for funds used during construction
    
    
    (163
    )
    
    
    (116
    )
    
    
    (99
    )Net interest expense
    
    
    1,215
    
    
    
    1,261
    
    
    
    1,310Income before cumulative effects of accounting changes
    
    
    438
    
    
    
    85
    
    
    
    386Cumulative effect of change in accounting for conditional
asset retirement obligations
    
    
    (109
    )
    
    
    
    
    
    
    Net income
    
    $
    329
    
    
    $
    85
    
    
    $
    386
  Page 75 of 141




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TENNESSEE VALLEY AUTHORITY
 
 BALANCE SHEETS
 2006
    
    
    2005ASSETSCurrent assetsCash and cash equivalents
    
    $
    536
    
    
    $
    538Restricted cash and investments
    
    
    198
    
    
    
    107Accounts receivable, net
    
    
    1,359
    
    
    
    1,052Inventories and other
    
    
    576
    
    
    
    479Total current assets
    
    
    2,669
    
    
    
    2,176Property, plant, and equipment(Note 3)Completed plant
    
    
    35,652
    
    
    
    35,215Less accumulated depreciation
    
    
    (15,331
    )
    
    
    (14,407
    )Net completed plant
    
    
    20,321
    
    
    
    20,808Construction in progress
    
    
    3,539
    
    
    
    2,643Nuclear fuel and capital leases
    
    
    574
    
    
    
    437Total property, plant, and equipment, net
    
    
    24,434
    
    
    
    23,888Investment funds
    
    
    972
    
    
    
    858Regulatory and other long-term assetsDeferred nuclear generating units
    
    
    3,521
    
    
    
    3,912Other regulatory assets (Note 5)
    
    
    1,809
    
    
    
    2,367Subtotal
    
    
    5,330
    
    
    
    6,279Other long-term assets
    
    
    1,115
    
    
    
    1,272Total deferred charges and other assets
    
    
    6,445
    
    
    
    7,551Total assets
    
    $
    34,520
    
    
    $
    34,473LIABILITIES AND PROPRIETARY CAPITALCurrent liabilitiesAccounts payable
    
    $
    890
    
    
    $
    740Accrued liabilities
    
    
    211
    
    
    
    194Collateral funds held
    
    
    195
    
    
    
    107Accrued interest
    
    
    403
    
    
    
    380Current portion of lease/leaseback obligations
    
    
    37
    
    
    
    35Current portion of energy prepayment obligations
    
    
    106
    
    
    
    106Short-term debt, net
    
    
    2,376
    
    
    
    2,469Current maturities of long-term debt (Note 9)
    
    
    985
    
    
    
    2,693Total current liabilities
    
    
    5,203
    
    
    
    6,724Other liabilitiesOther liabilities
    
    
    2,305
    
    
    
    2,500Regulatory liabilities (Note 5)
    
    
    575
    
    
    
    897Asset retirement obligations
    
    
    1,985
    
    
    
    1,857Lease/leaseback obligations
    
    
    1,071
    
    
    
    1,108Energy prepayment obligations
    
    
    1,138
    
    
    
    1,244Total other liabilities
    
    
    7,074
    
    
    
    7,606Long-term debt, net(Note 9)
    
    
    19,544
    
    
    
    17,751Total liabilities
    
    
    31,821
    
    
    
    32,081Commitments and contingencies(Note 13)Proprietary capitalAppropriation investment
    
    
    4,763
    
    
    
    4,783Retained earnings
    
    
    1,565
    
    
    
    1,244Accumulated other comprehensive income
    
    
    43
    
    
    
    27Accumulated net expense of stewardship programs
    
    
    (3,672
    )
    
    
    (3,662
    )Total proprietary capital
    
    
    2,699
    
    
    
    2,392Total liabilities and proprietary capital
    
    $
    34,520
    
    
    $
    34,473
  Page 76 of 141




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TENNESSEE VALLEY AUTHORITY
 
 STATEMENTS OF CASH FLOWS
 2006
    
    
    2005
    
    
    2004Cash flows from operating activitiesNet income
    
    $
    329
    
    
    $
    85
    
    
    $
    386Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation, amortization, and accretion
    
    
    1,513
    
    
    
    1,175
    
    
    
    1,140Refueling amortization
    
    
    89
    
    
    
    105
    
    
    
    100Amortization of deferred nuclear refueling costs
    
    
    128
    
    
    
    131
    
    
    
    132Loss on project cancellations/asset impairment
    
    
    9
    
    
    
    24
    
    
    
    20Cumulative effect of change in accounting principle
    
    
    109
    
    
    
    
    
    
    
    Net realized and unrealized mark-to-market and hedging transactions
    
    
    15
    
    
    
    (3
    )
    
    
    7Non-cash retirement benefit expense
    
    
    302
    
    
    
    289
    
    
    
    207Prepayment credits applied to revenue
    
    
    (105
    )
    
    
    (105
    )
    
    
    (96
    )Other, net
    
    
    (7
    )
    
    
    7
    
    
    
    13Changes in current assets and liabilitiesAccounts receivable, net
    
    
    (214
    )
    
    
    (19
    )
    
    
    50Inventories and other
    
    
    (120
    )
    
    
    (12
    )
    
    
    10Accounts payable and accrued liabilities
    
    
    125
    
    
    
    (16
    )
    
    
    (65
    )Accrued interest
    
    
    23
    
    
    
    (22
    )
    
    
    (5
    )Proceeds from energy prepayments
    
    
    
    
    
    
    
    
    
    
    1,504Deferred nuclear refueling outage costs
    
    
    (72
    )
    
    
    (122
    )
    
    
    (86
    )Other, net
    
    
    (110
    )
    
    
    (55
    )
    
    
    (27
    )Net cash provided by operating activities
    
    
    2,014
    
    
    
    1,462
    
    
    
    3,290Cash flows from investing activitiesConstruction expenditures
    
    
    (1,399
    )
    
    
    (1,339
    )
    
    
    (1,552
    )Proceeds from project cancellation settlement (Note 1)
    
    
    
    
    
    
    
    
    
    
    15Nuclear fuel expenditures
    
    
    (277
    )
    
    
    (141
    )
    
    
    (119
    )Change in restricted cash and investments
    
    
    (91
    )
    
    
    (107
    )Short-term investments, net
    
    
    
    
    
    
    335
    
    
    
    (68
    )Loans and other receivablesAdvances
    
    
    (17
    )
    
    
    (12
    )
    
    
    (17
    )Repayments
    
    
    13
    
    
    
    18
    
    
    
    22Proceeds from sale of receivables/loans (Note 1)
    
    
    11
    
    
    
    56
    
    
    
    Proceeds from settlement of litigation related to capital expenditures
    
    
    35
    
    
    
    
    
    
    
    Other, net
    
    
    (2
    )
    
    
    2
    
    
    
    1Net cash used in investing activities
    
    
    (1,727
    )
    
    
    (1,188
    )
    
    
    (1,718
    )Cash flows from financing activitiesLong-term debtIssues
    
    
    1,132
    
    
    
    1,650
    
    
    
    772Redemptions and repurchases (Note 10)
    
    
    (1,241
    )
    
    
    (2,368
    )
    
    
    (2,251
    )Short-term (redemptions)/borrowings, net
    
    
    (93
    )
    
    
    546
    
    
    
    (157
    )Proceeds from call monetizations
    
    
    
    
    
    
    5
    
    
    
    Bond premium received
    
    
    
    
    
    
    
    
    
    
    97Proceeds from swap receivable monetization
    
    
    
    
    
    
    
    
    
    
    55Payments on lease/leaseback financing
    
    
    (28
    )
    
    
    (29
    )
    
    
    (32
    )Payments on equipment financing
    
    
    (6
    )
    
    
    (6
    )
    
    
    (29
    )Financing costs, net
    
    
    (14
    )
    
    
    (17
    )
    
    
    (3
    )Payments to U.S. Treasury
    
    
    (38
    )
    
    
    (36
    )
    
    
    (38
    )Other
    
    
    (1
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (289
    )
    
    
    (255
    )
    
    
    (1,586
    )Net change in cash and cash equivalents
    
    
    (2
    )
    
    
    19
    
    
    
    (14
    )Cash and cash equivalents at beginning of period
    
    
    538
    
    
    
    519
    
    
    
    533Cash and cash equivalents at end of period
    
    $
    536
    
    
    $
    538
    
    
    $
    519
   Page 77 of 141




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TENNESSEE
VALLEY AUTHORITY
 
 STATEMENTS OF CHANGES IN PROPRIETARY CAPITAL
 AccumulatedAccumulated
    
    
    Net ExpenseOther
    
    
    ofAppropriation
    
    
    Retained
    
    
    Comprehensive
    
    
    Stewardship
    
    
    
    
    
    
    ComprehensiveInvestment
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Programs
    
    
    Total
    
    
    IncomeBalance at September 30, 2003
    
    $
    4,823
    
    
    $
    783
    
    
    $
    (74
    )
    
    $
    (3,638
    )
    
    $
    1,894
    
    
    $
    Net income (loss)
    
    
    
    
    
    
    397
    
    
    
    
    
    
    
    (11
    )
    
    
    386
    
    
    
    386Return on appropriated investment
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    Accumulated other comprehensive income (Note 7)
    
    
    
    
    
    
    
    
    
    
    22
    
    
    
    
    
    
    
    22
    
    
    
    22Return of appropriated investment
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    Balance at September 30, 2004
    
    
    4,803
    
    
    
    1,162
    
    
    
    (52
    )
    
    
    (3,649
    )
    
    
    2,264
    
    
    
    408Net income (loss)
    
    
    
    
    
    
    98
    
    
    
    
    
    
    
    (13
    )
    
    
    85
    
    
    
    85Return on appropriated investment
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    Accumulated other comprehensive income (Note 7)
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    
    
    
    
    79
    
    
    
    79Return of appropriated investment
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    Balance at September 30, 2005
    
    
    4,783
    
    
    
    1,244
    
    
    
    27
    
    
    
    (3,662
    )
    
    
    2,392
    
    
    $
    164Net income (loss)
    
    
    
    
    
    
    339
    
    
    
    
    
    
    
    (10
    )
    
    
    329
    
    
    
    329Return on appropriated investment
    
    
    
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    (18
    )
    
    
    Accumulated other comprehensive income (Note 7)
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    16Return of appropriated investment
    
    
    (20
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20
    )
    
    
    Balance at September 30, 2006
    
    $
    4,763
    
    
    $
    1,565
    
    
    $
    43
    
    
    $
    (3,672
    )
    
    $
    2,699
    
    
    
    $345
  Page 78 of 141




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NOTES TO FINANCIAL STATEMENTS  (Dollars in millions except where noted)
 1. Summary of Significant Accounting Policies
 General
 as amended
 Disclosures About Segments of an Enterprise and Related
Information.
  Fiscal Year
  Cost-Based Regulation
 Accounting for the Effects of Certain Types of Regulation,
 Page 79 of 141




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Management Estimates
  Reclassifications
 Accounts Payable Accrued Liabilities Collateral Funds Held Accounts Payable Accrued Liabilities Accounts Receivable, Net
 Interest on Debt Other Income
 Accounts Receivable Accounts Payable Construction
expenditures Proceeds from the sale of receivables/loans
  Revision to Statements of Cash Flows
  Cash and Cash Equivalents
 Cash and Cash Equivalents
 Restricted Cash and Investments
 Restricted Cash and Investments Restricted Cash and Investment
 Accounts Receivable
 Accounts Receivable
 Page 80 of 141




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Accounts Receivable
 2006
    
    
    2005Power receivables billed
    
    $
    303
    
    
    $
    286Power receivables unbilled
    
    
    1,031
    
    
    
    731Total power receivables
    
    
    1,334
    
    
    
    1,017Other receivables
    
    
    35
    
    
    
    42Allowance for uncollectible accounts
    
    
    (10
    )
    
    
    (7
    )Net accounts receivable
    
    $
    1,359
    
    
    $
    1,052
  Allowance for Uncollectible Accounts
  Revenues
  Sales of Electricity-Federal Agencies and Other
 Inventories
 Certain Fuel, Materials, and Supplies
 Allowance for Inventory Obsolescence Page 81 of 141
    Table of Contents    Emission Allowances x x x
 Property, Plant, and Equipment, and Depreciation
 Property,
Plant, and Equipment
 TVA Property, Plant, and Equipment Depreciation Rates
 2006
    
    2005
    
    2004Asset ClassNuclear
    
    
    3.00
    
    
    
    3.40
    
    
    
    3.37Coal-Fired
    
    
    3.53
    
    
    
    3.53
    
    
    
    3.51Hydroelectric
    
    
    1.79
    
    
    
    1.78
    
    
    
    1.72Combustion turbine/diesel generators
    
    
    4.54
    
    
    
    4.55
    
    
    
    4.41Transmission
    
    
    2.57
    
    
    
    2.52
    
    
    
    2.53Other
    
    
    5.45
    
    
    
    5.60
    
    
    
    6.05
   Blended Low Enriched Uranium Program
    Page 82 of 141




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Determining Whether an Arrangement Contains a Lease, Accounting for Leases,
  Investment Funds
 Investment funds Contingencies  Decommissioning Costs Other Non-Qualified Retirement and
Deferred Compensation Plans
 Other Long-Term Assets
 Other long-term assets
 Other Long-Term Assets
 2006
    
    
    2005Loans and long-term receivables, net
    
    $
    102
    
    
    $
    93Intangible asset related to pension prior service cost
    
    
    280
    
    
    
    312Valuation of currency swaps
    
    
    246
    
    
    
    76Valuation of commodity contracts
    
    
    487
    
    
    
    791$
    1,115
    
    
    $
    1,272
 Other long-term assets Allowance for Uncollectible Accounts Overview of Accounting Treatment, Commodity
Contracts, Swaps Loans and Other Long-term Receivables, Components of
Pension and Postretirement Benefits Other Non-Qualified Retirement and Deferred Compensation
Plans
 Energy Prepayment Obligations
  Energy Prepayment Obligations Current Portion of Energy
Prepayment Obligations
 Page 83 of 141




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Energy Prepayment Obligations Current Portion of Energy
Prepayment Obligations
 Insurance
 Other Liabilities
  Contingencies 
Nuclear Insurance
   Sale of Receivables/Loans
 Cash Flows from Investing Activities
 Cash Flows from Investing Activities Other Income, net
  Asset Retirement Obligations
 Accounting for Asset Retirement
Obligations,
  Page 84 of 141




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Contingencies 
Decommissioning Costs Accounting for Asset Retirement Obligations. Accounting for
Conditional Asset Retirement Obligationsan Interpretation of FASB Statement No. 143.
 Discounts on Sales
 Energy Prepayment Obligations
 Energy
Prepayment Obligations
  Allowance for Funds Used During Construction
  Research and Development Costs
 Operating and Maintenance.
 Payments In Lieu of Taxes
  Project Cancellation
  Page 85 of 141




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Impairment of Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets,
 Reduction in Workforce
  Impact of New Accounting Standards and Interpretations
 Variable Interest Entities Consolidation of Variable Interest Entities, Consolidated
Financial Statements
  Determining the Variability
to Be Considered in Applying FASB Interpretation No. 46R
 Conditional Asset Retirement Obligations. Accounting
for Conditional Asset Retirement Obligationsan interpretation of FASB Statement No. 143. Accounting for Asset Retirement Obligations,
 Page 86 of 141




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Accounting for Conditional Asset Retirement
Obligations,
  ProForma Effects of Adoption of FIN 47
 2006
    
    
    2005
    
    
    2004Reported income before cumulative
effect of change in accounting
principle
    
    $
    438
    
    
    $
    85
    
    
    $
    386FIN 47 pro forma earnings effects
    
    
    (7
    )
    
    
    (7
    )
    
    
    (7
    )Proforma income before cumulative
effect of change in accounting
principle
    
    $
    431
    
    
    $
    78
    
    
    $
    379
 Accounting Changes and Error Corrections Accounting Changes and Error Corrections  a replacement of APB Opinion No. 20 and FASB Statement
No. 3 Accounting Changes Reporting Accounting Changes in Interim Financial Statements.
 Accounting for Inventory Transactions Accounting for Purchases and
Sales of Inventory with the Same Counterparty.
 Put and Call Options Embedded Derivatives:
Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise
of an Embedded Put Option or Call Option, Embedded Derivatives: Application
of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor,
 Page 87 of 141




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Accounting for Rental Costs Accounting for
Rental Costs Incurred during a Construction Period
 Impairment of Investments The
Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments
 Fair Value Measurements. Fair Value Measurements.
 Accounting for Defined Benefit Pension and Other Postretirement Plans Employers Accounting for Defined Benefit Pension and Other
Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106, and 132(R).
   Page 88 of 141




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Accounting for Misstatements. Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.
 2. Nuclear Power Program
  Nuclear Production Plants
 Completed
    
    
    Construction in
    
    
    FuelPlant, Net
    
    
    Progress
    
    
    InvestmentBrowns Ferry *
    
    $
    1,952
    
    
    $
    1,993
    
    
    $
    229Sequoyah
    
    
    1,648
    
    
    
    32
    
    
    
    118Watts Bar
    
    
    5,317
    
    
    
    191
    
    
    
    62Raw materials
    
    
    
    
    
    
    
    
    
    
    82Total Nuclear Production
    
    $
    8,917
    
    
    $
    2,216
    
    
    $
    491
 
 Notes*
    
    Browns Ferry Unit 1, a unit in recovery, is discussed below.    Cost-Based Regulation
 Page 89 of 141




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##### Table of Contents



TVA Nuclear Unit Operating License Expiration Dates
 Operating LicenseNuclear Unit
    
    Expiration DateBrowns Ferry Unit 1
    
    
    2033Browns Ferry Unit 2
    
    
    2034Browns Ferry Unit 3
    
    
    2036
 3. Completed Plant
  TVA Completed Plant
 2006
    
    
    2005Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedCost
    
    
    Depreciation
    
    
    Net
    
    
    Cost
    
    
    Depreciation
    
    
    NetFossil
    
    $
    10,567
    
    
    $
    5,249
    
    
    $
    5,318
    
    
    $
    10,164
    
    
    $
    4,912
    
    
    $
    5,252Combustion turbine
    
    
    1,168
    
    
    
    500
    
    
    
    668
    
    
    
    1,176
    
    
    
    447
    
    
    
    729Nuclear
    
    
    15,437
    
    
    
    6,520
    
    
    
    8,917
    
    
    
    15,517
    
    
    
    6,128
    
    
    
    9,389Transmission
    
    
    4,360
    
    
    
    1,607
    
    
    
    2,753
    
    
    
    4,227
    
    
    
    1,512
    
    
    
    2,715Hydroelectric
    
    
    1,879
    
    
    
    683
    
    
    
    1,196
    
    
    
    1,861
    
    
    
    648
    
    
    
    1,213Other electrical plant
    
    
    1,235
    
    
    
    428
    
    
    
    807
    
    
    
    1,264
    
    
    
    426
    
    
    
    838Subtotal
    
    
    34,646
    
    
    
    14,987
    
    
    
    19,659
    
    
    
    34,209
    
    
    
    14,073
    
    
    
    20,136Multipurpose dams
    
    
    962
    
    
    
    336
    
    
    
    626
    
    
    
    962
    
    
    
    326
    
    
    
    636Other stewardship
    
    
    44
    
    
    
    8
    
    
    
    36
    
    
    
    44
    
    
    
    8
    
    
    
    36Subtotal
    
    
    1,006
    
    
    
    344
    
    
    
    662
    
    
    
    1,006
    
    
    
    334
    
    
    
    672Total
    
    $
    35,652
    
    
    $
    15,331
    
    
    $
    20,321
    
    
    $
    35,215
    
    
    $
    14,407
    
    
    $
    20,808
 4. Asset Retirement Obligations
 Accounting for Asset Retirement
Obligations, Accounting for the Effects of Certain Types of Regulation Cost-Based Regulation
  Page 90 of 141




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Accounting for Conditional Asset Retirement
Obligations,
 Accounting for Conditional Asset Retirement
Obligations
 Asset Retirement Obligations
 Fair Market
    
    
    EstimatedPro-Forma
    
    
    
    
    
    
    Value of
    
    
    FuturePro-Forma
    
    
    September 30,
    
    
    September
    
    
    Investment
    
    
    Liability atOctober 1, 2004
    
    
    2005
    
    
    30, 2006
    
    
    Funds at Sept
    
    
    Sept 30,FIN 47 ARO Category
    
    Obligation
    
    
    Obligation
    
    
    Obligation
    
    
    30, 2006
    
    
    2006Fossil Plants
    
    $
    106
    
    
    $
    111
    
    
    $
    117
    
    
    $
    
    
    
    $
    449Office and Other Facilities
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    
    
    
    
    42Hydroelectric Plants
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    32Transmission Facilities
    
    
    8
    
    
    
    9
    
    
    
    8
    
    
    
    
    
    
    
    21Total
    
    $
    121
    
    
    $
    127
    
    
    $
    132
    
    
    $
    
    
    
    $
    544
  Nuclear Generating Plants
 Coal-Fired Generating Plants
 Gas/Oil Turbine Generating Plants
   Page 91 of 141




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##### Table of Contents



Reconciliation of Asset Retirement Obligation Liability
 2006
    
    
    2005Balance at beginning of year
    
    $
    1,857
    
    
    $
    1,782Liabilities settled
    
    
    
    
    
    
    Accretion expense
    
    
    100
    
    
    
    100Recognition of conditional asset retirement obligations
    
    
    132
    
    
    
    Revisions in estimated cash flows
    
    
    (104
    )
    
    
    (25
    )Balance at end of year
    
    $
    1,985
    
    
    $
    1,857
 5. Regulatory Assets and Liabilities
 Deferred
Nuclear Generating Units Other Regulatory Assets Other Regulatory Assets Cost-Based Regulation
  Page 92 of 141




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TVA Regulatory Assets and Liabilities
 2006
    
    
    2005Regulatory Assets:Minimum pension liability
    
    $
    914
    
    
    $
    1,158Nuclear decommissioning costs
    
    
    474
    
    
    
    716Reacquisition costs
    
    
    232
    
    
    
    264Deferred purchased power costs
    
    
    6
    
    
    
    Deferred outage costs
    
    
    85
    
    
    
    103Capital leases
    
    
    76
    
    
    
    84Unrealized losses on purchased power contracts
    
    
    22
    
    
    
    42Subtotal
    
    
    1,809
    
    
    
    2,367Deferred nuclear generating units
    
    
    3,521
    
    
    
    3,912Total
    
    $
    5,330
    
    
    $
    6,279Regulatory Liabilities:Unrealized gain on coal purchase contracts
    
    $
    487
    
    
    $
    791Capital lease liability
    
    
    88
    
    
    
    106Total
    
    $
    575
    
    
    $
    897
 Employers Accounting for Pensions
 Investment Funds
    Page 93 of 141




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##### Table of Contents



Accounting for Leases,
 Accounting for Derivative Instruments and Hedging Activities, as amended,
 Nuclear Power Program
    6. Asset Impairment
 Property, Plant, and Equipment Construction in Progress
 7. Proprietary Capital
 Appropriation Investment
  Page 94 of 141




---



##### Table of Contents



Appropriations
 Power
    
    
    StewardshipProgram
    
    
    Program
    
    
    TotalCongressional appropriations and
transfers of property from other
federal agencies (net)
    
    $
    1,443
    
    
    $
    9,622
    
    
    $
    11,065Program expenditures
    
    
    
    
    
    
    (5,221
    )
    
    
    (5,221
    )Less repayments to the U.S. Treasury
    
    
    (1,035
    )
    
    
    (46
    )
    
    
    (1,081
    )Total
    
    $
    408
    
    
    $
    4,355
    
    
    $
    4,763
 Payments to the U.S. Treasury
    Accumulated Other Comprehensive Income
 Reporting Comprehensive Income,
 Total Other Comprehensive Income (Loss) Activity
 Accumulated other comprehensive loss, October 1, 2003
    
    $
    (74
    )Changes in fair value:Inflation
    
    
    4Foreign currency swaps
    
    
    18Accumulated other comprehensive loss, September 30, 2004
    
    
    (52
    )Changes in fair value:Inflation
    
    
    4Foreign currency swaps
    
    
    75Accumulated other comprehensive income, September 30, 2005
    
    
    27Changes in fair value:Inflation
    
    
    (11
    )Foreign currency swaps
    
    
    27Accumulated other comprehensive income, September 30, 2006
    
    $
    43
 
 Note:
    
    Foreign currency swap changes are shown net of reclassifications from
Other comprehensive income to earnings. Page 95 of 141




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8. Risk Management Activities and Derivative Transactions
  Overview of Accounting Treatment
 Accounting for Derivative Instruments and
Hedging Activities Accounting for Certain Derivative Instruments and
Certain Hedging Activities Amendment of Statement 133 on Derivative
Instruments and Hedging Activities.
  Mark-to-Market Values of TVA Derivatives
 2006
    
    
    2006 Balance Sheet
    
    
    2005
    
    
    2005 Balance Sheet
    
    
    2006 Notional
    
    
    Year ofBalance
    
    
    Presentation
    
    
    Balance
    
    
    Presentation
    
    
    Amount
    
    
    ExpirationInflation swap
    
    $
    22
    
    
    
    Other long-term assets
    
    
    $
    17
    
    
    
    Other long-term assets
    
    
    $300 million
    
    
    2007Interest rate swap
    
    
    (131
    )
    
    
    Other liabilities
    
    
    
    (158
    )
    
    
    Other liabilities
    
    
    $476 million
    
    
    2044Currency swaps:Deutschemark
    
    
    
    
    
    
    
    
    
    
    (69
    )
    
    
    Other long-term assets
    
    
    DM1.5 billion
    
    
    2006Sterling
    
    
    47
    
    
    
    Other long-term assets
    
    
    
    20
    
    
    
    Other long-term assets
    
    
    £200 million
    
    
    2021Sterling
    
    
    133
    
    
    
    Other long-term assets
    
    
    
    89
    
    
    
    Other long-term assets
    
    
    £250 million
    
    
    2032Sterling
    
    
    66
    
    
    
    Other long-term assets
    
    
    
    36
    
    
    
    Other long-term assets
    
    
    £150 million
    
    
    2043Swaptions:$1 billion notional
    
    
    (296
    )
    
    
    Other liabilities
    
    
    
    (314
    )
    
    
    Other liabilities
    
    
    $1 billion
    
    
    2042$28 million notional
    
    
    (3
    )
    
    
    Other liabilities
    
    
    
    (4
    )
    
    
    Other liabilities
    
    
    $28 million
    
    
    2022$14 million notional
    
    
    (2
    )
    
    
    Other liabilities
    
    
    
    (2
    )
    
    
    Other liabilities
    
    
    $14 million
    
    
    2022Coal contracts with volume
options
    
    
    487
    
    
    
    Other long-term assets
    
    
    
    791
    
    
    
    Other long-term assets
    
    
    115 million tons
    
    
    2017Purchase power option contracts
    
    
    (22
    )
    
    
    Other liabilities
    
    
    
    (42
    )
    
    
    Other liabilities
    
    
    500 MW
    
    
    2007
 Accumulated Other
Comprehensive Income (Loss)
  Page 96 of 141




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Summary of Derivative Instruments That Receive Hedge Accounting Treatment
 DerivativeHedging
    
    
    
    Purpose of Hedge
    
    Type of Hedge
    
    Accounting for Derivative
    
    Accounting for theInstrument
    
    Hedged Item
    
    Transaction
    
    Cash Flow (CF)
    
    Hedging Instrument
    
    Hedged ItemInflation Swap
    
    Variable-principal
debt
    
    To fix the debts
variable cash flows
to a fixed flow
    
    CF
    
    Cumulative unrealized
gains and losses are
recorded in Other
comprehensive
income
    
    No adjustment is
made to the basis
of 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
    
    CF
    
    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.
 Summary of Derivative Instruments That Do Not Receive Hedge Accounting Treatment
 Derivative Type
    
    Purpose of Derivative
    
    Accounting for Derivative InstrumentCoal 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.Purchase Power Option Contracts
    
    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.
 Commodity Contracts
  Swaps
  Currency Swaps.
  Page 97 of 141




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##### Table of Contents



in Current Maturities of Long-Term Debt, Net Long-Term Debt, Net
 Inflation Swap.
 Swaptions and Related Interest Rate Swap
  
    
    In 2002, 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
2002 Swaption).
    
    In 2003, TVA monetized the call provisions on a second Bond issue of $476
million by entering into a swaption agreement with a third party in exchange for $81
million (the 2003 Swaption).
    
    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).
  Other Liabilities
 Other Liabilities
 Futures and Options on Futures
  Page 98 of 141




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Financial Trading Program Activity
 2006
    
    
    2005Notional
    
    
    
    
    
    
    NotionalAmount
    
    
    Contract
    
    
    Amount
    
    
    Contract(in mmBtu)
    
    
    Value
    
    
    (in mmBtu)
    
    
    ValueFutures contractsFinancial positions, beginning of period, net
    
    
    880,000
    
    
    $
    9
    
    
    
    
    
    
    $
    Purchased
    
    
    18,160,000
    
    
    
    146
    
    
    
    4,370,000
    
    
    
    33Settled
    
    
    (14,750,000
    )
    
    
    (97
    )
    
    
    (3,490,000
    )
    
    
    (27
    )Realized (losses)/gains
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    3Net positions-long
    
    
    4,290,000
    
    
    
    35
    
    
    
    880,000
    
    
    
    9Swap FuturesFinancial positions, beginning of period, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fixed Portion
    
    
    1,977,500
    
    
    
    12
    
    
    
    
    
    
    
    Floating Portion  realized
    
    
    (155,000
    )
    
    
    (1
    )
    
    
    
    
    
    
    Realized (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net positions-long
    
    
    1,822,500
    
    
    
    11
    
    
    
    
    
    
    
    Options contractsFinancial positions, beginning of period, net
    
    
    240,000
    
    
    
    
    
    
    
    
    
    
    
    Calls Purchased
    
    
    
    
    
    
    
    
    
    
    580,000
    
    
    
    1Calls and puts sold
    
    
    
    
    
    
    
    
    
    
    980,000
    
    
    
    (1
    )Positions closed or expired
    
    
    (240,000
    )
    
    
    
    
    
    
    (1,320,000
    )
    
    
    Net positions-long
    
    
    
    
    
    
    
    
    
    
    240,000
    
    
    
    Holding gains (losses)Unrealized gain at beginning of period, net
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    Unrealized(loss)/gain for the period
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    1Unrealized (losses)/gains at end of period, net
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    1Financial positions at end of period, net
    
    
    6,112,500
    
    
    $
    40
    
    
    
    1,120,000
    
    
    $
    10
 Concentration of Credit Risk
 9. Debt
 Borrowing Authority
 Appropriation Investment.
 Short-Term Debt
  Page 99 of 141
    Table of Contents    Subsequent Events  Revolving Credit Facility Agreement.
 Put and Call Options
    Debt Securities Activity
  Page 100 of 141




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##### Table of Contents



Debt Securities Activity from October 1, 2005 to September 30, 2006
 Principal Amount2006
    
    
    2005Redemptions/Maturities:electronotes®First quarter
    
    $
    152
    
    
    $
    3Second quarter
    
    
    3
    
    
    
    75Third quarter
    
    
    4
    
    
    
    101Fourth quarter
    
    
    4
    
    
    
    32000E QUINTS
    
    
    
    
    
    
    1001998D PARRS
    
    
    
    
    
    
    861995 Series A
    
    
    
    
    
    
    2,0001996 Series C
    
    
    1,000
    
    
    
    2003 Series B
    
    
    28
    *
    
    
    2005 Series A
    
    
    64
    *
    
    
    Total
    
    $
    1,255
    
    
    $
    2,368Issueselectronotes®First quarter
    
    $
    49
    
    
    $
    Second quarter
    
    
    19
    
    
    
    25Third quarter
    
    
    37
    
    
    
    105Fourth quarter
    
    
    27
    
    
    
    202006 Series A
    
    
    1,000
    
    
    
    2005 Series A
    
    
    
    
    
    
    5002005 Series B
    
    
    
    
    
    
    1,000Total
    
    $
    1,132
    
    
    $
    1,650Inflation indexed bond accretion
    
    $
    15
    
    
    $
    11
 
 Note*
    
    Includes $13 million gain on redemption  See Note 10. Debt Outstanding
  Short-Term Debt
 Call/(Put)
    
    
    Coupon
    
    
    2006
    
    
    2005 ParCUSIP or Other Identifier
    
    Maturity
    
    
    Date
    
    
    Rate
    
    
    Par Amount
    
    
    AmountDiscount Notes (net of discount)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,376
    
    
    $
    2,469Current maturities of long-term debt:88059TAE1
    
    
    06/15/2021
    
    
    
    10/02/2005
    
    
    
    6.350
    %
    
    
    
    
    
    
    2888059TAJ0
    
    
    08/15/2021
    
    
    
    10/02/2005
    
    
    
    6.100
    %
    
    
    
    
    
    
    2388059TAZ4
    
    
    05/15/2017
    
    
    
    10/02/2005
    
    
    
    6.000
    %
    
    
    
    
    
    
    4088059TCM1
    
    
    10/15/2023
    
    
    
    10/02/2005
    
    
    
    5.625
    %
    
    
    
    
    
    
    1588059TCG4
    
    
    08/15/2018
    
    
    
    10/02/2005
    
    
    
    5.500
    %
    
    
    
    
    
    
    44880591CK6
    
    
    04/01/2036
    
    
    
    (04/03/2006
    )
    
    
    5.980
    %
    
    
    
    
    
    
    121880591CM2
    
    
    09/18/2006
    
    
    
    
    
    
    
    7.125
    %
    
    
    
    
    
    
    922880591CS9
    
    
    04/01/2036
    
    
    
    (04/03/2006
    )
    
    
    5.880
    %
    
    
    
    
    
    
    1,500880591CQ3
    
    
    01/15/2007
    
    
    
    
    
    
    
    6.643
    %
    
    
    385
    
    
    
    880591DS8
    
    
    12/15/2016
    
    
    
    (12/15/2006
    )
    
    
    4.875
    %
    
    
    600
    
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985
    
    
    
    2,693Total short-term debt, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,361
    
    
    $
    5,162
 Page 101 of 141




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Long-Term Debt 1
 Call/(Put)
    
    
    Coupon
    
    
    2006
    
    
    2005 ParCUSIP or Other Identifier
    
    Maturity
    
    
    Date
    
    
    Rate
    
    
    Par Amount
    
    
    Amount880591CQ3
    
    
    01/15/2007
    
    
    
    
    
    
    
    6.643
    %
    
    $
    
    
    
    $
    370880591DS8
    
    
    12/15/2016
    
    
    
    (12/15/2006
    )
    
    
    4.875
    %
    
    
    
    
    
    
    600Maturing in 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97088059TBQ3
    
    
    01/15/2008
    
    
    
    01/15/2004
    
    
    
    3.050
    %
    
    
    10
    
    
    
    1088059TBS9
    
    
    01/15/2008
    
    
    
    01/15/2004
    
    
    
    3.300
    %
    
    
    40
    
    
    
    4088059TCB5
    
    
    05/15/2008
    
    
    
    05/15/2004
    
    
    
    2.450
    %
    
    
    40
    
    
    
    41Maturing in 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90
    
    
    
    91880591DB5
    
    
    11/13/2008
    
    
    
    
    
    
    
    5.375
    %
    
    
    2,000
    
    
    
    2,00088059TCW9
    
    
    03/15/2009
    
    
    
    03/15/2005
    
    
    
    3.200
    %
    
    
    30
    
    
    
    31Maturing in 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,030
    
    
    
    2,03188059TDP3
    
    
    04/15/2010
    
    
    
    04/15/2007
    
    
    
    5.125
    %
    
    
    21
    
    
    
    88059TDD0
    
    
    06/15/2010
    
    
    
    06/15/2006
    
    
    
    4.125
    %
    
    
    42
    
    
    
    42Maturing in 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    42880591DN9
    
    
    01/18/2011
    
    
    
    
    
    
    
    5.625
    %
    
    
    1,000
    
    
    
    1,00088059TDQ1
    
    
    05/15/2011
    
    
    
    05/15/2007
    
    
    
    5.250
    %
    
    
    6
    
    
    
    88059TDR9
    
    
    06/15/2011
    
    
    
    06/15/2007
    
    
    
    5.250
    %
    
    
    9
    
    
    
    Maturing in 2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,015
    
    
    
    1,000880591DL3
    
    
    05/23/2012
    
    
    
    
    
    
    
    7.140
    %
    
    
    29
    
    
    
    29880591DT6
    
    
    05/23/2012
    
    
    
    
    
    
    
    6.790
    %
    
    
    1,486
    
    
    
    1,48688059TBH3
    
    
    09/15/2012
    
    
    
    09/15/2004
    
    
    
    4.375
    %
    
    
    10
    
    
    
    10Maturing in 2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525
    
    
    
    1,525880591CW0
    
    
    03/15/2013
    
    
    
    
    
    
    
    6.000
    %
    
    
    1,359
    
    
    
    1,35988059TBR1
    
    
    01/15/2013
    
    
    
    01/15/2005
    
    
    
    4.375
    %
    
    
    14
    
    
    
    1488059TBW0
    
    
    03/15/2013
    
    
    
    03/15/2005
    
    
    
    4.000
    %
    
    
    23
    
    
    
    2388059TBX8
    
    
    03/15/2013
    
    
    
    03/15/2004
    
    
    
    4.250
    %
    
    
    13
    
    
    
    1388059TCD1
    
    
    06/15/2013
    
    
    
    06/15/2004
    
    
    
    3.500
    %
    
    
    12
    
    
    
    12880591DW9
    
    
    08/01/2013
    
    
    
    
    
    
    
    4.750
    %
    
    
    990
    
    
    
    99088059TCF6
    
    
    07/15/2013
    
    
    
    07/15/2005
    
    
    
    4.350
    %
    
    
    17
    
    
    
    1888059TDS7
    
    
    07/15/2013
    
    
    
    07/15/2008
    
    
    
    5.625
    %
    
    
    9
    
    
    
    Maturing in 2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,437
    
    
    
    2,42988059TCL3
    
    
    10/15/2013
    
    
    
    10/15/2005
    
    
    
    4.500
    %
    
    
    12
    
    
    
    1288059TCQ2
    
    
    12/15/2013
    
    
    
    12/15/2005
    
    
    
    4.700
    %
    
    
    8
    
    
    
    888059TBJ9
    
    
    10/15/2014
    
    
    
    10/15/2004
    
    
    
    4.600
    %
    
    
    22
    
    
    
    2288059TBN0
    
    
    12/15/2014
    
    
    
    12/15/2004
    
    
    
    5.000
    %
    
    
    54
    
    
    
    5588059TBY6
    
    
    04/15/2015
    
    
    
    04/15/2005
    
    
    
    4.600
    %
    
    
    20
    
    
    
    2088059TDB4
    
    
    04/15/2015
    
    
    
    04/15/2007
    
    
    
    5.000
    %
    
    
    50
    
    
    
    50880591DY5
    
    
    06/15/2015
    
    
    
    
    
    
    
    4.375
    %
    
    
    1,000
    
    
    
    1,00088059TDE8
    
    
    07/15/2015
    
    
    
    07/15/2007
    
    
    
    4.500
    %
    
    
    7
    
    
    
    788059TCH2
    
    
    08/15/2015
    
    
    
    08/15/2005
    
    
    
    5.125
    %
    
    
    34
    
    
    
    3588050TBK6
    
    
    10/15/2015
    
    
    
    10/15/2005
    
    
    
    5.050
    %
    
    
    19
    
    
    
    1988059TDH1
    
    
    10/15/2015
    
    
    
    10/15/2007
    
    
    
    5.000
    %
    
    
    28
    
    
    
    88059TBL4
    
    
    11/15/2015
    
    
    
    11/15/2005
    
    
    
    4.800
    %
    
    
    27
    
    
    
    2788059TCR0
    
    
    12/15/2015
    
    
    
    12/15/2005
    
    
    
    4.875
    %
    
    
    11
    
    
    
    1188059TDK4
    
    
    12/15/2015
    
    
    
    12/15/2006
    
    
    
    5.375
    %
    
    
    10
    
    
    
    88059TBU4
    
    
    02/15/2016
    
    
    
    02/15/2006
    
    
    
    4.550
    %
    
    
    9
    
    
    
    988059TCV1
    
    
    02/15/2016
    
    
    
    02/15/2006
    
    
    
    4.500
    %
    
    
    3
    
    
    
    388059TDN8
    
    
    03/15/2016
    
    
    
    03/15/2008
    
    
    
    5.375
    %
    
    
    8
    
    
    
    88059TCC3
    
    
    06/15/2016
    
    
    
    06/15/2006
    
    
    
    3.875
    %
    
    
    4
    
    
    
    488059TDT5
    
    
    08/15/2016
    
    
    
    08/15/2007
    
    
    
    5.625
    %
    
    
    488059TCJ8
    
    
    09/15/2016
    
    
    
    09/15/2006
    
    
    
    4.950
    %
    
    
    11
    
    
    
    1188059TDU2
    
    
    09/15/2016
    
    
    
    09/15/2007
    
    
    
    5.375
    %
    
    
    14
    
    
    
    88059TCS8
    
    
    01/15/2017
    
    
    
    01/15/2007
    
    
    
    5.000
    %
    
    
    29
    
    
    
    29880591CU4
    
    
    12/15/2017
    
    
    
    
    
    
    
    6.250
    %
    
    
    750
    
    
    
    75088059TCA7
    
    
    05/15/2018
    
    
    
    05/15/2004
    
    
    
    4.750
    %
    
    
    24
    
    
    
    2488059TCE9
    
    
    07/15/2018
    
    
    
    07/15/2004
    
    
    
    4.700
    %
    
    
    35
    
    
    
    3688059TCN9
    
    
    11/15/2018
    
    
    
    11/15/2006
    
    
    
    5.125
    %
    
    
    18
    
    
    
    1988059TCT6
    
    
    01/15/2019
    
    
    
    01/15/2005
    
    
    
    5.000
    %
    
    
    28
    
    
    
    2888059TCX7
    
    
    03/15/2019
    
    
    
    03/15/2007
    
    
    
    4.500
    %
    
    
    13
    
    
    
    1388059TDF5
    
    
    08/15/2020
    
    
    
    08/15/2008
    
    
    
    5.000
    %
    
    
    10
    
    
    
    1088059TDG3
    
    
    09/15/2020
    
    
    
    09/15/2008
    
    
    
    4.800
    %
    
    
    3
    
    
    
    388059TDJ7
    
    
    11/15/2020
    
    
    
    11/15/2008
    
    
    
    5.500
    %
    
    
    11
    
    
    
    
 Page 102 of 141




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##### Table of Contents



Long-Term Debt, continued
 Call/(Put)
    
    
    Coupon
    
    
    2006
    
    
    2005 ParCUSIP or Other Identifier
    
    Maturity
    
    
    Date
    
    
    Rate
    
    
    Par Amount
    
    
    Amount88059TDL2
    
    
    01/18/2021
    
    
    
    01/15/2009
    
    
    
    5.125
    %
    
    $
    5
    
    
    $
    880591DC3
    
    
    06/07/2021
    
    
    
    
    
    
    
    5.805
    %
    
    
    374
    
    
    
    35288859TAN1
    
    
    12/15/2021
    
    
    
    12/15/2005
    
    
    
    6.000
    %
    
    
    25
    
    
    
    2588059TAR2
    
    
    01/15/2022
    
    
    
    01/15/2006
    
    
    
    6.125
    %
    
    
    28
    
    
    
    2888059TAX9
    
    
    04/15/2022
    
    
    
    04/15/2006
    
    
    
    6.125
    %
    
    
    14
    
    
    
    1488059TBE0
    
    
    08/15/2022
    
    
    
    08/15/2006
    
    
    
    5.500
    %
    
    
    28
    
    
    
    2988059TBM2
    
    
    11/15/2022
    
    
    
    11/15/2006
    
    
    
    5.000
    %
    
    
    11
    
    
    
    1188059TBP5
    
    
    12/15/2022
    
    
    
    12/15/2006
    
    
    
    5.000
    %
    
    
    20
    
    
    
    2088059TBT7
    
    
    01/15/2023
    
    
    
    01/15/2007
    
    
    
    5.000
    %
    
    
    11
    
    
    
    1288059TBV2
    
    
    02/15/2023
    
    
    
    02/15/2007
    
    
    
    5.000
    %
    
    
    17
    
    
    
    1888059TBZ3
    
    
    05/15/2023
    
    
    
    05/15/2004
    
    
    
    5.125
    %
    
    
    15
    
    
    
    1588059TCK5
    
    
    10/15/2023
    
    
    
    10/15/2007
    
    
    
    5.200
    %
    
    
    14
    
    
    
    1488059TCP4
    
    
    11/15/2023
    
    
    
    11/15/2004
    
    
    
    5.250
    %
    
    
    12
    
    
    
    1288059TCU3
    
    
    02/15/2024
    
    
    
    02/15/2008
    
    
    
    5.125
    %
    
    
    9
    
    
    
    988059TCY5
    
    
    04/15/2024
    
    
    
    04/15/2005
    
    
    
    5.375
    %
    
    
    14
    
    
    
    1588059TCZ2
    
    
    02/15/2025
    
    
    
    02/15/2006
    
    
    
    5.000
    %
    
    
    18
    
    
    
    1988059TDA6
    
    
    03/15/2025
    
    
    
    03/15/2009
    
    
    
    5.000
    %
    
    
    6
    
    
    
    688059TDC2
    
    
    05/15/2025
    
    
    
    05/15/2009
    
    
    
    5.125
    %
    
    
    14
    
    
    
    14880591CJ9
    
    
    11/01/2025
    
    
    
    
    
    
    
    6.750
    %
    
    
    1,350
    
    
    
    1,35088059TDM0
    
    
    02/15/2026
    
    
    
    02/15/2010
    
    
    
    5.500
    %
    
    
    7
    
    
    
    8805913002
    
    
    06/01/2028
    
    
    
    
    
    
    
    5.490
    %
    
    
    466
    
    
    
    4668805914092
    
    
    05/01/2029
    
    
    
    
    
    
    
    5.618
    %
    
    
    410
    
    
    
    410880591DM1
    
    
    05/01/2030
    
    
    
    
    
    
    
    7.125
    %
    
    
    1,000
    
    
    
    1,000880591DP4
    
    
    07/07/2032
    
    
    
    
    
    
    
    6.587
    %
    
    
    468
    
    
    
    441880591DV1
    
    
    07/15/2033
    
    
    
    
    
    
    
    4.700
    %
    
    
    472
    
    
    
    500880591DX7
    
    
    06/15/2035
    
    
    
    
    
    
    
    4.650
    %
    
    
    436
    
    
    
    500880591CK6
    
    
    04/01/2036
    
    
    
    
    
    
    
    5.980
    %
    
    
    121
    
    
    
    880591CS9
    
    
    04/01/2036
    
    
    
    
    
    
    
    5.880
    %
    
    
    1,500
    
    
    
    880591CP5
    
    
    01/15/2038
    
    
    
    
    
    
    
    6.150
    %
    
    
    1,000
    
    
    
    1,000880591BL5
    
    
    04/15/2042
    
    
    
    04/15/2012
    
    
    
    8.250
    %
    
    
    1,000
    
    
    
    1,000880591DU3
    
    
    06/07/2043
    
    
    
    
    
    
    
    4.962
    %
    
    
    281
    
    
    
    265880591CF7
    
    
    07/15/2045
    
    
    
    07/15/2020
    
    
    
    6.235
    %
    
    
    140
    
    
    
    140880591DZ2
    
    
    04/01/2056
    
    
    
    
    
    
    
    5.375
    %
    
    
    1,000
    
    
    
    Maturing 2014-2056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,562
    
    
    
    9,890Subtotal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,722
    
    
    
    17,978Unamortized discounts, premiums,
and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (178
    )
    
    
    (227
    )Total long-term debt, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,544
    
    
    $
    17,751
 
 Notes(1)
    
    The above table includes net translation losses from currency transactions of $195
million and $52 million at September 30, 2006, and 2005, respectively.(2)
    
    TVA PARRS, CUSIP numbers 880591300 and 880591409, may be redeemed under certain
conditions. See Note 9  Put and Call Options. 10. Supplemental Cash Flow Information
  Blended Low Enriched
Uranium Program
 11. Fair Value of Financial Instruments
  Page 103 of 141




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##### Table of Contents



Estimated Values of Financial Instruments
 2006
    
    2005Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueCash and cash equivalents
    
    $
    536
    
    
    $
    536
    
    
    $
    538
    
    
    $
    538Restricted cash and investments
    
    
    198
    
    
    
    198
    
    
    
    107
    
    
    
    107Investment funds
    
    
    972
    
    
    
    972
    
    
    
    858
    
    
    
    858Loans and other long-term receivables
    
    
    102
    
    
    
    102
    
    
    
    93
    
    
    
    93Short-term debt, net of discount
    
    
    2,376
    
    
    
    2,376
    
    
    
    2,469
    
    
    
    2,469Long-term debt (including current portion), net of discount
    
    
    20,529
    
    
    
    22,037
    
    
    
    20,444
    
    
    
    22,552Other financing obligations
    
    
    1,108
    
    
    
    1,108
    
    
    
    1,143
    
    
    
    1,143
 Cash and Cash Equivalents, Short-Term Investments, and Short-Term Debt
  Restricted cash and investments
  Investment Funds
  TVA Investments By Type
 2006
    
    
    2005Securities held as trading
    
    $
    966
    
    
    $
    853Other
    
    
    6
    
    
    
    5Total investment funds
    
    $
    972
    
    
    $
    858
 Decommissioning
Costs
 Loans and Other Long-Term Receivables
  Long-Term Debt
  Other Financing Obligations
  Page 104 of 141




---



##### Table of Contents



Accounting for
Sales of Real Estate, Accounting for Leases. Current Portion of Lease/Leaseback Obligations Lease/Leaseback Obligations
 12. Benefit Plans
 Overview
  Discount Rate.
 Health Care Costs.
 Rate of Return
 Actuarial Assumptions.
 Pension Benefits.
  Page 105 of 141




---



##### Table of Contents



Pension Results
  Other Postretirement Benefits
     Page 106 of 141




---



##### Table of Contents



Components of Pension and Other Postretirement Benefits
  Components of Pension and Other Postretirement Benefits
 Pension Benefits
    
    
    
    Other Postretirement Benefits2006
    
    
    2005
    
    
    
    2006
    
    
    2005Change in benefit obligationBenefit obligation at beginning of year
    
    $
    8,433
    
    
    $
    7,754
    
    
    
    $
    544
    
    
    $
    447Service cost
    
    
    127
    
    
    
    117
    
    
    
    
    9
    
    
    
    6Interest cost
    
    
    440
    
    
    
    428
    
    
    
    
    29
    
    
    
    25Plan participants contributions
    
    
    35
    
    
    
    41
    
    
    
    
    64
    
    
    
    63Amendments, including special events
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss
    
    
    3
    
    
    
    489
    
    
    
    
    (108
    )
    
    
    91Net transfers from variable fund/401(k) plan
    
    
    9
    
    
    
    24
    
    
    
    
    
    
    
    
    Expenses paid
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    Benefits paid
    
    
    (443
    )
    
    
    (416
    )
    
    
    
    (87
    )
    
    
    (88
    )Benefit obligation at end of year
    
    $
    8,600
    
    
    $
    8,433
    
    
    
    $
    451
    
    
    $
    544Change in plan assetsFair value of plan assets at beginning of year
    
    $
    7,015
    
    
    $
    6,415
    
    
    
    $
    
    
    
    $
    Adjustment to reconcile to system asset value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Actual return on plan assets
    
    
    641
    
    
    
    902
    
    
    
    
    
    
    
    
    Plan participants contributions
    
    
    35
    
    
    
    41
    
    
    
    
    64
    
    
    
    63Net transfers from variable fund/401(k) plan
    
    
    9
    
    
    
    24
    
    
    
    
    
    
    
    
    Employer contributions
    
    
    75
    
    
    
    53
    
    
    
    
    23
    
    
    
    25Expenses paid
    
    
    (4
    )
    
    
    (4
    )
    
    
    
    
    
    
    
    Benefits paid
    
    
    (443
    )
    
    
    (416
    )
    
    
    
    (87
    )
    
    
    (88
    )Fair value of plan assets at end of year
    
    $
    7,328
    
    
    $
    7,015
    
    
    
    $
    
    
    
    $
    Funded status
    
    $
    (1,272
    )
    
    $
    (1,418
    )
    
    
    $
    (451
    )
    
    $
    (544
    )Unrecognized net actuarial loss
    
    
    1,275
    
    
    
    1,554
    
    
    
    
    113
    
    
    
    237Unrecognized prior service cost
    
    
    275
    
    
    
    311
    
    
    
    
    39
    
    
    
    44Unrecognized transition obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepaid (accrued) benefit cost
    
    $
    278
    
    
    $
    447
    
    
    
    $
    (299
    )
    
    $
    (263
    )Amount recognized on balance sheetPrepaid benefit cost
    
    $
    
    
    
    $
    
    
    
    
    $
    
    
    
    $
    Accrued benefit liability
    
    
    (903
    )
    
    
    (1,010
    )
    
    
    
    (299
    )
    
    
    (263
    )Other long-term asset
    
    
    275
    
    
    
    311
    
    
    
    
    
    
    
    
    Accumulated other comprehensive income
reclassified to regulatory assets
    
    
    906
    
    
    
    1,146
    
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    278
    
    
    $
    447
    
    
    
    $
    (299
    )
    
    $
    (263
    )Weighted average assumptions as of September 30
    
    
    2006
    
    
    
    2005
    
    
    
    
    2006
    
    
    
    2005Discount rate
    
    
    5.90
    %
    
    
    5.38
    %
    
    
    
    5.90
    %
    
    
    5.38
    %Expected return on plan assets
    
    
    8.75
    %
    
    
    8.25
    %
    
    
    NA
    
    
    NARate of compensation increase
    
    
    3.3%  10.1
    %
    
    
    3.3%  10.1
    %
    
    
    NA
    
    
    NAInitial health care trend rate
    
    NA
    
    
    NA
    
    
    
    
    8.50
    %
    
    
    9.00
    %Ultimate health care trend rate
    
    NA
    
    
    NA
    
    
    
    
    5.00
    %
    
    
    5.00
    %Ultimate trend rate is reached in year beginning
    
    NA
    
    
    NA
    
    
    
    
    2013
    
    
    
    2013
 Page 107 of 141




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Components of Pension and Other Postretirement Benefits
 Pension Benefits
    
    
    
    Other Postretirement 
Benefits2006
    
    
    2005
    
    
    2004
    
    
    
    2006
    
    
    2005
    
    
    2004Components of net periodic benefit costService cost
    
    $
    127
    
    
    $
    117
    
    
    $
    112
    
    
    
    $
    9
    
    
    $
    6
    
    
    $
    5Interest cost
    
    
    440
    
    
    
    429
    
    
    
    406
    
    
    
    
    28
    
    
    
    25
    
    
    
    18Expected return on plan assets
    
    
    (490
    )
    
    
    (457
    )
    
    
    (464
    )
    
    
    NA
    
    
    NA
    
    
    NAAmortization of prior service cost
    
    
    36
    
    
    
    36
    
    
    
    36
    
    
    
    
    5
    
    
    
    5
    
    
    
    5Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Recognized net actuarial loss
    
    
    131
    
    
    
    118
    
    
    
    88
    
    
    
    
    16
    
    
    
    10
    
    
    
    1Net periodic benefit cost
    
    
    244
    
    
    
    243
    
    
    
    178
    
    
    
    
    58
    
    
    
    46
    
    
    
    29Special events
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Total benefits cost
    
    $
    244
    
    
    $
    243
    
    
    $
    178
    
    
    
    $
    58
    
    
    $
    46
    
    
    $
    36Weighted average assumptions used to determine
expenseDiscount rate
    
    
    5.38
    %
    
    
    5.81
    %
    
    
    6.00
    %
    
    
    
    5.38
    %
    
    
    5.81
    %
    
    
    6.00
    %Expected return on plan assets
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    8.50
    %
    
    
    NA
    
    
    NA
    
    
    NARate of compensation increase
    
    
    3.3%-10.1
    %
    
    
    3.3%-10.1
    %
    
    
    3.3%-10.1
    %
    
    
    NA
    
    
    NA
    
    
    NAInitial health care trend rate
    
    NA
    
    
    NA
    
    
    NA
    
    
    
    
    9.00
    %
    
    
    9.0
    %
    
    
    8.50
    %Ultimate health care trend rate
    
    NA
    
    
    NA
    
    
    NA
    
    
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %Ultimate trend rate is reached in year beginning
    
    NA
    
    
    NA
    
    
    NA
    
    
    
    
    2013
    
    
    
    2012
    
    
    
    2010
 Sensitivity
to the Assumed Health Care Cost Trend Rates for 2006
 1% Increase
    
    1% DecreaseEffect on total of service and interest cost components
    
    
    4
    
    
    
    (5
    )Effect on end-of-year accumulated postretirement benefit obligation
    
    
    61
    
    
    
    (65
    )
 Estimated Future Benefit Payments
 Pension
    
    Other2007
    
    $
    534,125
    
    
    $
    21,7152008
    
    $
    544,053
    
    
    $
    24,0162009
    
    $
    559,152
    
    
    $
    26,1162010
    
    $
    572,454
    
    
    $
    28,0732011
    
    $
    584,788
    
    
    $
    30,1402012-2016
    
    $
    3,160,924
    
    
    $
    159,368
 Plan Investments
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Plan Contributions
  Other Non-Qualified Retirement and Deferred Compensation Plans
 Employers Accounting for Pension
 Other Postemployment Benefits
   Medicare Prescription Drug Improvement and Modernization Act of 2003
 Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003.
 Page 109 of 141




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13. Commitments and Contingencies
 Commitments
  Commitments
 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalDebt
    
    $
    3,361
    
    
    $
    90
    
    
    $
    2,030
    
    
    $
    63
    
    
    $
    1,015
    
    
    $
    16,329
    
    
    $
    22,888
    *LeasesNon-Cancelable Operating
    
    
    45
    
    
    
    41
    
    
    
    26
    
    
    
    12
    
    
    
    4
    
    
    
    7
    
    
    
    135Capital
    
    
    63
    
    
    
    59
    
    
    
    57
    
    
    
    57
    
    
    
    30
    
    
    
    6
    
    
    
    272Power purchase obligations
    
    
    205
    
    
    
    146
    
    
    
    148
    
    
    
    152
    
    
    
    154
    
    
    
    3,549
    
    
    
    4,354Purchase ObligationsFuel purchase obligations
    
    
    1083
    
    
    
    509
    
    
    
    496
    
    
    
    400
    
    
    
    249
    
    
    
    278
    
    
    
    3,015Other obligations
    
    
    199
    
    
    
    111
    
    
    
    5
    
    
    
    3
    
    
    
    2
    
    
    
    7
    
    
    
    327Total
    
    $
    4,956
    
    
    $
    956
    
    
    $
    2,762
    
    
    $
    687
    
    
    $
    1,454
    
    
    $
    20,176
    
    
    $
    30,991
 
 *
    
    Does not include noncash items of foreign currency valuation loss of $195 million and net
discount on sale of bonds of $178 million.  Energy Prepayment Obligations.
 Energy Prepayment Obligations
 2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    Thereafter
    
    
    TotalEnergy Prepayment Obligations
    
    $
    106
    
    
    $
    106
    
    
    $
    105
    
    
    $
    105
    
    
    $
    105
    
    
    $
    717
    
    
    $
    1,244
 Debt.
 Leases.
 Power Purchase Obligations.
 Page 110 of 141




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Fuel and
Purchased Power
    Fuel Purchase Obligations.
 Other Obligations.
 Bear Creek Dam.
 Bondholder Protection Test.
 
    
    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 Appropriation Investment); or
    
    investment in power assets.
  Tritium-Related Services
 Page 111 of 141




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Contingencies
 Nuclear Insurance
   Decommissioning Costs
 Accounting for the Effects of Certain Types of Regulation. Asset Retirement Obligations Other Regulatory Assets
 Page 112 of 141




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Environmental Matters.
 
    
    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)
 Legal Proceedings
    Page 113 of 141




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Other
Liabilities
 Legal Proceedings
  Economy Surplus Power Case
  Case Against TVA and 22 Electric Cooperatives
  Page 114 of 141




---



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Global Warming Cases
  Case Involving Modifications to the Colbert Fossil Plant
  Case Involving Modifications to Bull Run Fossil Plant
  Case Involving Opacity at Colbert
 United States v. Duke
Energy
 Page 115 of 141




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Case Brought by North Carolina Alleging Public Nuisance
  Case Involving North Carolinas Petition to the EPA
  Case Arising out of Hurricane Katrina
  Claim Involving Areva Fuel Fabrication
  Notification of Potential Liability for Ward Transformer Site
   Page 116 of 141




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##### Table of Contents



Accounting for Contingencies,
 14. Related Parties
   Related Party TransactionsFor
the years ended, or as of September 302006
    
    2005
    
    2004Sales of electricity services
    
    $
    181
    
    
    $
    168
    
    
    $
    153Other revenues
    
    
    24
    
    
    
    15
    
    
    
    16Other expenses
    
    
    226
    
    
    
    222
    
    
    
    202Receivables at September 30
    
    
    21
    
    
    
    26
    
    
    
    18Payables at September 30
    
    
    123
    
    
    
    131
    
    
    
    203Return on appropriation investment (Note 7)
    
    
    18
    
    
    
    16
    
    
    
    18Repayment of appropriation investment (Note 7)
    
    
    20
    
    
    
    20
    
    
    
    20
 15. Unaudited Consolidated Quarterly Financial Information
  2006(in millions)
    
    First
    
    Second
    
    Third
    
    Fourth
    
    TotalOperating revenues
    
    $
    2,052
    
    
    $
    2,048
    
    
    $
    2,250
    
    
    $
    2,835
    
    
    $
    9,185Operating expenses
    
    
    1,827
    
    
    
    1,766
    
    
    
    1,874
    
    
    
    2,115
    
    
    
    7,582Operating income
    
    
    225
    
    
    
    282
    
    
    
    376
    
    
    
    720
    
    
    
    1,603Income before cumulative
effect of accounting changes
    
    
    (53
    )
    
    
    14
    
    
    
    162
    
    
    
    315
    
    
    
    438Cumulative effect of
accounting changes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109
    )
    
    
    (109
    )Net (loss)/income
    
    $
    (53
    )
    
    $
    14
    
    
    $
    162
    
    
    $
    206
    
    
    $
    329
 Page 117 of 141




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Unaudited Consolidated Quarterly Financial Information
 2005(in millions)
    
    First
    
    Second
    
    Third
    
    Fourth
    
    TotalOperating revenues
    
    $
    1,834
    
    
    $
    1,839
    
    
    $
    1,881
    
    
    $
    2,240
    
    
    $
    7,794Operating expenses
    
    
    1,435
    
    
    
    1,562
    
    
    
    1,553
    
    
    
    1,953
    
    
    
    6,503Operating income
    
    
    399
    
    
    
    277
    
    
    
    328
    
    
    
    287
    
    
    
    1,291Net income (loss)
    
    $
    90
    
    
    $
    (24
    )
    
    $
    (15
    )
    
    $
    34
    
    
    $
    85
 16. Subsequent Events
 Debt Securities
 ®
 New Generation
   Revolving Credit Facility Agreement
  Customers
  Page 118 of 141




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Report of Independent Registered Public Accounting Firm
   Accounting for
Conditional Asset Retirement Obligationsan Interpretation of FASB Statement No. 143.
 PricewaterhouseCoopers
LLP
 Page 119 of 141




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  Page 120 of 141




---



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ITEM 9A. CONTROLS AND PROCEDURES
       
 ITEM 9B. OTHER INFORMATION
  Page 121 of 141




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PART III
 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
 Directors
     Directors
    
    Age
    
    Year Appointed
    
    Year Term ExpiresWilliam B. Sansom, Chairman
    
    
    65
    
    
    
    2006
    
    
    
    2009Bishop William Graves
    
    
    70
    
    
    
    2006
    
    
    
    2007Susan Richardson Williams
    
    
    61
    
    
    
    2006
    
    
    
    2007Skila S. Harris
    
    
    56
    
    
    
    1999
    
    
    
    2008Donald R. DePriest
    
    
    67
    
    
    
    2006
    
    
    
    2009Howard A. Thrailkill
    
    
    67
    
    
    
    2006
    
    
    
    2010William W. Baxter
    
    
    53
    
    
    
    2001
    
    
    
    2011Dennis C. Bottorff
    
    
    62
    
    
    
    2006
    
    
    
    2011Robert M. Duncan
    
    
    55
    
    
    
    2006
    
    
    
    2011
    Page 122 of 141




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Executive Officers
  Page 123 of 141




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EmploymentExecutive Officers
    
    Title
    
    Age
    
    CommencedTom D. Kilgore
    
    President and Chief Executive Officer
    
    
    58
    
    
    
    2005John M. Hoskins
    
    Interim Chief Financial Officer & Executive Vice
 President, Financial Services
    
    
    51
    
    
    
    1978William S. Orser
    
    Interim Chief Operating Officer
    
    
    62
    
    
    
    2006Maureen H. Dunn
    
    Executive Vice President and General Counsel
    
    
    57
    
    
    
    1978John E. Long, Jr.
    
    Chief Administrative Officer and Executive Vice President, Administrative Services
    
    
    54
    
    
    
    1980Kenneth R. Breeden
    
    Executive Vice President, Customer Resources
    
    
    58
    
    
    
    2004Terry Boston
    
    Executive Vice President, Power System Operations
    
    
    56
    
    
    
    1972Karl Singer
    
    Chief Nuclear Officer and Executive Vice President, TVA Nuclear
    
    
    50
    
    
    
    1993Kathryn Jackson
    
    Executive Vice President, River System Operations and Environment and the Environmental Executive
    
    
    49
    
    
    
    1991Joseph Bynum
    
    Executive Vice President, Fossil Power Group
    
    
    59
    
    
    
    1972Ashok S. Bhatnagar
    
    Senior Vice President, Nuclear Operations
    
    
    50
    
    
    
    1999Peyton T. Hairston, Jr.
    
    Senior Vice President, Communications
    
    
    51
    
    
    
    1993Janet C. Herrin
    
    Senior Vice President, River Operations
    
    
    52
    
    
    
    1978Preston Swafford
    
    Senior Vice President, Nuclear Support
    
    
    46
    
    
    
    2006Tammy W. Wilson
    
    Interim Senior Vice President and Treasurer
    
    
    38
    
    
    
    1990Edwin E. Freeman
    
    Vice President, Fossil Operations
    
    
    47
    
    
    
    1994Randy Trusley
    
    Vice President and Controller
    
    
    50
    
    
    
    1978
       Page 124 of 141




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Page 125 of 141




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Code of Ethics
  
 Audit Committee
    
 Other Committees
  
    
    Corporate Governance Committee
    
    Finance, Strategy and Rates Committee
    
    Operations, Environment and Safety Committee
    
    Human Resources Committee
    
    Community Relations Committee.
 
 ITEM 11. EXECUTIVE COMPENSATION
 
 Director Compensation
  Page 126 of 141




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Director CompensationTotalAnnual Stipend
    
    Director Compensation1Name
    
    ($)
    
    ($)William W. Baxter
    
    
    45,000
    
    
    
    61,737
    2Dennis C. Bottorff
    
    
    46,000
    
    
    
    21,581Donald R. DePriest
    
    
    46,000
    
    
    
    21,581Robert M. Duncan
    
    
    46,000
    
    
    
    21,581Bishop William Graves3
    
    
    45,000
    
    
    
    Skila S. Harris
    
    
    46,000
    
    
    
    59,500
    4William B. Sansom
    
    
    50,000
    
    
    
    23,336Howard A. Thrailkill
    
    
    46,000
    
    
    
    21,277Susan Richardson Williams
    
    
    46,000
    
    
    
    21,606
 
 Notes(1)
    
    Total Director Compensation excludes expense reimbursement.(2)
    
    Mr. Baxter served as Chairman of the TVA Board in
a full-time capacity prior to its restructuring and received a
salary at the rate of $149,200 per year until January 8, 2006. He
received a salary at the rate of $152,000 per year from January 9,
2006, through March 30, 2006, at which time he began serving as a
director in a part-time capacity and receiving a stipend at a rate
of $45,000 annually.(3)
    
    Bishop Graves was not sworn in as a director until
October 10, 2006.(4)
    
    Ms. Harris served as a director of the TVA Board
in a full-time capacity prior to its restructuring and received a
salary at the rate of $140,300 per year until January 8, 2006.
She received a salary at the rate of $143,000 per year from
January 9, 2006, through March 30, 2006, at which time she began
serving as a director in a part-time capacity and receiving a
stipend at a rate of $45,000 annually. On May 18, 2006, she was
selected to chair the Human Resources Committee and began
receiving a stipend of $46,000 annually.     Page 127 of 141




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Retirement Benefits Provided Under FERS
 Expiration of
    
    
    
    Earliest
    
    
    EstimatedCurrent
    
    Period of
    
    Eligibility
    
    
    Monthly Annuity3Name
    
    Appointment
    
    Creditable Service1
    
    Date2
    
    
    ($)William W. Baxter
    
    5/18/2011
    
    9 yrs., 5 mos.
    
    
    7/31/2015
    
    
    
    1,099Dennis C. Bottorff
    
    5/18/2011
    
    5 yrs., 1 mo.
    
    
    5/18/2011
    
    
    
    194Donald R. DePriest
    
    5/18/2009
    
    3 yrs., 1 mo.
    
    
    
    5
    
    
    
    5Robert M. Duncan
    
    5/18/2011
    
    5 yrs., 1 mo.
    
    
    4/13/2013
    
    
    
    194Bishop William Graves
    
    5/18/2007
    
    
    
    
    Skila S. Harris
    
    5/18/2008
    
    15 yrs., 8 mos. 4
    
    
    5/18/2008
    
    
    
    1,401William B. Sansom
    
    5/18/2009
    
    3 yrs., 1 mo.
    
    
    
    5
    
    
    
    5Howard A. Thrailkill
    
    5/18/2010
    
    4 yrs., 1 mo.
    
    
    
    5
    
    
    
    5Susan Richardson Williams
    
    5/18/2007
    
    1 yr., 1 mo.
    
    
    
    5
    
    
    
    5
 
 Notes(1)
    
    Assumes each director will continue to serve through the expiration of his or her
respective current term without reappointment.(2)
    
    Earliest date each director will become eligible to receive an unreduced
retirement benefit. Directors may be eligible for a reduced benefit at an earlier
date.(3)
    
    Assumes there will be no change in the amount shown in the Annual Stipend
column in the Director Compensation Table in 2006 and all subsequent years. In the
case of Ms. Harris and Mr. Baxter, the highest average of salary during three
consecutive plan years is based on the salaries received while serving as full-time
directors.(4)
    
    Includes seven years and two months of prior federal service.(5)
    
    The director will not meet mandatory vesting requirements prior to the
expiration of his or her term and will not be eligible to receive a retirement
benefit under the FERS Basic Benefit Plan.  
 Executive Compensation
    Base Compensation
  Page 128 of 141




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Salary.
 Additional Annual Compensation.
 Annual Incentive
   Bonus 
 Long-Term Incentive
    LTIP Payouts
 Compensation Tables.
 Page 129 of 141




---



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Summary Compensation Table
 Annual Compensation
    
    
    Long-Term CompensationPayoutsOther Annual
    
    
    
    
    
    All OtherSalary
    
    
    Bonus 1
    
    
    Compensation2
    
    
    LTIP Payouts 3
    
    
    Compensation 4Name and Principal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)Tom D. Kilgore
President and Chief Executive Officer
    
    
    2006
    
    
    
    140,000
    
    
    
    334,152
    5
    
    
    511,984
    
    
    
    293,709
    6
    
    
    306,300
    7Karl W. Singer
Chief Nuclear Officer and
Executive Vice President, TVA Nuclear
    
    
    2006
    
    
    
    140,000
    
    
    
    283,382
    
    
    
    426,723
    8
    
    
    216,893
    
    
    
    206,300
    9Ashok S. Bhatnagar
Senior Vice President, Nuclear Operations
    
    
    2006
    
    
    
    140,000
    
    
    
    210,007
    
    
    
    321,470
    10
    
    
    140,641
    
    
    
    153,705
    11Joseph R. Bynum
Executive Vice President, Fossil Power Group
    
    
    2006
    
    
    
    140,000
    
    
    
    154,540
    
    
    
    275,066
    
    
    
    124,713
    
    
    
    150,269
    12Michael E. Rescoe 13
Chief Financial Officer and
Executive Vice President, Financial Services
    
    
    2006
    
    
    
    140,000
    
    
    
    195,075
    5
    
    
    286,109
    
    
    
    100,021
    6
    
    
    6,300
    14
 
 Notes(1)
    
    Represents actual amount awarded under the EAIP except as noted otherwise. Under the EAIP,
incentive opportunities (represented as a percentage of each participants base compensation)
are established for each position based on opportunities provided for comparable positions in
the energy services industry. Actual incentive awards are tied to the achievement of
predefined corporate and business unit performance goals established each fiscal year and
identified in TVAs Winning Performance Balanced Scorecards. Payments pursuant to the EAIP
are made during the first quarter of the succeeding fiscal year for performance in the year
indicated.(2)
    
    Represents additional annual compensation paid in quarterly payments unless otherwise
noted.(3)
    
    Represents actual amount awarded under the ELTIP except as noted otherwise. Under the
ELTIP, incentive opportunities (represented as a percentage of each participants base
compensation) are established for each position based on opportunities provided for
comparable positions in the energy services industry. Actual incentive awards are tied to
the achievement of predefined corporate performance goal(s). Payments pursuant to the ELTIP
are made during the first quarter of the fiscal year following the end of the performance
cycle.(4)
    
    Represents annual deferred compensation credits provided under Long-Term Deferred
Compensation Plan (LTDCP) agreements and/or employer matching contributions to the TVA
Retirement Systems 401(k) plan. Agreements administered under the LTDCP are designed to
provide retention incentives to executives to encourage them to remain with TVA and to
provide, in combination with ELTIP incentive awards, a competitive level of total direct
compensation. Under the agreements, credits are made to an account in an executives name
(typically on an annual basis) for a predetermined length of time (typically five years)
after which the executive becomes vested in the balance of the account, including interest
and/or return on investment, and receives a distribution in accordance with an earlier
deferral election.(5)
    
    Represents the estimated amount to be awarded under the EAIP but not yet paid.(6)
    
    Represents the estimated amount to be awarded under the ELTIP but not yet paid.(7)
    
    Includes a $300,000 annual deferred compensation credit provided under a LTDCP agreement
and $6,300 in employer matching contributions to the TVA Retirement Systems 401(k) plan
based on Mr. Kilgores elective contribution.(8)
    
    Includes $341,323 in additional annual compensation paid in quarterly installments, $5,400
in vehicle allowance payments (paid at the rate of $450 every two weeks beginning April
2006), and an approved $80,000 in deferred compensation awarded for achievement of major milestone
objectives established in conjunction with the Browns Ferry Unit 1
recovery project but not yet paid.(9)
    
    Includes a $200,000 annual deferred compensation credit provided under a LTDCP agreement
and $6,300 in employer matching contributions to the TVA Retirement Systems 401(k) plan
based on Mr. Singers elective contribution.(10)
    
    Includes $276,070 in additional annual compensation paid in quarterly installments, $5,400
in vehicle allowance payments (paid at the rate of $450 every two weeks beginning April
2006), and an approved $40,000 in deferred compensation awarded for achievement of major milestone
objectives established in conjunction with the Browns Ferry Unit 1
recovery project but not yet paid.(11)
    
    Includes a $150,000 annual deferred compensation credit provided under a LTDCP agreement
and $3,705 in employer matching contributions to the TVA Retirement Systems 401(k) plan
based on Mr. Bhatnagars elective contribution.(12)
    
    Includes a $150,000 annual deferred compensation credit provided under a LTDCP agreement
and $269 in employer matching contributions to the TVA Retirement Systems 401(k) plan based
on Mr. Bynums elective contribution.(13)
    
    Mr. Rescoe left TVA effective November 13, 2006.(14)
    
    Represents $6,300 in employer matching contributions to the TVA Retirement Systems 401(k)
plan based on Mr. Rescoes elective contribution. Page 130 of 141




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##### Table of Contents



Long Term Incentive Plans
 Estimated Future Payouts Under Non StockPrice Based Plan 2Performance or OtherPeriod Until Maturation
    
    
    Threshold
    
    
    Target
    
    
    MaximumName
    
    Payout 1
    
    
    ($)
    
    
    ($)
    
    
    ($)Tom D. Kilgore
    
    3 Years
    
    
    292,500
    
    
    
    390,000
    
    
    
    487,500Karl W. Singer
    
    3 Years
    
    
    216,000
    
    
    
    288,000
    
    
    
    360,000Ashok S. Bhatnagar
    
    3 Years
    
    
    140,063
    
    
    
    186,750
    
    
    
    233,438Joseph R. Bynum
    
    3 Years
    
    
    124,200
    
    
    
    165,600
    
    
    
    207,000Michael E. Rescoe
    
    3 Years
    
    
    99,610
    
    
    
    132,813
    
    
    
    166,016
 
 Notes(1)
    
    While originally designed to cover three-year performance cycles,
the plan has been administered as an annual incentive.(2)
    
    The awards were or are to be paid in cash in the
first quarter of 2007 and are reported under the column titled LTIP
Payouts in the Summary Compensation Table.    
 Retirement Benefits
 Qualified Defined Benefit Plan
  TVAs Original Benefit Structure.
 Page 131 of 141




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##### Table of Contents



Salary
  TVAs Cash Balance Structure Salary
   Estimated Monthly Retirement Benefit1Name
    
    ($)Tom D. Kilgore
    
    
    345
    2Karl W. Singer
    
    
    1,671
    3Ashok S. Bhatnagar
    
    
    958
    3Michael E. Rescoe
    
    
    0
    4
 
 Notes(1)
    
    These estimates represent the maximum benefit and are
not reduced for any survivor options available under the
plan. Except for Mr. Rescoe, the estimates are based on
the following assumption: the annual salary amounts
reported in the Summary Compensation Table are used for
fiscal year 2006 and all subsequent years.(2)
    
    Represents the estimated monthly
retirement benefit payable at the earliest date Mr. Kilgore
will be eligible to receive an immediate benefit (March 3,
2010). This estimated benefit reflects a monthly pension
benefit only. Mr. Kilgore will not be eligible to receive
a supplemental benefit at the earliest date he becomes
eligible to receive an immediate pension benefit since he
will not have the required 10 years of creditable service.(3)
    
    Represents the estimated monthly
retirement benefit at age 55 for Mr. Singer and Mr.
Bhatnagar, which includes the combined monthly pension
benefit and the monthly supplemental benefit.(4)
    
    Mr. Rescoe left TVA in November 2006
and did not have the minimum five years of creditable
service required to become vested and receive a retirement
benefit under the CBBS or to receive a supplemental
benefit. Page 132 of 141




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##### Table of Contents



Supplemental Retirement Benefit
  TVA Sponsored 401(k) Plan
 Salary
 Supplemental Executive Retirement Plan
   Page 133 of 141




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##### Table of Contents



SERP Benefit Table
 Years of Creditable ServiceRemuneration1
    
    5
    
    
    10
    
    
    15
    
    
    20
    
    
    24 and >2($)
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)150,000
    
    
    18,750
    
    
    
    37,500
    
    
    
    56,250
    
    
    
    75,000
    
    
    
    90,000200,000
    
    
    25,000
    
    
    
    50,000
    
    
    
    75,000
    
    
    
    100,000
    
    
    
    120,000300,000
    
    
    37,500
    
    
    
    75,000
    
    
    
    112,500
    
    
    
    150,000
    
    
    
    180,000400,000
    
    
    50,000
    
    
    
    100,000
    
    
    
    150,000
    
    
    
    200,000
    
    
    
    240,000500,000
    
    
    62,500
    
    
    
    125,000
    
    
    
    187,500
    
    
    
    250,000
    
    
    
    300,000600,000
    
    
    75,000
    
    
    
    150,000
    
    
    
    225,000
    
    
    
    300,000
    
    
    
    360,000700,000
    
    
    87,500
    
    
    
    175,000
    
    
    
    262,500
    
    
    
    350,000
    
    
    
    420,000800,000
    
    
    100,000
    
    
    
    200,000
    
    
    
    300,000
    
    
    
    400,000
    
    
    
    480,000900,000
    
    
    112,500
    
    
    
    225,000
    
    
    
    337,500
    
    
    
    450,000
    
    
    
    540,0001,000,000
    
    
    125,000
    
    
    
    250,000
    
    
    
    375,000
    
    
    
    500,000
    
    
    
    600,0001,100,000
    
    
    137,500
    
    
    
    275,000
    
    
    
    412,500
    
    
    
    550,000
    
    
    
    680,0001,200,000
    
    
    150,000
    
    
    
    300,000
    
    
    
    450,000
    
    
    
    600,000
    
    
    
    720,000
 
 Notes(1)
    
    Represents the highest average of compensation during any three
consecutive SERP years (for benefit calculation purposes, compensation
includes the combined amounts reported under the columns titled
Salaryand Bonus,and additional annual compensation which is
reported under the column titled Other Annual Compensationin the
Summary Compensation Table).(2)
    
    Maximum benefit received at 24 years  no increase in
benefits beyond 24 years of service.   Remuneration
    
    Creditable1Named Officer
    
    ($)
    
    ServiceTom D. Kilgore
    
    
    984,152
    2
    
    
    <2Karl W. Singer
    
    
    737,806
    3
    
    
    14Ashok S. Bhatnagar
    
    
    587,350
    
    
    
    7Joseph R. Bynum
    
    
    607,997
    
    
    
    24Michael E. Rescoe4
    
    NA
    
    NA
 
 Notes(1)
    
    Limited to 24 years when determining supplemental benefits
available under TVAs SERP.(2)
    
    Mr. Kilgore will be granted three additional
years of creditable 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 Prior Employer
Offset will be waived and the Qualified Plan Offset will be
calculated based on the actual pension benefit he will receive as a
participant in TVAs CBBS.(3)
    
    TVA has agreed to grant Mr. Singer up to six
additional years of creditable service at the rate of one years
service for each year of TVA service, beginning August 17, 2006
(age 50), and continuing through August 17, 2011 (age 55).(4)
    
    Mr. Rescoe left TVA in November 2006 and did not
have the minimum five years of creditable service required to
become vested and receive a retirement benefit under TVAs SERP. Page 134 of 141




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##### Table of Contents



Long-Term Deferred Compensation Plan Agreements
        
 Other Agreements
 Page 135 of 141
    Table of Contents      
 Compensation Committee Interlocks and Insider Participation
     
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Page 136 of 141




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Principal Accountant Fees and Services
 2006
    
    
    2005Audit Fees (1)
    
    $
    1,110,742
    
    
    $
    948,393Audit-Related Fees (2)
    
    
    273,368
    
    
    
    514,706All Other Fees(3)
    
    
    14,000
    
    
    
    Total
    
    $
    1,398,110
    
    
    $
    1,463,099
 
 Notes1.
    
    Audit fees consist of professional services
rendered for the audit of TVAs annual financial
statements, the 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 TVAs
initial Form 10-K filing.3.
    
    All other fees relate to
in-house training of TVA personnel. Audit-Related Fees All Other Fees
 Page 137 of 141




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  (1)
    
    Financial Statements. The following documents are provided in Item 8 herein.Statements of Income
Balance Sheets
Statements of Cash Flow
Statements of Changes in Proprietary Capital
Notes to Financial Statements
Report of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP)(2)
    
    Financial Statement Schedules.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
 AdditionsBalance at
    
    
    charged to
    
    
    
    
    
    
    Balance atDescription
    
    beginning of year
    
    
    expense
    
    
    Deductions
    
    
    end of yearFor the year ended September 30, 2006
Allowance for doubtful accountsReceivables
    
    $
    7
    
    
    $
    4
    
    
    $
    
    
    
    $
    11Loans
    
    
    15
    
    
    
    1
    
    
    
    (1
    )
    
    
    15Inventories
    
    
    36
    
    
    
    13
    
    
    
    (11
    )
    
    
    38Total allowances deducted from assets
    
    $
    58
    
    
    $
    18
    
    
    $
    (12
    )
    
    $
    64For the year ended September 30, 2005
Allowance for doubtful accountsReceivables
    
    $
    8
    
    
    $
    
    
    
    $
    (1
    )
    
    $
    7Loans
    
    
    14
    
    
    
    1
    
    
    
    
    
    
    
    15Inventories
    
    
    36
    
    
    
    15
    
    
    
    (15
    )
    
    
    36Total allowances deducted from assets
    
    $
    58
    
    
    $
    16
    
    
    $
    (16
    )
    
    $
    58For the year ended September 30, 2004
Allowance for doubtful accountsReceivables
    
    $
    8
    
    
    $
    
    
    
    $
    
    
    
    $
    8Loans
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    14Inventories
    
    
    33
    
    
    
    11
    
    
    
    (8
    )
    
    
    36Total allowances deducted from assets
    
    $
    55
    
    
    $
    11
    
    
    $
    (8
    )
    
    $
    58
 Page 138 of 141




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##### Table of Contents



3.1
    
    Tennessee Valley Authority Act of 1933, as amended, 16 U.S.C. §§ 831-831ee (2000 & Supp. IV 2004)3.2
    
    By-laws of Tennessee Valley Authority Adopted by the TVA Board of Directors on May 18, 20064.1
    
    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, 199210.1
    
    $1,250,000,000 Fall Maturity Credit Agreement Dated as of May 17, 2006, as Amended, Among TVA, Bank of
America, N.A., as Administrative Agent, Bank of America, N.A., as a Lender, and the Other Lenders Party
Thereto10.2
    
    $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 Thereto10.3
    
    TVA Discount Notes Selling Group Agreement10.4
    
    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, LLC10.5
    
    Commitment Agreement Among Memphis Light, Gas and Water Division, the City of Memphis, Tennessee, and
TVA Dated as of November 19, 200310.6
    
    Power Contract Supplement No. 95 Among Memphis Light, Gas and Water Division, the City of Memphis,
Tennessee, and TVA Dated as of November 19, 200310.7
    
    Void Walk Away Agreement Among Memphis Light, Gas and Water Division, the City of Memphis, Tennessee,
and TVA dated as of November 20, 200310.8
    
    Power Contract Supplement No. 96 Among Memphis Light, Gas and Water Division, the City of Memphis,
Tennessee, and TVA dated as of November 20, 200310.9
    
    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 Mississippi10.10*
    
    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 Trustee10.11*
    
    Network Lease Agreement Dated as of September 26, 2003, Between NVG Network I Statutory Trust, as Owner
Lessor, and TVA, as Lessee10.12*
    
    Head Lease Agreement Dated as of September 26, 2003, Between TVA, as Head Lessor, and NVG Network I
Statutory Trust, as Head Lessee10.13*
    
    Leasehold Security Agreement Dated as of September 26, 2003, Made by NVG Network I Statutory Trust to TVA10.14
    
    Description of Compensation of TVAs Directors and Named Executive Officers10.15
    
    Tennessee Valley Authority Supplemental Executive Retirement Plan, Effective as of October 1, 199510.16
    
    Tennessee Valley Authority Executive Annual Incentive Plan, Effective in Fiscal Year 1999
 Page 139 of 141




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##### Table of Contents



10.17
    
    Tennessee Valley Authority Executive Long-Term Incentive Plan, Effective in Fiscal Year 199910.18
    
    Tennessee Valley Authority Long Term Deferred Compensation Plan10.19
    
    Employment Contract Between TVA and Tom D. Kilgore Dated as of January 19, 200510.20
    
    Employment Contract Between TVA and Michal E. Rescoe Dated as of April 21, 200410.21
    
    First Deferral Agreement Between TVA and Ashok S. Bhatnagar Dated as of September 28, 200410.22
    
    Second Deferral Agreement Between TVA and Ashok S. Bhatnagar Dated as of September 28, 200410.23
    
    Deferral Agreement Between TVA and Joseph R. Bynum Dated as of March 3, 200410.24
    
    Deferral Agreement Between TVA and Tom D. Kilgore Dated as of March 29, 200510.25
    
    First Deferral Agreement Between TVA and Karl W. Singer Dated as of May 7, 200410.26
    
    Second Deferral Agreement Between TVA and Karl W. Singer Dated as of May 7, 200414
    
    Disclosure and Financial Ethics Code31.1
    
    Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Executive Officer31.2
    
    Rule 13a-14(a)/15d-14(a) Certification Executed by the Chief Financial Officer32.1
    
    Section 1350 Certification Executed by the Chief Executive Officer32.2
    
    Section 1350 Certification Executed by the Chief Financial Officer
 
 
    
    Management contract or compensatory arrangement.*
    
    Certain schedules and exhibits have been omitted. The Tennessee Valley Authority hereby
undertakes to furnish supplementally copies of any of the omitted schedules and exhibits upon
request by the Securities and Exchange Commission. Page 140 of 141




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##### Table of Contents



SIGNATURES
  Date: December 15, 2006
    
    TENNESSEE VALLEY AUTHORITY
(Registrant)By:
    
    /s/ Tom D. KilgoreTom D. KilgorePresident and Chief Executive Officer(Principal Executive Officer)
  Signature
    
    Title
    
    Date/s/ Tom D. Kilgore

(Tom D. Kilgore)
    
    President and Chief Executive Officer
(Principal Executive Officer)
    
    December 15, 2006/s/ John M. Hoskins

(John M. Hoskins)
    
    Interim Chief Financial Officer &
Executive Vice President,
Financial Services
(Principal Financial Officer)
    
    December 15, 2006/s/ Randy Trusley

(Randy Trusley)
    
    Vice President and Controller
(Principal Accounting Officer)
    
    December 15, 2006/s/ William B. Sansom

(William B. Sansom)
    
    Chairman and Director
    
    December 15, 2006/s/ Dennis C. Bottorff

(Dennis C. Bottorff)
    
    Director
    
    December 15, 2006/s/ Donald R. DePriest

(Donald R. DePriest)
    
    Director
    
    December 15, 2006/s/ Robert M. Duncan

(Robert M. Duncan)
    
    Director
    
    December 15, 2006/s/ Bishop William Graves

(Bishop William Graves)
    
    Director
    
    December 15, 2006/s/ Skila S. Harris

(Skila S. Harris)
    
    Director
    
    December 15, 2006/s/ Howard A. Thrailkill

(Howard A. Thrailkill)
    
    Director
    
    December 15, 2006/s/ Susan Richardson Williams

(Susan Richardson Williams)
    
    Director
    
    December 15, 2006
 Page 141 of 141