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1.
Summary of significant
accounting policies
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General
TVA
is a wholly owned corporate agency and instrumentality of the United
States. It was established by the TVA Act with the objective of developing
the resources of the Tennessee Valley region in order to strengthen
the regional and national economy and the national defense by providing:
(1) an ample supply of power within the region, (2) navigable channels
and flood control for the Tennessee River System, and (3) agricultural
and industrial development and improved forestry in the region. TVA
carries out these regional and national responsibilities in a service
area that centers on Tennessee and parts of Alabama, Georgia, Kentucky,
Mississippi, North Carolina, and Virginia.
TVA’s programs
are divided into two types of activities—the power program and
the nonpower programs. Substantially all TVA revenues and assets are
attributable to the power program. The power program has historically
been separate and distinct from the nonpower programs and is required
to be self-supporting from power revenues and proceeds from the issuance
of debt. The power program receives no congressional appropriations
and is required to make annual payments to the U.S. Treasury in repayment
of, and as a return on, the government’s appropriation investment
in TVA power facilities. Most of the funding for TVA’s nonpower
programs has historically been provided by congressional appropriations.
Certain nonpower activities are also funded by various revenues and
user fees. Financial accounts for the power and nonpower programs are
kept separately. See note
10 for a discussion related to future
funding of TVA’s nonpower programs.
Power rates are
established by the TVA Board of Directors as authorized by the TVA Act.
The TVA Act requires TVA to charge rates for power that, among other
things, will produce gross revenues sufficient to provide funds for
operation, maintenance, and administration of its power system; payments
to states in lieu of taxes; and debt service on outstanding indebtedness.
Fiscal
year
Unless
otherwise indicated, years (1999, 1998, etc.) refer to TVA’s fiscal
years ended September 30.
Revenue
Revenues
from power sales are recorded as power is delivered to customers. TVA
accrues estimated unbilled revenues for power sales provided to customers
for the period of time from the end of the billing cycle to month-end.
Off-system sales
are presented in the accompanying statements of operations as a component
of Sales of electricity—Federal agencies and other. Prior to 1998,
off-system sales and purchases under exchange power agreements were
reflected on a net basis in fuel and purchased power expense. Off-system
sales for 1997 have been reclassified to conform with the 1999 and 1998
presentation.
Property,
plant, and equipment and depreciation
Additions
to plant are recorded at cost, which includes direct and indirect costs
and an allowance for funds used during construction. The cost of current
repairs and minor replacements is charged to operating expense. Nuclear
fuel is valued at the lower of cost or market using the average cost
method for raw materials and the specific identification method for
nuclear fuel in reactor. Amortization of nuclear fuel is calculated
on a units of production basis and is included in fuel expense. The
TVA Act requires TVA’s Board of Directors to allocate the cost
of completed multi-purpose projects between the power and nonpower programs,
subject to the approval of the President of the United States. The original
cost of property retired, together with removal costs less salvage value,
is charged to accumulated depreciation. Depreciation is generally computed
on a straight-line basis over the estimated service lives of the various
classes of assets. Depreciation expense expressed as a percentage of
the average annual depreciable completed plant was 3.28 percent for
1999, 3.23 percent for 1998 and 3.21 percent for 1997.
Decommissioning
costs
Effective
for 1998, TVA changed its method of accounting for decommissioning costs
and related liabilities. TVA’s current accounting policy recognizes
as incurred all obligations related to closure and removal of its nuclear
units. The charge to recognize the additional obligation in 1998 was
effected through the creation of a regulatory asset. TVA further modified
its accounting methodology such that earnings from decommissioning investments,
amortization of the decommissioning regulatory asset, and interest expense
on the decommissioning liability are deferred (see
note 9—Decommissioning costs). The effect of the change was
to decrease 1998 depreciation expense approximately $38 million—primarily
due to the deferral of the decommissioning components of earnings, amortization
and interest.
During 1997, the
excess of decommissioning investment earnings over the annual decommissioning
provision was recorded as other income. TVA’s total investment
earnings were $151 million. Of this amount, $13 million was recorded
as an offset to the decommissioning provision, and $138 million was
recorded as other income.
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