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Tennessee Valley Authority’s Financial Hedging Program

Report Information

Date Issued
Report Number
2025-17537
Report Type
Audit
Description
TVA began hedging natural gas prices in April 2022 under the reinstated Financial Hedging Program (FHP). The program’s stated objectives are to reduce fuel rate volatility and balance operational and financial risks. From its reinstatement in April 2022 through February 2025, TVA’s FHP experienced losses of approximately $645 million.  We performed an audit of the FHP due to the financial risks associated with hedging. Our audit objective was to determine if TVA’s FHP is achieving its objectives of reducing fuel rate volatility and balancing operational and financial risks. We determined the FHP achieved its objective of reducing fuel rate volatility between April 2022 and February 2025.  Over the 35-month period, fuel rate volatility was reduced by an average of about 3.5 percent.  However, we were unable to determine if TVA met its objective of balancing financial and operational risks because the objective is unclear and TVA has not defined parameters to define successful achievement of the objective.  Although the fuel rate volatility was reduced over the entire time frame, the FHP resulted in (1) approximately $645 million in losses that were passed on to TVA’s customers and (2) a 2 percent increase in fuel rate volatility in fiscal year 2024.  We also found TVA had not performed the required back testing to measure volatility reduction and the effectiveness of the FHP.  At our request, TVA performed the back testing that showed the program had reduced fuel rate volatility.  Additionally, we identified an opportunity for TVA to improve the information provided to the TVA Board, Tennessee Valley Public Power Association, and Tennessee Valley Industrial Committee related to FHP fuel rate volatility and FHP gains/losses.
Joint Report
No
Agency Wide
Yes (agency-wide)
Questioned Costs
$0
Funds for Better Use
$0
View report on Oversight.gov

Recommendations

We recommend the Vice President, Planning and Investor Relations, verify back testing is performed annually.

We recommend the Vice President, Pricing and Contracts, evaluate the program objective to balance operational and financial risks to determine if it should be eliminated or rewritten to clarify intent.

We recommend the Vice President, Pricing and Contracts, report annually the financial hedging program’s impact on fuel rate volatility and its hedging gains/losses in a more transparent manner to the Tennessee Valley Authority Board of Directors, Tennessee Valley Public Power Association, and Tennessee Valley Industrial Committee.