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.
