F_720421K-1A_RESTRICTED_SoutheasternFederalPowerProgram_FS.pdf

SOUTHEASTERN FEDERAL POWER PROGRAM

Combined Financial Statements

September 30, 2025 and 2024

(With Independent Auditors' Report Thereon)

Table of Contents

Page(s)

Independent Auditors’ Report 1-4

Exhibit I – Material Weakness 5-6

Exhibit II – Significant Deficiency 7-8

Combined Balance Sheets 9

Combined Statements of Revenues and Expenses 10

Combined Statements of Changes in Capitalization 11

Combined Statements of Cash Flows 12

Notes to the Combined Financial Statements 13-26

Schedules

Schedule 1 – Combining Schedule of Balance Sheet Data 27-28

Schedule 2 – Combining Schedule of Revenues and Expenses Data 29-30

Schedule 3 – Schedule of Amount and Allocation of Gross Utility Plant Investment (unaudited) 31

Independent Auditors’ Report

Administrator

Southeastern Power Administration

Report on the Audit of the Combined Financial Statements

Opinion

We have audited the combined financial statements of the Southeastern Federal Power Program (the

Program), which comprise the combined balance sheets as of September 30, 2025 and 2024, and the related combined statements of revenues and expenses, changes in capitalization, and cash flows for the years then ended, and the related notes to the combined financial statements. The combined financial statements include the Southeastern Power Administration (SEPA), a component of the U.S. Department of Energy, and the hydroelectric power generating function of the U.S. Department of Defense, Army Corps of Engineers (the generating agency) for which SEPA markets the related power.

In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of the Program as of September 30, 2025 and 2024, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of

America (GAAS), the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Combined Financial Statements section of our report. We are required to be independent of the Program and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Program’s ability to continue as a going concern for one year after the date that the combined financial statements are available to be issued.

Auditors’ Responsibilities for the Audit of the Combined Financial Statements

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS and Government Auditing

Standards will always detect a material misstatement when it exists. The risk of not detecting a material

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misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.

In performing an audit in accordance with GAAS and Government Auditing Standards, we:

• Exercise professional judgment and maintain professional skepticism throughout the audit.

• Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Program’s internal control. Accordingly, no such opinion is expressed.

• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.

• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Program’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Supplementary Information

Our audits were conducted for the purpose of forming an opinion on the combined financial statements as a whole. The supplementary information in schedules 1 and 2 is presented for purposes of additional analysis and is not a required part of the combined financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the combined financial statements. The information has been subjected to the auditing procedures applied in the audits of the combined financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the combined financial statements or to the combined financial statements themselves, and other additional procedures in accordance with GAAS. In our opinion, the information is fairly stated in all material respects in relation to the combined financial statements as a whole.

Other Information

Management is responsible for the other information included in the 2025 Annual Report. The other information comprises schedule 3 but does not include the combined financial statements and our auditors’ report thereon.

Our opinion on the combined financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon.

In connection with our audit of the combined financial statements, our responsibility is to read the other information and consider whether a material inconsistency exits between the other information and the combined financial statements, or the other information otherwise appears to be materially misstated. If, based on work performed, we conclude that an uncorrected material misstatement of the other information exists we are required to describe it in our report.

Other Reporting Required by Government Auditing Standards

Report on Internal Control Over Financial Reporting

In planning and performing our audit of the combined financial statements as of and for the year ended

September 30, 2025, we considered the Program’s internal control over financial reporting (internal control) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the combined financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Program’s internal control. Accordingly, we do not express an opinion on the effectiveness of the Program’s internal control.

Our consideration of internal control was for the limited purpose described in the preceding paragraph and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified.

However, as described in Exhibits I and II, we identified certain deficiencies in internal controls that we consider to be a material weakness and a significant deficiency.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis. We consider the deficiency described in the accompanying Exhibit I to be a material weakness.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. We consider the deficiency described in Exhibit II to be a significant deficiency.

Report on Compliance and Other Matters

As part of obtaining reasonable assurance about whether the Program’s combined financial statements as of and for the year ended September 30, 2025 are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the combined financial statements. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.

The Program’s Response to Findings

Government Auditing Standards requires the auditor to perform limited procedures on the Program’s response to the findings identified in our audit and described previously. The Program’s response was not subjected to the other auditing procedures applied in the audit of the combined financial statements and, accordingly, we express no opinion on the response.

Purpose of the Other Reporting Required by Government Auditing Standards

The purpose of the communication described in the Report on Internal Control Over Financial Reporting and the Report on Compliance and Other Matters sections is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the

Program’s internal control or compliance. This communication is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Program’s internal control and compliance.

Accordingly, this communication is not suitable for any other purpose.

Denver, Colorado

April 30, 2026

Department of Energy

Southeastern Federal Power Program

Independent Auditor’s Report Exhibit I

Internal Control Over Financial Reporting MATERIAL WEAKNESS

Material Weakness in Internal Controls over Post-Retirement Benefits

Background

The Program is comprised of Southeastern, a component of the Department of Energy, and the Corps, a component of the Department of Defense. Southeastern is responsible for marketing and transmitting the hydroelectric power generated by the Corps within Southeastern’s marketing areas and is responsible for the preparation and presentation of the Program’s combined financial statements. The Corps provides

Southeastern the financial information necessary for Southeastern to combine Corps’ financial information with its own to prepare the combined financial statements.

Condition

During our testing over the Program’s combined financial statements, we identified the following conditions:

• In fiscal year (FY) 2025, Management determined that there were material errors in previously reported

Post-Retirement Benefit (PRB) expenses related to the Corps. It was determined that this increase resulted from a system error originating in FY 2016. Specifically, the Corps’ system-generated reports used to calculate PRB expenses inadvertently duplicated indirect labor expense data, which inflated the overhead factor used in calculations. As a result, annual PRB expenses have been increasingly overstated each year since FY 2016 resulting in a cumulative PRB expense impact of $49.4 million from FY 2016 through FY

2024. This error also impacted total interest payable to U.S. Treasury for FY 2016 through FY 2024 resulting in a cumulative impact of $4.1 million.

• In addition to the incorrect indirect labor data, the Corps’ PRB reports did not consistently use the correct

Office of Personnel Management (OPM) cost factors to calculate PRB expenses causing further inconsequential errors in the calculation.

Criteria

The U.S. Government Accountability Office (GAO) Standards for Internal Control in the Federal

Government (Green Book), sets the standards for an effective internal control system and provides an overall framework for designing, implementing, and operating effective internal control systems. Relevant criteria include the following principles:

• Green Book, Principle 10, Design Control Activities, paragraph 10.03

• Green Book, Principle 11, Design Activities for the Information System, paragraph 11.05

• Green Book, Principle 13, Use Quality Information, paragraph 13.04

• Green Book, Principle 14, Communicate Internally, paragraph 14.03

• Green Book, Principle 16, Perform Monitoring Activities, paragraph 16.05

Cause and Effect

The Program’s management has not properly designed control activities to assess the completeness and accuracy of the data used within their PRB expense calculations. The Corps did not effectively communicate quality information to Southeastern for inclusion in the combined financial statements and Southeastern management did not perform a review at the correct level of precision for reasonableness or assessment of the calculations’ validity. As a result, errors went undetected in prior periods.

Recommendations:

We recommend that the Chief Financial Officer, Southeastern:

1. Work with the Corps in developing a formal review process for PRB expense calculations. The process should include verifying the accuracy of the calculations and validating source data used within.

2. Create a standardized review checklist or set of procedures at Southeastern to assess the data and calculations provided by the Corps. This should include steps for identifying discrepancies and resolving issues prior to finalizing amounts that are recorded within the combined financial statements.

3. Collaborate with the Corps to reinforce consistent reporting lines and communication protocols across all districts to help ensure uniform application of policies and procedures and improve overall data integrity and accountability.

Management’s Response:

Management concurs with the finding and recommendations. Southeastern will work collaboratively to develop and implement formalized procedures and policies addressing Post-Retirement Benefit (PRB) expenses. In particular, Southeastern will (1) Coordinate efforts to develop and implement a formal review process for the annual PRB expense, including procedures to verify data completeness and accuracy; (2) Establish reporting governance and communication protocols across all districts to ensure uniform application of policies and enhance overall data integrity and accountability. The target completion date for these actions is September 30, 2026.

Department of Energy

Southeastern Federal Power Program

Independent Auditor’s Report Exhibit II

Internal Control Over Financial Reporting SIGNIFICANT DEFICIENCY

Significant Deficiency in Controls over Financial Statement Preparation and Review

Condition

During our audit, we identified that controls over the preparation and review of the Program's combined financial statements were not designed effectively to ensure the financial statements and related disclosures were complete, accurate, and properly presented. Specifically, during our review of the draft financial statements we noted the following:

• Misclassification of funding: The Corps did not record all non-appropriated funding to the correct account.

This resulted in the funding being incorrectly recorded as congressional appropriations in the financial statements.

• Yearend adjustment classification errors: Not all yearend adjustments were properly recorded to the correct financial statement line items, resulting in improper presentation within the statements.

• Financial statement integrity and consistency issues: The financial statements did not consistently properly foot and crossfoot; the balance sheet did not initially balance; and a majority of prior year amounts did not agree to the prior year published financial statements.

• Incomplete/incorrectly updated disclosures: Disclosures were not properly updated to reflect updated current year balances.

Criteria

The U.S. Government Accountability Office (GAO) Standards for Internal Control in the Federal

Government (Green Book), sets the standards for an effective internal control system and provides an overall framework for designing, implementing, and operating effective internal control systems. Relevant criteria include the following principles:

• Green Book, Principle 10, Design Control Activities, paragraph 10.03

• Green Book, Principle 12, Implement Control Activities, paragraph 12.01

Cause and Effect

SEPA management did not design and implement financial statement review procedures with sufficient precision to identify and resolve misclassifications, mathematical and integrity errors (including footing and crossfooting), balance sheet balancing issues, and inconsistencies between current-year presentation and the prior year published financial statements. In addition, SEPA did not maintain a documented, standardized financial reporting review process (e.g., standard checklists, defined fluctuation analysis thresholds, and procedures for documenting and retaining evidence of review) to help ensure the financial statements were reviewed at an appropriate level of detail to detect and correct errors on a timely basis. As a result, errors went undetected in the financial statements that required revisions for final reporting.

Recommendations:

We recommend that the Chief Financial Officer, Southeastern:

1. Formalize financial statement preparation and review procedures by establishing a standardized financial statement and disclosure checklist that includes, at a minimum: footing/crossfooting, balance sheet balancing, tie-outs to the trial balance, validation of account classifications, and agreement of comparative information to the prior year published financial statements.

2. Increase precision and evidence of review by defining reviewer responsibilities and expected review steps, requiring documented sign-off, and retaining evidence that key tie-outs and validations were performed and resolved prior to issuance.

3. Improve disclosure controls by requiring tie-out of all quantitative disclosures to underlying accounting records/support, along with a completeness review to ensure all disclosures reflect current year activity and balances.

Management’s Response:

Management concurs with the finding and recommendations. Southeastern will develop and implement formalized financial statement preparation and internal controls procedures to enhance financial statement preparation, review, and disclosure processes. In particular, Southeastern will (1) Formalize financial statement preparation through a comprehensive procedure to include a checklist, ensuring accuracy in areas such as footing, balancing, trial balance tie-outs, account classification, and comparative data agreement; (2) Establish a robust review process with defined reviewer responsibilities, requiring documented sign-off and evidence of key tie-outs, validations, and discrepancy resolution prior to issuance. This process will also include a thorough tie-out and completeness review of all quantitative disclosures to reflect current year activity and balances. The target completion date for these actions is September 30, 2026.

Assets 2025 2024

Utility plant in service (note 5) $ 3,030,940 2,972,170 Accumulated depreciation (1,456,126) (1,409,804)

Net completed plant 1,574,814 1,562,366

Construction work-in-progress 238,412 163,267

Net utility plant 1,813,226 1,725,633

Cash 777,056 873,793 Accounts receivable, net 23,730 27,128 Regulatory assets 20,647 17,175 Other assets 139 146

Total assets $ 2,634,798 2,643,875

Total Liabilities and Capitalization

Liabilities:

Accounts payable and accrued liabilities $ 20,444 24,095 Workers’ compensation actuarial liability 20,647 17,175

Total liabilities 41,091 41,270

Capitalization:

Payable to U.S. Treasury (notes 4 and 5(a)) 2,690,508 2,666,212 Accumulated net deficit (96,801) (63,607)

Total capitalization 2,593,707 2,602,605

Commitments and contingencies (note 6) — —

Total liabilities and capitalization $ 2,634,798 2,643,875

See accompanying notes to the combined financial statements.

SOUTHEASTERN FEDERAL POWER PROGRAM

Combined Balance Sheets

September 30, 2025 and 2024

(In thousands)

2025 2024

Operating revenues:

Sales of electric power $ 315,664 300,475 Other operating revenues 16,215 18,717

Total operating revenues 331,879 319,192

Operating expenses, excluding depreciation expense:

Operations 91,588 86,925 Maintenance 65,804 56,152 Purchased power 19,525 27,005 Purchased transmission services 66,194 57,712

Total operating expenses, excluding depreciation expense 243,111 227,794

Depreciation expense 48,646 48,751

Total operating expenses 291,757 276,545

Net operating revenues 40,122 42,647

Interest expenses:

Interest on payable to U.S. Treasury 77,798 75,266 Interest charged to construction (4,482) (3,176)

Net interest expenses 73,316 72,090

Net revenues (deficit) $ (33,194) (29,443)

See accompanying notes to the combined financial statements.

SOUTHEASTERN FEDERAL POWER PROGRAM

Combined Statements of Revenues and Expenses

Years ended September 30, 2025 and 2024

Payable to U.S. Accumulated Total Treasury net deficit capitalization

Total capitalization as of September 30, 2023 $ 2,543,268 (34,164) 2,509,104

Additions:

Congressional appropriations 221,298 — 221,298 Interest 75,265 — 75,265 Transfers of property and services, net 10,619 — 10,619

Total additions to capitalization 307,182 — 307,182

Deductions:

Payments to U.S. Treasury (184,246) — (184,246) Rate adjustments to congressional appropriations (note 5(a)) 8 — 8

Total deductions to capitalization (184,238) — (184,238)

Net revenues for the year ended September 30, 2024 — (29,443) (29,443)

Total capitalization as of September 30, 2024 2,666,212 (63,607) 2,602,605

Additions:

Congressional appropriations 115,918 — 115,918 Interest 77,798 — 77,798 Transfers of property and services, net 11,818 — 11,818

Total additions to capitalization 205,534 — 205,534

Deductions:

Payments to U.S. Treasury (181,196) — (181,196) Rate adjustments to congressional appropriations (note 5(a)) (42) — (42)

Total deductions to capitalization (181,238) — (181,238)

Net revenues for the year ended September 30, 2024 — (33,194) (33,194)

Total capitalization as of September 30, 2025 $ 2,690,508 (96,801) 2,593,707

See accompanying notes to the combined financial statements.

SOUTHEASTERN FEDERAL POWER PROGRAM

Combined Statements of Changes in Capitalization

Years ended September 30, 2025 and 2024

2025 2024

Cash flows from operating activities:

Net revenues (deficit) $ (33,194) (29,443) Adjustments to reconcile net revenues to net cash provided by operating activities:

Depreciation expense 48,646 48,751 Interest on payable to U.S. Treasury, net 73,316 72,090 Unfunded retirement benefits 7,493 6,417 (Increase) decrease in assets:

Accounts receivable, net 3,398 1,734 Other assets 7 337

Increase (decrease) in liabilities:

Accounts payable and accrued liabilities (3,651) 3,057

Net cash provided by operating activities 96,015 102,943

Cash flows used in investing activities:

Investment in utility plant (131,799) (71,792)

Cash flows used in financing activities:

Congressional appropriations 115,918 221,298 Payments to U.S. Treasury (181,196) (184,246) Transfers from other federal agencies, net 4,325 4,202

Net cash provided by (used in) financing activities (60,953) 41,254

Net increase (decrease) in cash (96,737) 72,405

Cash, beginning of year 873,793 801,388

Cash, end of year $ 777,056 873,793

Supplemental disclosures:

Cash paid for interest $ 73,316 73,467 Interest charged to construction 4,482 3,176 Adjustments to power allocations impacting (note 5(a)): — —

Congressional appropriations 42 8 Investment in utility plant 42 8

See accompanying notes to the combined financial statements.

SOUTHEASTERN FEDERAL POWER PROGRAM

Combined Statements of Cash Flows

Years ended September 30, 2025 and 2024

Notes to the Combined Financial Statements

September 30, 2025 and 2024

13 (Continued)

(1) Organization and Basis of Presentation

The Southeastern Federal Power Program (the Program) consists of all activities associated with the production, transmission, and disposition of all federal power marketed under Section 5 of the Flood

Control Act of 1944 (the Flood Control Act) in the 11 states of Alabama, Florida, Georgia, Illinois, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia. The accompanying combined financial statements of the Program include the accounts of two separate federal government agencies—the Southeastern Power Administration (Southeastern), a component of the United States

Department of Energy (DOE), and the hydroelectric generating plants and power operations of the United

States Army Corps of Engineers (the Corps of Engineers, the Corps, or the generating agency), an agency of the United States Department of Defense (DOD), for which Southeastern markets the related power.

Southeastern and the Corps are separately managed and financed, and each maintains its own accounting records. For purposes of financial and operational reporting, the facilities and related operations of

Southeastern and the respective hydroelectric generating activity of the Corps are combined as the

Program. U.S. government agencies are exempt from all income taxes imposed by any governing body, whether it is a federal, state, or commonwealth of the United States, or a local government.

Southeastern purchases, transmits, and markets power within four separate power systems:

Georgia-Alabama-South Carolina; Jim Woodruff; Cumberland; and Kerr-Philpott. As of September 30, 2025, the four power systems include 22 hydroelectric generating projects owned and operated by the

Corps of Engineers. The projects serve multiple purposes, including power, recreation, navigation, and flood control. The costs of multipurpose generating agency projects are assigned to specific hydroelectric power functions through a cost allocation process administratively developed pursuant to relevant law.

These combined financial statements include only those expenses and net assets of the Corps that are expected to be recovered through sales of power and other related revenues. Costs of multipurpose Corps projects are allocated to power and non-power purposes. The portion of total project costs allocated to power is included in the accompanying combined financial statements.

Over the life of the combined hydroelectric power systems, the accumulated net deficit represents timing differences between the recognition of expenses and related revenues. Southeastern and the generating agency are nonprofit federal agencies; therefore, ultimately the agencies will collect funds through power rates to repay all congressional appropriations amounts as discussed in note 2(b). Thus, the individual power systems may at any point in time have an accumulated deficit, but there are no operating or going-concern implications because of the federal government’s backing of the DOE and DOD and the liquidity and positive cash flows from operations of the Program.

(2) Summary of Significant Accounting Policies

(a) General

The combined financial statements are prepared following accounting principles generally accepted in the United States of America (U.S. GAAP). The combined financial statements also reflect Federal

Energy Regulatory Commission (FERC) regulations, FERC's prescribed uniform system of accounts for electric utilities and DOE's accounting practices.

(b) Congressional Authority and Financing

Southeastern and the Corps of Engineers receive congressional appropriations through the Energy and

Water Development and Related Agencies Appropriations Bill to finance their operations.

September 30, 2025 and 2024

14 (Continued)

Southeastern’s appropriations are fully offset by the use of receipts collected from the sale of Federal hydroelectric power, resulting in a net zero appropriation. The Corps also receives appropriations to finance construction of its hydroelectric projects; however, the Corps’ operations are not fully offset by the use of receipts. In accordance with the Flood Control Act, Southeastern is responsible for repayment to the federal government, with interest, of its appropriations and the portion of Corps appropriations allocated for construction and operation of the power projects.

Congressional appropriations received by the Corps are authorized and allocated to individual projects.

It is the intent of the Corps’ project management to distribute congressional appropriations in amounts approximating estimated current year expenses and to adjust the distribution as necessary within the limits of the Corps’ transfer authority. Project costs that are not specific to a project purpose are distributed between power and non-power purposes based on project cost allocations.

(c) Operating Revenues

The Program recognizes operating revenues in accordance with ASU No. 2014-09, Revenue from

Contracts with Customers (ASC Topic 606). The core principle of Topic 606 is for the entity to recognize revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration which an entity expects to be entitled in exchange for those goods or services.

Under the provisions of ASC Topic 606, the Program has elected the following practical expedients:

• Recognize revenue in the amount the Program has the right to invoice a customer.

• Apply the standard to a portfolio of contracts with similar characteristics, as the effects of applying the guidance to the portfolio would not differ materially from applying this guidance to the individual contracts.

Cash received from sales, less amounts legislatively authorized for use in operations, is deposited directly with the U.S. Treasury and is reflected as repayments to the U.S. Treasury, which is included in the payable to U.S. Treasury in the combined balance sheets. Southeastern markets federal power and provides services necessary to market power on behalf of nonfederal entities under long-term contracts. Electric power revenues are billed monthly based on meter readings or estimates. Revenues can vary from period to period because of weather and hydrological conditions.

Accounts receivable, net represents amounts billed to customers but not collected, net of the allowance of $0 as of September 30, 2025 and 2024. The estimate of the allowance is based on experience in the collection of receivables and an analysis of the outstanding balances. Interest may be charged on the principal portion of delinquent receivables based on rates published by the U.S. Treasury for the period in which the debt became delinquent. Delinquent receivables are charged off against the allowance once they are deemed uncollectible.

(d) Confirmation and Approval of Rates

The Flood Control Act requires rates to be set to encourage widespread use of electricity at the lowest possible cost, consistent with sound business principles, to preference customers (i.e., public bodies and cooperatives). Rates are established under the requirements of the Flood Control Act, related

September 30, 2025 and 2024

15 (Continued) legislation, and executive departmental directives, and are intended to provide sufficient revenues to meet all required payments of Program costs. Such Program costs include operation and maintenance expenses, wheeling fees to connecting utilities for transmission of power to customers, purchased power costs to meet firm power sale requirements, and payment to the U.S. Treasury for the investment in utility plant and interest thereon. Southeastern has established rate schedules for each of the four power systems. These rates generally are adjusted at five-year intervals, or less, under the terms of Southeastern’s current power sales contracts and DOE Order RA 6120.2.

The rates required under present DOE policy make provision for recovery of the federal investment in generating facilities within the service lives of the assets, not to exceed 50 years from the date placed in service. Operation and maintenance expenses and expensed interest are intended to be recovered annually. Utility plant assets are depreciated on a straight-line basis over their estimated service lives, which differ from the established repayment period. Accordingly, there are differences in the amortization of utility plant for financial reporting and for rate-setting purposes.

The Secretary of Energy (the Secretary) has delegated authority to the Administrator of Southeastern to develop power and transmission rates for the power projects. The Administrator, Southeastern

Power Administration, has the authority to confirm, approve, and place such rates in effect on an interim basis, effective April 10, 2023, through Redelegation Order No. S3-DEL-SEPA1-2023 by the

Under Secretary (for Infrastructure). Projects under construction are included in the combined financial statements at the multi-purpose allocation rate specific to the related project. Any adjustments to the multi-purpose allocation rate, as determined necessary by Southeastern's Administrator, are recorded at the time the asset is placed into service and subjected to repayment (note 5(a)).

The Secretary has delegated to FERC the authority to confirm, approve, and place such rates in effect on a final basis and to remand or to disapprove such rates. FERC’s review is limited to (1) whether the rates are the lowest possible consistent with sound business principles; (2) whether the revenue levels generated are sufficient to recover the costs of producing and transmitting electric energy including repayment within the period permitted by law; and (3) the assumptions and projections used in developing the rates. FERC shall reject decisions of Southeastern’s Administrator only if it finds them to be arbitrary, capricious, or in violation of the law. Refunds with interest, as determined by FERC, are authorized if final approved rates are lower than rates approved on an interim basis. However, if at any time FERC determines that the administrative cost of a refund exceeds the amount to be refunded, no refunds will be required. As of September 30, 2025, rates for the Cumberland, Jim Woodruff, Kerr-Philpott, and Georgia-Alabama-South Carolina Systems were approved on a final basis by FERC.

There were no revenues subject to refund.

The Program’s combined financial statements are presented in accordance with the provisions of ASC

Topic 980, Regulated Operations. The provisions of ASC Topic 980 require, among other things, regulated enterprises to reflect rate actions of the regulator in their financial statements, when appropriate. These rate actions can provide reasonable assurance of the existence of an asset, reduce or eliminate the value of an asset, or impose a liability on a regulated enterprise. Rate actions received after the balance sheet date but prior to the completion of the combined financial statements are considered conditions that existed at the balance sheet date unless the rate action addresses a specific event that occurred after the balance sheet date.

September 30, 2025 and 2024

16 (Continued)

(e) Cash

Cash consists of power receipts authorized by Congress for use in operations and the unexpended balance of funds appropriated by Congress for the Program-related activities of Southeastern and the

Corps of Engineers and is maintained by the U.S. Treasury.

(f) Utility Plant

Utility plant in service and construction work-in-progress consist principally of generating facilities and are stated at cost, net of contributions by entities outside the Program. Cost includes direct labor and materials; payments to contractors; indirect charges for engineering, supervision, and similar overhead items; and interest on federal funds used during construction. The costs of additions, replacements, and betterments are capitalized, while repairs and minor replacement costs are charged to operation and maintenance expenses. The cost of utility plant retired, together with removal costs less salvage, is charged against accumulated depreciation when the property is removed from service. There were no material asset retirements or asset retirement obligations as of September 30, 2025 and 2024.

The policy of the Program is to move capitalized costs into completed utility plants at the time a project or feature of a project is deemed to be substantially complete. A project is substantially complete when it is providing benefits and services for the intended purpose, and is generating project purpose revenue, where applicable.

Plant assets of the Program are currently depreciated using the straight-line method over the estimated service lives ranging from 10 to 100 years for transmission and generation assets. Moveable equipment includes computers, copiers, mobile cranes, energy testing equipment, trucks, and woodchippers. Moveable equipment is currently depreciated using the straight-line method over the estimated service lives ranging from 5 to 50 years.

The Program is subject to ASC Topic 980. Most completed utility plants, as required by law, are recovered through the rates, regardless of whether an asset is abandoned, loses value, is disposed of significantly before the end of its estimated useful life, or is destroyed. Consequently, the cash flow is not impaired, regardless of the condition of the asset.

(g) Interest on the Payable to U.S. Treasury

Interest, a component of total capitalization, is accrued annually on the outstanding payable to the U.S.

Treasury based on federal statutes and power system legislation. Such interest is reflected as an expense in the combined financial statements. Interest rates on unpaid balances ranged from 1.625% to 6.125% for the years ended September 30, 2025 and 2024.

Interest charged to construction represents interest on federal funds used during utility plant construction and is included in the cost of completed projects. Applicable interest rates ranged from

1.625% to 4.5% for the years ended September 30, 2025 and 2024, respectively, depending on the year in which construction of the transmission and generation facilities was initiated and requirements of the authorizing legislation.

September 30, 2025 and 2024

17 (Continued)

(h) Transfer of Property and Services, Net

Transfer of property and services, net is a component of total capitalization that represents the cumulative receipt of transfers of assets or costs offset by the cumulative disbursement of transfers of revenues. Transfers are recognized upon physical delivery of the asset or performance of the service.

Transfers occur between projects, project types, and other federal entities. Transfers between

Southeastern and the generating agency eliminate upon combination.

(i) Retirement Benefits

Substantially, all employees engaged in Program activities participate in either the Civil Service

Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Both are contributory defined benefit pension plans and are not covered under the Employee Retirement Income

Security Act of 1974. Pension benefit expense under CSRS and FERS is equivalent to 7.0% and up to

18.2%, respectively, of eligible employee compensation. Program contributions to these plans are submitted to benefit program trust funds administered by the Office of Personnel Management (OPM) and totaled $8.4 million and $8.4 million for the years ended September 30, 2025 and 2024, respectively. The contribution levels, as legislatively mandated, do not reflect the total current cost/full cost requirements to fund the pension plans. Additional sources of funding for CSRS and FERS benefits include direct appropriations to the OPM, not Southeastern or the Corps, and is approximately

59.3% and 27.1% of base salary, respectively. In addition to the amounts contributed to the CSRS and

FERS, the Program has recorded $7.6 million and $6.4 million of annual pension and retirement benefits expense for the years ended September 30, 2025 and 2024, respectively. This amount reflects the contribution made on behalf of Southeastern and the Corps by OPM to benefit from program trust funds. This expense will be recovered from power customers through the future sale of power. Costs incurred by OPM on behalf of the Program are included as transfers of property and services, net within the payable to U.S. Treasury on the combined balance sheets.

Other retirement benefits administered by the OPM include the Federal Employees Health Benefits

Program (FEHB) and the Federal Employee Group Life Insurance Program (FEGLI). FEHB is calculated at $11,028 and $9,445 per employee in fiscal years 2025 and 2024, respectively, and FEGLI is based on 0.02% of base salary for each employee enrolled in these programs.

As a federal agency, all postretirement activity is managed by OPM; therefore, neither the assets of the plans nor the actuarial data with respect to the accumulated plan benefits relative to Program employees are included in the Program’s combined financial statements.

(j) Derivative and Hedging Activities

The Program analyzes derivative financial instruments under ASC Topic 815, Derivatives and Hedging, subsequently updated by ASU No. 2010-11, Scope Exception Related to Embedded Credit Derivatives.

This standard requires that all derivative instruments, as defined by ASC Topic 815, be recorded on the combined balance sheets at fair value, unless exempted. Changes in a derivative instrument’s fair value must be recognized currently in the combined statements of revenues and expenses, unless the derivative has been designated in a qualifying hedging relationship. The application of hedge accounting allows a derivative instrument’s gains and losses to offset related results of the hedged item in the combined statements of revenues and expenses to the extent effective. ASC Topic 815 requires

September 30, 2025 and 2024

18 (Continued) that the hedging relationship be highly effective and that an organization formally designates a hedging relationship at the inception of the contract to apply hedge accounting.

The Program enters contracts for the purchase and sale of electricity for use in its business operations.

ASC Topic 815 requires the Program to evaluate these contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted from

ASC Topic 815 as normal purchases or normal sales. Normal purchases and sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented and exempted from the accounting and reporting requirements of ASC Topic 815.

The Program’s policy is to fulfill all derivative and hedging contracts by either providing power to a third party or by taking delivery of power from a third party as provided for in each contract. The Program’s policy does not authorize the use of derivative or hedging instruments for speculative purposes such as hedging electricity pricing fluctuations beyond the Program’s estimated capacity to deliver or receive power. Accordingly, the Program evaluates all of its contracts to determine if they are derivatives and, if applicable, to ensure that they qualify and meet the normal purchases and normal sales designation requirements under ASC Topic 815. Normal purchases and normal sales contracts are accounted for as executory contracts as required under accounting principles generally accepted in the United States.

As of September 30, 2025 and 2024, the Program has no contracts accounted for as derivatives.

(k) Concentrations of Credit Risk

Financial instruments, which potentially subject the Program to credit risk, include accounts receivable for customer purchases of power, transmission, or other products and services. These receivables are primarily held with a group of diverse customers that are generally large, stable, and established organizations, which do not represent a significant credit risk. Although the Program is affected by the business environment of the utility industry, management does not believe a significant risk of loss from a concentration of credit exists.

(l) Regulatory Assets

Regulatory assets are assets that result from rate actions of Southeastern’s Administrator and other regulatory agencies. These assets arise from specific costs that would have been included in the determination of net revenue or deficit in one period but are deferred until a different period for purposes of developing rates to charge for services, per the requirements of ASC Topic 980. The

Program defers costs as regulatory assets so that the costs will be recovered through the rates during the periods when the costs are scheduled to be repaid. This ensures the matching of revenues and expenses. The Program does not earn a rate of return on its regulatory assets. The asset listed below is regulatory in nature:

Workers’ Compensation Actuarial Cost

Workers’ compensation consists of two elements: (i) the actuarial liability associated with workers’ compensation cases incurred for which additional claims may still be made in the future (future claims);

and (ii) a liability for expenses associated with actual claims incurred and paid by the U.S. Department of Labor (DOL), the program administrator, to whom Southeastern and the Corps must reimburse. The

DOL, the DOE, and the DOD determine the Program’s actuarial liability associated with workers’

September 30, 2025 and 2024

19 (Continued) compensation cases. The actuarial liability for future claims was determined using historical benefit payment patterns and the U.S. Treasury discount rates.

The recovery of these future claims will be deferred for purposes of the rate-making process until such time the future claims are actually submitted and paid by the DOL. Therefore, the recognition of the expense associated with this actuarially determined liability has been recorded as a regulatory asset in the combined balance sheets to reflect the effects of the rate-making process. The Program’s cumulative unpaid expenses associated with estimated future claims are approximately $20.6 million and $17.1 million as of September 30, 2025 and 2024, respectively.

(m) Fair Value of Financial Instruments

ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial instruments. The carrying (recorded) value of short-term financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities, and other assets approximates the fair value of these instruments because of the short maturity of these instruments. The fair value of the payable to U.S.

Treasury and of certain unfunded and actuarially based liabilities cannot be determined as the future payout dates have yet to be determined.

(n) Use of Estimates

The preparation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America requires Program management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Items subject to such estimates and assumptions include the useful lives of completed utility plant; allowance for doubtful accounts; employee benefit obligations; and other contingencies. Actual results could differ from those estimates.

(3) Operating Revenues

(a) Disaggregated Revenues

Disaggregated revenues as of September 30, 2025 and 2024 consist of the following (in thousands):

2025 2024

Sales:

Power $ 315,664 300,475

Revenue from contracts with customers 315,664 300,475

Non-contract revenues 16,215 18,717

Total operating revenues $ 331,879 319,192

September 30, 2025 and 2024

20 (Continued)

(b) Revenue from…