Agreed-Upon Procedures for TVA Fiscal Year 2007 Performance Measures

We performed agreed-upon procedures, requested solely to assist management in determining the validity of the Winning Performance payout awards for fiscal year (FY) ending September 30, 2007. In summary, we found:The FY 2007 Winning Performance goals were properly approved. Actual year-to-date inputs for the sampled metrics agreed with the respective basis worksheet. Actual inputs for the nine TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units, except for the calculation of the Delivered Cost of Power (DCOP) metric, which was inconsistent with the Board-approved formula. This resulted in a one cent overstatement of the calculated DCOP, further resulting in a .25 percent increase in the TVA Scorecard percentage. Management agreed and made the appropriate correction during the engagement. Also, in applying the procedures, we noted the Fuel Cost Adjustment (FCA) metric improperly included Browns Ferry Nuclear Plant precommercial costs. The FCA metric approved by the Board did not include these costs. Including these costs in the FCA metric resulted in an 8.25 percent overstatement in the TVA Scorecard percentage. After discussion with management, these costs were removed from the FCA metric and subsequently included in the DCOP metric. A revised payout report was provided for retesting. We noted during retesting, the precommercial costs were properly excluded from the FCA metric and included in the DCOP metric. We further noted Allowance for Funds Used During Construction was added to the DCOP metric. The payout percentages were recalculated by the OIG based on the changes to the DCOP metric noted above. Summary Only