Agreed Upon Procedures for TVA FY 2006 Performance Measures

We performed four agreed-upon procedures, which were requested solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2006.In summary, we found:Seven instances where adjustments to the fiscal year 2006 goals were not properly approved. Four of the adjustments required TVA Board approval. Two of these adjustments will result in no payout and related to the Environmental Impact indicator on the TVA scorecard. In three of the four adjustments requiring Board approval, evidence was provided which showed a Board member informally approved the adjustment.Actual year-to-date inputs for each indicator agreed with the respective "reason for improvement" sheet. Actual inputs for the eight TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units, with one exception which related to a miscalculation of the Productivity indicator. This one exception will not affect the payout. In addition, we noted actual performance for the Asset Availability indicator was not rounded consistently with that of other indicators, which will affect the payout. We were informed that the actual amount was truncated with the Chief Executive Officer’s approval, rather than rounded. We further noted no formal policy was in place to guide rounding decisions. The payout percentages were recalculated without exception. However, it should be noted that two indicators at Colbert and John Sevier were included in the calculations at target rather than actual. Summary Only