Canal Barge Company

As part of our annual audit plan, the OIG performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Canal Barge Company, Inc. (Canal) for transporting coal by barge to the Cumberland Fossil Plant under contract number 40753. Our audit included $141.3 million in costs paid by TVA from February 1, 2009, through May 7, 2014. The contract's original compensation provisions were effective February 1, 2009, through December 31, 2011, and provided for TVA to pay per ton rates to Canal for barge services based on the origin loading point. The compensation provisions were amended effective January 1, 2012, to provide for (1) fixed monthly rate(s) for the number of boats Canal utilized and (2) a variable rate per ton based on the origin loading point. Our objectives were to determine if (1) the costs Canal billed to TVA were in accordance with the contract terms and conditions and (2) the data and assumptions TVA used in its analysis to support the amended pricing structure were reasonable. In summary, we found Canal billed costs to TVA in accordance with the contract terms and conditions. However, TVA's analysis for determining a revised pricing methodology for its contract with Canal used assumptions that were not supported by the contract or available historical information. As a result, the amended pricing structure will result in TVA paying up to an estimated $6 million more from January 1, 2012, to December 31, 2014, than would have been incurred under the original pricing structure. In response to our draft audit report, TVA management stated they agreed with the conclusions and recommendation and will (1) work to ensure that measures used in the analysis are reasonable based on contract provisions and (2) utilize historical information where it is relevant and available. However, management also stated (1) Coal and Gas Services (C&GS) had received differing legal opinions regarding how to value liquidated damages when it constructed the contract amendments, and (2) historical information is only one of several inputs utilized in generating potential scenarios. We agreed with TVA management's stated actions. However, with regard to management's other statements, (1) C&GS could not provide documentation that it had received differing legal opinions regarding how to value liquidated damages, and (2) historical information was the most reliable data source to determine towing capacity scenarios, but it was not a key data component used in TVA's analysis. Summary Only