Distributor Audit of Meriwether Lewis Electric Cooperative

The OIG audited the electric system of Meriwether Lewis Electric Cooperative (MLEC), a distributor based in Centerville, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and MLEC for the audit period July 2008 through June 2010. For fiscal year (FY) 2010, MLEC provided power to approximately 35,000 customers and reported electric sales revenue of approximately $69 million.Our audit found MLEC generally complied with the contract provisions for proper reporting of electric sales and nondiscrimination in providing power, but we noted noncompliance related to approved use of electric revenues. We also noted a few other less significant issues regarding MLEC's customer contract documentation and internal controls. Additionally, we identified two areas where TVA's oversight of distributors could be enhanced. These areas were (1) discontinuing the practice of allowing distributors to pledge electric system funds as guarantees for customer economic development loans with Rural Development and communicating this to all affected distributors and (2) the lack of guidance related to permitted expenditures. These findings were reported in previous OIG distributor audit reports, and TVA agreed to take corrective action.MLEC did not provide comments to address the six findings and recommendations in the report. Except for the recommendation regarding the proper accounting for economic development expenditures, TVA management generally agreed with our recommendations. Also, in response to a recommendation made regarding the formal documentation of decisions and approvals by the MLEC Board related to resale rate components and amounts, TVA management stated except with respect to enforcing the nondiscrimination requirement, it currently has no contract mechanism to mandate the recommended requirements related to MLEC's resale rates.