Distributor Audit of Newport Utilities

The OIG performed an audit of Newport Utilities, a distributor for Tennessee Valley Authority (TVA) power based in Newport, Tennessee. Newport Utilities also operates nonelectric businesses, which are water and sewer utilities. Annual revenues from electric sales were approximately $50 million in fiscal year 2009. The objective of the audit was to determine compliance with key provisions of the power contract between TVA and Newport.Our audit identified customer classification issues that could impact the proper reporting of electric sales to TVA and/or nondiscrimination in providing power to members of the same rate class. We were unable to estimate the monetary effect of the classification issues because, in some instances, information was not available; however, for those where information was available, the monetary effect on the distributor and TVA would not be significant.We also found improvements were needed to (1) comply with other contract provisions regarding maintenance of customer contracts and (2) improve the distributor's internal controls related to the implementation of a corrected program code. In addition, we found the distributor had enough cash on hand to provide a cash reserve equivalent to a cash ratio of about 8 percent, which is within TVA's established guidelines for an adequate cash ratio of 5 to 8 percent.TVA and the distributor generally agreed with the OIG's recommendations and have taken or are taking actions to correct the identified issues.