Distributor Audit of Warren Rural Electric Cooperative Corporation

The OIG audited Warren Rural Electric Cooperative Corporation's (WRECC) compliance with its power contract with TVA. WRECC is a power distributor based in Bowling Green, Kentucky. For fiscal year 2010, WRECC provided power to approximately 60,000 customers that resulted in revenues of approximately $157 million. WRECC also owns and/or operates nonelectric businesses including a security system and monitoring service division, a propane sales subsidiary, and a natural gas distribution subsidiary, and partially owns a nonelectric bill processing company. In addition, WRECC provides billing services for a water utility.Our audit found WRECC was generally in compliance with the contract provisions for proper reporting of electric sales and nondiscrimination in providing power. However, we noted instances of noncompliance with other provisions of the power contract. The most important instances were related to use of electric revenues. Other areas for improvement in contract compliance were noted regarding co-mingling of electric and nonelectric funds, customer classification, and metering. We also identified one area where TVA's oversight of the distributor should be enhanced. This issue, regarding the lack of a current joint cost study, has been reported in previous OIG distributor audit reports.WRECC and TVA management generally agreed with our recommendations and have taken or are taking corrective actions, except for our recommendation to create an independent general ledger and corresponding accounts for the security system and monitoring service division. The target completion date for all corrective actions is May 2012.