Distributor Review of Bolivar Energy Authority

The OIG performed a review of Bolivar Energy Authority (Bolivar), a distributor for TVA power based in Bolivar, Tennessee. Our review of Bolivar found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Bolivar and TVA would not be material. In addition, we found Bolivar had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 12 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive.We also found improvements were needed to (1) comply with contract provisions regarding the co-mingling of funds; allocation of costs between departments; and customer contracts, and (2) improve Bolivar's internal controls related to the accuracy of contract demand data entered into the system, monitoring of manual data changes, monitoring of negative usage (kWh) amounts in billing data, and monitoring repetitive instances of zero usage. Finally, TVA has not: (1) performed a joint cost study in over 20 years even though the TVA Accountant's Reference Manual calls for one to be performed every three to four years or when major changes occur that affect joint operations; (2) adequately defined the process for granting the Small Manufacturing Credit to ensure proper documentation, including evidence of approval, is submitted and maintained; (3) provided adequate guidance on when a demand meter is required; and (4) defined criteria for evaluating when a distributor's cash balance is excessive.We recommended the Chief Financial Officer (CFO) work with Bolivar to: (1) remediate classification and metering issues and institute controls to prevent the issues from recurring; (2) assure compliance with contract provisions related to proper allocation of joint costs and customer contracts; and (3) assure internal controls are strengthened. In addition, the CFO should establish a process to document approval of distributor customer's credit applications. TVA is in the process of addressing findings from previous reviews that were also found at Bolivar related to: (1) contracts for customers whose demand exceeds 50 kW; (2) guidance for distributors on cash reserves; (3) performing joint cost studies; and (4) providing guidance on when a demand meter is required. TVA does not plan to take action regarding the co-mingling of electric and nonelectric funds, another issue we found at Bolivar and in previous audits; therefore, we suggested the power contract be modified to address the co-mingling funds language in existing contracts.TVA and Bolivar management are taking or have taken action to address certain recommendations. For the remaining recommendations, Bolivar does not plan to take additional actions.