Distributor Review: Monroe County Electric Power Association

The OIG performed a review of Monroe County Electric Power Association (Monroe) which is a distributor for TVA power based in Amory, Mississippi. Our review of Monroe found no material issues related to (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. However, we found improvements were needed regarding (1) Monroe's accounting for prepaid expenses to ensure conformity with FERC guidelines and (2) Monroe?s execution of contracts with customers with demand greater than 50 kW.In addition, we found Monroe had more than enough cash on hand to fund planned capital expenditures and provide a cash reserve. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. As of June 30, 2008, Monroe reported about $2.9 million in cash and $4.9 million in the TVA Power Invoice Prepayment Program and planned capital expenditures of about $5 million which left cash reserves of about $2.7 million.Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA (1) does not include cash paid in advance to TVA for future delivery of power in the calculation of the cash ratio for rate review purposes and has not defined criteria for determining when a distributor's cash reserves are excessive, (2) has not provided definitive guidance for distributors on what constitutes prudent expenditures, and (3) has not adequately defined how often meters should be tested by the distributors.We recommended the Chief Financial Officer (CFO) take action to ensure Monroe complies with contract provisions regarding accounting practices and formal customer contracts. In addition, the CFO, in collaboration with the TVA Board of Directors, where necessary, should (1) provide additional guidance on proper use of funds, (2) review its calculation of the cash ratio for distributors with prepaid power accounts, (3) develop criteria to be used in determining whether a distributor's cash reserves are excessive, and (4) provide guidance on the frequency of meter testing.TVA and Monroe management generally agreed with and are taking actions to address the recommendations.