Distributor Review of Murphy Electric Power Board

The OIG performed a review of Murphy Power Board (Murphy), a distributor for TVA power based in Murphy, North Carolina. Our review of Murphy 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 Murphy and TVA would not be material. In addition, we found Murphy 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 customer contracts and use of joint cost studies, and (2) strengthen internal controls. Finally, we found one TVA billing error as well as certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include a lack of: (1) guidance related to when a demand meter is required, (2) guidance on what constitutes prudent expenditures, and (3) criteria for evaluating when a distributor's cash reserves are excessive.We recommended the Group President, Strategy and External Relations, work with Murphy to: (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. In addition, we recommended the Group President, Strategy and External Relations: (1) recover amounts incorrectly credited to Murphy, and (2) determine if other Competitive Index Rate (CIR) customers with other distributors have been credited appropriately. TVA and Murphy management generally agreed with and are taking actions to address the recommendations. However, TVA management did not agree with the recommendation to recover incorrectly credited CIR amounts from Murphy since the customer receiving the credit is no longer in business and recovery through litigation is unlikely. In addition, TVA stated they have been focused on putting procedures and processes in place to better assure that TVA rates and pricing programs are implemented and carried out as intended in the future.