Distributor Review of Princeton Electric Plant Board

The OIG performed a review of the Princeton Electric Plant Board (Princeton), which is a distributor for Tennessee Valley Authority (TVA) power based in Princeton, Kentucky. Our review of Princeton found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing power 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 Princeton and TVA would not be material. In addition, we found Princeton did not have enough cash on hand as of June 30, 2008, to cover expenditures for planned capital projects and provide a cash reserve. However, Princeton obtained a loan in August 2009 to provide additional funds for capital expenditures.We also found Princeton (1) did not comply with contract provisions for allocation of joint costs and establishing contracts for customers with demand above 50 kW and (2) could improve internal controls related to the completeness, accuracy, and validity of the billing and metering data. Finally, we have identified 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: (1) the absence of a joint cost study being performed, (2) the lack of an adequately defined process to document approval of Small Manufacturing Credits, (3) the lack of guidance related to when a demand meter is required, and (4) the lack of guidance on what constitutes prudent expenditures.Princeton has elected to terminate its power contract with TVA effective January 24, 2010. Consequently, we have no recommendations which require response from either Princeton or TVA. However, we provided specific suggestions to help Princeton strengthen its internal controls and accurately bill its customers in the future. Our suggestions included: (1) remediate classification and metering issues, (2) develop and document a consistent methodology for allocating all joint costs, (3) obtain contracts for customers as appropriate, (4) update the automated system (and manual customer cards, if maintained) with changes, including contract demand, on a timely basis, and (5) identify and utilize exception reports to ensure customers are classified correctly and identify problems that need to be addressed in a timely manner. As noted in the report, Princeton personnel corrected the classification issues and started reviewing additional exception reports.