We performed an audit of the Tennessee Valley Authority’s (TVA) Contract No. 13814 with Hitachi Energy USA, Inc. (Hitachi). Under the contract, Hitachi was to design, furnish, and install/commission power transformers and related equipment at TVA designated locations. Our audit objectives were to determine (1) if costs billed to TVA and purchase orders (PO) issued were in compliance with the contract's terms and (2) the reasonableness of TVA's process for evaluating the prices for products and services outside the contract's pricing schedule. Our audit scope included about $471 million in approved spend for 466 POs issued between September 27, 2018, and September 26, 2024.
We selected ten POs issued under the contract, which included six POs for transformers listed in the contract’s pricing schedule and four POs for unique transformers or related services not listed on the contract’s pricing schedule. We determined the costs for transformers included in the contract’s pricing schedule did not always comply with the contract’s pricing terms. Specifically, we found:
- Between 2022 and 2024, TVA issued POs with transformer prices that significantly exceeded the contract’s pricing because of changing market conditions. This resulted in TVA agreeing to pay $33.5 million more than the contract price for transformers on four POs. Contract No. 13814 expired in 2024. TVA executed a new contract with Hitachi in 2025, which included the necessary remediations to prevent TVA from agreeing to pay excessive transformer prices in the future.
- Although Hitachi followed the contract’s pricing on two POs we reviewed, Hitachi used incorrect index values when adjusting the base transformer pricing, resulting in $321,560 in overbilled transformer costs.
Additionally, for any transformer or transformer-related material, equipment, or services outside the contract's pricing schedule, we determined TVA’s process for evaluating PO prices was reasonable.
