Review of a Contract for the Purchase of Natural Gas

We performed an audit of costs billed to the Tennessee Valley Authority (TVA) by a company for the supply of natural gas to TVA's combined cycle or combustion turbine generation plants. Our audit included approximately $205 million in costs billed to TVA for gas delivered from June 1, 2017, to May 31, 2019. Our audit objectives were to determine if (1) the costs billed to TVA were in accordance with the contract's terms and conditions, (2) TVA's analysis to support current contract pricing was reasonable, and (3) the contract's current pricing methodology is reasonable for a potential extension when the pricing agreement expires.In summary, we determined the company billed TVA in accordance with the contract terms. In addition, we determined the analysis and assumptions used by TVA in entering into an agreement with the company to purchase 75,000 dekatherms per day of natural gas from April 1, 2017, through March 31, 2021, were reasonable and resulted in significant discounts and savings to TVA. Furthermore, we determined the contract's current pricing methodology is reasonable for a planned 3-year extension, and, if TVA is able to negotiate similar contract pricing, we estimated it could save about $849,000 compared to estimated future market prices. (Summary Only)