The Tennessee Valley Authority (TVA) performs an annual cost of service study that, according to Commercial Energy Solutions Standard Programs and Processes 21.7.3, Cost of Service, “is used to estimate the cost to TVA of serving particular classes of customers and to compare that cost to the estimated revenue derived from those classes. The analysis may be used to derive, evaluate, initiate, or justify rate actions.”
Due to the importance of fairly recovering costs to serve TVA customers through rate design, we performed an audit of TVA’s fiscal year (FY) 2023 cost of service study. Our audit objectives were to determine if TVA’s cost of service study was (1) performed in accordance with policies and procedures and (2) designed to accurately consider all revenue and costs to serve each customer classification.
We determined TVA’s FY 2023 cost of service study was performed in accordance with TVA policies and procedures; however, we noted the detailed internal procedure had not been recently updated to reflect organizational changes. Additionally, we identified an area where the cost of service study design could more accurately reflect the costs to serve each customer classification.
