Federal Reports

The OIG audited the distributor compliance assessments completed through December 31, 2012, to determine if (1) the assessments were adequately planned and performed to verify distributors' compliance with key provisions of the wholesale power contract, (2) the assessments were performed in accordance with the Distributor Compliance Charter and applicable policies, and (3) there was adequate segregation between the group charged with developing, interpreting, and implementing TVA's retail regulatory policy, Retail Regulatory Affairs, and the group responsible for assessing distributors' compliance with TVA's regulatory policies and procedures, Distributor Compliance.We found several positive attributes in Distributor Compliance's planning and performance of the assessments; however, we noted areas where changes were needed to improve (1) assessment planning and performance and (2) compliance with the Distributor Compliance charter and applicable professional standards and policies regarding the assessment reports. Specifically, we noted:Scope statements in the reports did not always reflect the actual information that was reviewed.Documentation of sampling methodologies was inadequate and the methodologies could be modified to provide more assurance that assessment objectives are met.Recommendations did not always help detect issues and/or prevent identified issues from recurring.Testing for misclassified residential accounts was not being performed.Distributors were not made aware of all issues identified during the assessments and the unreported issues.We determined there was adequate segregation between Retail Regulatory Affairs and Distributor Compliance. However, certain work being performed by both groups was duplicative.We made the following recommendations: (1) include testing for the number of days provisions in the contract, (2) include testing to identify penalty exempt accounts in all assessments, (3) when possible, select a sample containing items from across the population instead of from a subset of the population, (4) fully document sampling methodology in working papers and the report, including details for replacing and/or expanding the sample, (5) review and update processes for ensuring all applicable issues are included in report, (6) include recommendations that help improve distributors' compliance with the wholesale power contract by detecting issues and/or preventing identified issues or errors from recurring, (7) include in assessments the testing for potentially misclassified residential customers, and (8) inform distributors of all issues identified during the assessments.

Because of the importance of a reliable transmission system, the OIG audited the risk of significant equipment failure in the Energy Delivery (ED) organization. ED identified four specific actions in its enterprise risk management documentation to mitigate the risk of significant equipment failure. We found the identified mitigation strategy and supporting actions were appropriately designed; however, a lack of funding to the asset preservation program contributed to ED's inability to effectively reduce the risk as planned. While the risk was not being reduced as planned, ED was managing the risk by performing preventive maintenance and replacing assets as funding permitted. In addition, we found improvements were needed in ED's risk documentation. Specifically, we found certain actions included in ED's risk documentation did not directly affect the risk rating or mitigate risk. Conversely, the risk documentation lacked the preventive maintenance program and planned actions for implementing a critical spares program designed to further manage risk. Summary Only

The audit objectives were to determine whether program funds were managed in accordance with the ARC and Federal grant requirements