Federal Reports

The OIG performed a review of Tullahoma Utilities Board (Tullahoma) which is a distributor for TVA power based in Tullahoma, Tennessee. Our review of Tullahoma found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity 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 Tullahoma and TVA would not be material. In addition, we found Tullahoma had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 29 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. Based on prior distributor audit findings, TVA is in the process of defining criteria for determining when a distributor's cash reserves are excessive. We also noted that Tullahoma used electric system funds to pay for expenses of the fiber optic business prior to obtaining TVA approval to loan funds to the fiber department.We also found improvements were needed to (1) comply with contract provisions regarding the allocation of costs between departments and customer contracts and (2) strengthen internal controls over the completeness, accuracy, and validity of billing system data. Finally, we 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 the (1) absence of a joint cost study being performed in over 20 years, (2) lack of an adequately defined process to document approval of credits, (3) lack of guidance related to when a demand meter is required, (4) lack of guidance on what constitutes prudent expenditures, and (5) lack of criteria for evaluating when a distributor's cash is excessive.We recommended the Group President, Strategy and External Relations, work with Tullahoma to (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. TVA and Tullahoma management generally agreed with and are taking actions to address the recommendations.