Federal Reports

The OIG audited the electric system of Memphis Light, Gas, and Water Division (Memphis), a distributor based in Memphis, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and Memphis during the period January 2009 through December 2010. For the twelve-months ended June 30, 2010, Memphis reported it provided power to approximately 406,000 customers and earned electric sales revenue of approximately $1.2 billion.The OIG's audit of Memphis found (1) an erroneous adjustment made to a customer account resulted in a $3.6 million underpayment to TVA in January 2010, and (2) other isolated instances of noncompliance related to the proper reporting of electric sales, including customer misclassifications and a metering issue. Additionally, Memphis could improve compliance with other contract provisions and/or Memphis' policy by (1) obtaining and maintaining required documentation and (2) increasing accuracy of contract demand in the billing system.The OIG also identified two areas where TVA's oversight of distributors should be enhanced. The two issues, (1) the lack of guidance related to permitted expenditures and (2) the lack of a joint cost study, were included in previous OIG distributor audit reports, and TVA has agreed to take corrective action to address these issues.The OIG made 10 specific recommendations that require action by Memphis, and recommended TVA's Senior Vice President, Policy and Oversight, work with Memphis to resolve the findings. These recommendations generally related to (1) complying with power contract provisions and (2) remediating classification and metering issues. Memphis and TVA management generally agreed with our recommendations and are taking action to address the findings.

The OIG audited $15.4 million in costs billed to TVA by Pressure's On, Inc. (POI), for providing hydro blasting services at the Tennessee Valley Authority (TVA) locations, including $14.82 million in costs paid by TVA to POI as of January 16, 2009. In addition, the OIG reviewed $596,789 in costs for hydro blasting services incorrectly billed under a separate contract that TVA had with POI for vacuuming services only. In summary, it was determined POI had overbilled TVA $4,145,909 including:$2,482,444 in unsupported costs related to (1) missing cost details, (2) unclassified costs, (3) subcontractor costs, (4) labor costs, and (5) equipment and materials.$1,113,702 in costs for hydro blasting services because POI billed (1) excessive hours for equipment operating time and (2) hourly rates for equipment and employees not provided for in the contract.$393,848 of ineligible costs for (1) equipment and materials, (2) labor costs, (3) mobilization / demobilization, (4) travel, meals, and per diem, and (5) fuel surcharges.$135,941 due to the use of incorrect billing rates.$41,837 in duplicate billings.Credit for $21,863 in discounts that had been provided by POI.The OIG also noted numerous instances where POI did not pay its employees in accordance with the Project Maintenance and Modification Agreement (PMMA) labor provisions in the contract. In addition, POI did not submit "Weekly Statement of Payroll Compliance" reports to TVA's Contract Officer as required by the PMMA.We recommended TVA management recover the $4,145,909 in net overbilled costs from POI and ensure POI complies with the PMMA requirements.