Federal Reports

The Federal Emergency Management Agency’s (FEMA) Port Security Grant Program (PSGP) reimbursements — totaling more than $280 million — were allowable and paid in accordance with requirements, based on our review of records for fiscal years 20182021.  We did, however, question $281,045 in non-Federal cost share expenditures for which recipients either did not maintain adequate documentation or purchased items that were not allowable under the program, resulting in $199,083 in funds that may need to be returned to FEMA to meet non-Federal cost share requirements. 

TVA began hedging natural gas prices in April 2022 under the reinstated Financial Hedging Program (FHP). The program’s stated objectives are to reduce fuel rate volatility and balance operational and financial risks. From its reinstatement in April 2022 through February 2025, TVA’s FHP experienced losses of approximately $645 million.  We performed an audit of the FHP due to the financial risks associated with hedging. Our audit objective was to determine if TVA’s FHP is achieving its objectives of reducing fuel rate volatility and balancing operational and financial risks.

We determined the FHP achieved its objective of reducing fuel rate volatility between April 2022 and February 2025.  Over the 35-month period, fuel rate volatility was reduced by an average of about 3.5 percent.  However, we were unable to determine if TVA met its objective of balancing financial and operational risks because the objective is unclear and TVA has not defined parameters to define successful achievement of the objective. 

Although the fuel rate volatility was reduced over the entire time frame, the FHP resulted in (1) approximately $645 million in losses that were passed on to TVA’s customers and (2) a 2 percent increase in fuel rate volatility in fiscal year 2024.  We also found TVA had not performed the required back testing to measure volatility reduction and the effectiveness of the FHP.  At our request, TVA performed the back testing that showed the program had reduced fuel rate volatility. 

Additionally, we identified an opportunity for TVA to improve the information provided to the TVA Board, Tennessee Valley Public Power Association, and Tennessee Valley Industrial Committee related to FHP fuel rate volatility and FHP gains/losses.

In 2015, the Environmental Protection Agency issued the Coal Combustion Residuals (CCR) rule, which included requirements for addressing the risks from coal ash disposal.  The Tennessee Valley Authority (TVA) updated the program funding for its CCR management program in 2015 to address compliance with the CCR rule and in 2017 began developing a site-specific project to address coal ash at Gallatin Fossil Plant.  The Gallatin Ash Pond Complex Closure and Restoration (Gallatin Ash) project activities include (1) construction, operation, and closure of on-site lined landfills; (2) excavation and disposal of approximately 14 million cubic yards of CCR from Gallatin Fossil Plant; and (3) closure of the legacy ash site and coal yard, along with other site restoration work. 

The project was first approved for implementation by the Project Review Board in February 2018 with a total estimated project cost of approximately $899 million.  As of July 2024, the total estimated project cost had increased to approximately $1.64 billion, an increase of approximately 82 percent.  Because of the costs associated with this project, we assessed the management of project costs. 

We determined cost management for the Gallatin Ash project needed improvement related to the development of the project estimate and monitoring and tracking of project change requests (PCRs).  Specifically, the project estimate (1) did not include the complete scope of work and (2) was not developed using definitive costs as required.  As a result, the initial implementation project estimate was significantly understated.  Some PCRs submitted by contractors lacked adequate detail to determine if project cost increases were reasonable.  In addition, PCRs were not prepared for cost increases resulting from inaccurate project estimates. During the review, we also identified confidential contractor information that was shared by TVA project management with another contractor, creating reputational and liability risks for TVA.