Federal Reports

As part of our annual audit plan, we audited $35.07 million in costs billed to TVA by a contractor for providing quality control inspections and nondestructive examinations under two contracts. In summary, we found TVA had been overbilled $159,662 under one of the contracts, including (1) $136,030 in overstated payroll taxes, insurance, and related performance fees, (2) $18,228 in ineligible labor costs, and (3) $5,404 in duplicate fees. The contractor agreed with our findings and plans to reimburse TVA for the overbilled costs. Summary Only

This review was the fourth in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regard to environmental performance." In conducting this review we: (1) assessed environmental performance, including key performance measures and, (2) evaluated TVA's performance relative to available benchmark information, and (3) identified key management challenges that could affect how successful TVA is in achieving these strategic objectives. Our report found that overall TVA's results in the area of environmental performance are mixed. In summary:The ash spill at the Kingston Fossil Plant represented one of the largest environmental disasters in U.S history and demonstrated TVA's poor performance in managing coal ash. The ash spill released 5.4 million cubic yards of coal ash containing a number of toxic substances into the environment. As we reported previously, the culture surrounding the management of coal ash at TVA reflected a culture that coal ash was unimportant and relegated to the status of garbage at a landfill. There was very little recognition of the potential hazard to the public and the environment. TVA is now taking steps to clean up the spill, assess the stability of other ash ponds, and improve ash management practices. More importantly, TVA has taken effective steps to address the cultural problems that led to the spill.TVA recently changed its approach to measuring its environmental performance. It now measures twelve industry-accepted metrics identified by the Global Reporting Initiative and six (6) measures for which there are not good industry benchmarks.Through the production of energy by its coal-fired plants, TVA produces a large amount of air pollutants. While it has made advances in the reduction of air emissions over the last several decades, TVA, along with other utilities, is still a polluter based on the nature of its business. TVA has incurred high capital investments to comply with evolving environmental requirements, and the future costs of compliance and pending legislation addressing air pollution and climate change will continue to put upward pressure on power rates.We assigned TVA a rating of "fair" for measures related to clean energy generation and renewable generation. This rating was achieved in large part due to TVA's hydro production efforts. However, pending standards may eliminate the use of hydro production as a renewable generation source. Additionally, hydro production is not a consistent source of generation due to fluctuating precipitation.TVA performs in the middle of the pack compared to its peers with respect to measures such as number of "Reportable Environmental Events," amount of environmental fines, generation of low-level radioactive waste, and office materials recycled. However, TVA lags other utilities in the removal of polychlorinated biphenyl equipment. In two other categories, the amount of coal combustion products recycled and the Certified Clean Marinas, TVA performs comparatively well.It is important to note that TVA faces many significant management challenges in incorporating effective environmental amelioration measures into its operations. Our report discusses the top five challenges that affect environmental performance, including: (1) increased environmental regulations related to sulfur dioxide (SO2), nitrogen oxide (NOx), mercury, carbon dioxide (CO2), and coal combustion waste disposal; (2) cleanup of the Kingston Fossil Plant ash spill; (3) remediation or improving stability of the ash and gypsum impoundments at TVA fossil plants; (4) mandated renewable portfolio standards; and (5) ability to maintain TVA's current low-cost of power while meeting environmental regulations.

We performed an audit $3.3 million in payments made by TVA to a contractor for geotechnical services between January 2003 and July 15, 2009. In summary, we determined the contractor overbilled TVA $395,479 as follows:$216,865 in labor costs, including (1) $110,016 due to the use of hourly billing rates instead of actual wages and markup as specified by the contract's compensation section, (2) $98,681 for overtime costs the company did not incur, and (3) $8,168 for miscellaneous duplicate and unsupported charges.$66,071 in estimated travel costs, because the contractor did not bill actual expenses as required by the contract.$55,524 in estimated drilling, sampling, and equipment costs, due to incorrect billing rates and unsupported costs.$51,224 in vehicle charges, because the contractor (1) billed both daily rates and mileage rates for certain vehicles and (2) could not document the accuracy of the billing rates it used for mileage.$5,795 in subcontractor costs, because the contractor billed more than its actual costs for the subcontracts.The contractor agreed it should reimburse TVA at least $173,162 ($98,681 in labor costs, $66,071 in travel costs, $2,615 in vehicle charges, and $5,795 in subcontractor costs). The contractor also provided additional explanations and documentation for certain costs and requested TVA take into consideration certain extenuating circumstances in determining the total amount that should be reimbursed to TVA. Summary Only

TVA Office of the Inspector General retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the report entitled "Report of Geotechnical Exploration and Slope Stability for Dike C," prepared by Stantec Consulting Services, Inc. (Stantec) of Lexington, Kentucky. In summary, it is Marshall Miller's opinion that Stantec generally performed a reasonable scope of investigation for the portion of Dike C covered in its report and applied appropriate investigative methods and evaluation techniques. However, according to Marshall Miller, Stantec applied site-wide characterization and application of shear strength parameters even though areas of significantly weaker material were identified. In addition, there was a lack of information on seepage and material conditions nearer the downstream toe of Dike C, which caused additional uncertainty about the Stantec study and its associated conclusions and opinions about the Dike C conditions. To address Marshall Miller's report, TVA management had Stantec and AECOM review and respond to the findings in this report. TVA management and its contractors disagreed with many of the findings and recommendations. Marshall Miller provided additional comments in response to AECOM and Stantec responses. In summary, Marshall Miller stands by the findings in the report and disagrees with some of the methodologies used by Stantec to evaluate Dike C. However, Marshall Miller feels that the Dike C improvement planned actions, referenced in the Stantec and AECOM responses, address or will address most of its findings and recommendations. The remaining findings and recommendations not fully addressed were not considered substantial.

We reviewed a contractor's tool program for the Watts Bar Nuclear plant (WBN) Unit 2 construction project. Our objective was to assess the procedures and key control activities used to track and account for tools used in the Watts Bar Nuclear (WBN) Unit 2 construction project. Our review of the WBN Unit 2 tool program determined the contractor's inventory controls were not functioning as intended. Currently, there are significant weaknesses related to tools inventory, checked-out tools, and tools received but not entered into the system processes. Specifically, for the items sampled and reviewed from the contractor's tool inventory system, we could not locate 55 percent of the tools valued at $210,352. In addition, no controls existed to ensure (1) the tools taken from the tool room after hours were properly checked out and (2) random inventories were performed as required by the contractor's procedure. We also identified individuals with tools checked out in their name who (1) had 100 or more tools checked out, (2) had been terminated, or (3) could not locate the tools. Further, we determined 10,948 items totaling $328,137 were paid for but were not received into the contractor's inventory system and we also identified inaccurate information in the inventory system due to keying errors. In addition, we found many issues described above had been cited in previous audit work. We made recommendations to contractor management and TVA. TVA management agreed with most of our recommendations and plans to (1) conduct an inventory count of the tool room and sea land containers, (2) conduct routine cycle counts of large dollar items, (3) implement an exception report to identify inventory with negative quantities or costs in the tool inventory system, (4) properly account for tools removed from the tool room after hours, (5) timely update the tool inventory system for any items issued on paper, damaged, lost, or written off, (6) utilize the tool inventory system's capabilities to identify low inventory items for reorder, (7) perform a periodic review of the Tools Out reports, especially for those individuals with 100 or more tools checked out for large dollar tools, (8) transition the responsibility for managing Measuring & Testing Equipment (M&TE) to Watts Bar Unit 1 personnel and use the Watts Bar Unit 1 program for tracking, (9) create a tool room within the Radiologically Controlled Area (RCA) to track and issue tools, (10) monitor the Tool Crib Clearance process by creating an exception report for identifying all individuals who have been terminated but still have tools checked out in their name, (11) communicate and enforce the use of a lost tool form and update the tool inventory system for damaged, lost, or stolen items timely for large dollar items, and (12) implement a process to ensure all tools on all purchase orders (PO) are processed and received in both the warehouse and the tool inventory system, except consumables. TVA management did not agree with our recommendations to (1) create a formal review process by a second person to verify data entered in the tool inventory system or (2) properly account for all tools from historical POs. In addtion, TVA management did not agree with our recommendation to hold (1) TVA employees and contractors signing out tools accountable for tool loss/theft and/or (2) supervisors with approval authority accountable when the tools were not returned. According to WBN Unit 2 management, the Project Maintenance and Modifications Agreement does not allow employees to be charged for tools used while performing their respective duties. TVA management did not address our recommendation to review the inventories performed by the contractor and any corresponding write-offs. Summary Only