Federal Reports

ED OIG Semiannual Report 58 Final 508

We audited the costs billed to TVA by a contractor for the design, engineer, and delivery of air preheater equipment for TVA fossil plants. Our audit, which covered $23.2 million TVA had paid the contractor, found TVA had been overbilled at least $2,232,780.The contract provided for all work, with the exception of a baseline project at Allen Fossil Plant, to be performed on a cost reimbursable basis. However, we found the contractor had overbilled TVA at least $2,025,739 on four additional fossil plant projects because it had billed fixed prices instead of using the required cost reimbursable terms. The actual overbilling may have been higher because our calculation of the overbilling used a maximum fee rate the contractor would have been eligible to receive. In addition, the contractor overbilled $207,041 for field technician services because incorrect billing rates had been used.We recommended TVA management recover the overbilled costs from the contractor. Summary Only

The OIG performed a review of Lewisburg Electric System (LES) which is a distributor for TVA power based in Lewisburg, Tennessee. Our review of LES found no material issues related to (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. However, we found a contract compliance issue regarding LES's execution of contracts with customers with demand greater than 50 kW.In addition, we found that LES had more than enough cash on hand to fund planned capital expenditures and provide a cash reserve. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. As of June 30, 2008, LES reported cash of $7.5 million and planned capital expenditures of about $4.8 million which left cash reserves of about $2.7 million.Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA has not (1) provided definitive guidance for distributors on what constitutes prudent expenditures and (2) defined criteria for determining when a distributor's cash reserves are excessive.We recommended the Chief Financial Officer (CFO) take action to ensure LES complies with contract provisions for formal customer contracts. In addition, the CFO, in collaboration with the TVA Board of Directors, where necessary, should (1) provide additional guidance on proper use of funds and (2) develop criteria to be used in determining whether a distributor's cash reserves are excessive.TVA and LES management generally agreed with and are taking actions to address the recommendations.