Federal Reports

We performed agreed-upon procedures, requested solely to assist management in determining the validity of the Winning Performance payout awards for fiscal year (FY) ending September 30, 2007. In summary, we found:The FY 2007 Winning Performance goals were properly approved. Actual year-to-date inputs for the sampled metrics agreed with the respective basis worksheet. Actual inputs for the nine TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units, except for the calculation of the Delivered Cost of Power (DCOP) metric, which was inconsistent with the Board-approved formula. This resulted in a one cent overstatement of the calculated DCOP, further resulting in a .25 percent increase in the TVA Scorecard percentage. Management agreed and made the appropriate correction during the engagement. Also, in applying the procedures, we noted the Fuel Cost Adjustment (FCA) metric improperly included Browns Ferry Nuclear Plant precommercial costs. The FCA metric approved by the Board did not include these costs. Including these costs in the FCA metric resulted in an 8.25 percent overstatement in the TVA Scorecard percentage. After discussion with management, these costs were removed from the FCA metric and subsequently included in the DCOP metric. A revised payout report was provided for retesting. We noted during retesting, the precommercial costs were properly excluded from the FCA metric and included in the DCOP metric. We further noted Allowance for Funds Used During Construction was added to the DCOP metric. The payout percentages were recalculated by the OIG based on the changes to the DCOP metric noted above. Summary Only

We audited $324,000 of costs billed to TVA by a contractor for providing volunteer services using TVA retirees to determine if the contractor had billed TVA in accordance with the contract terms and conditions. In summary, we found the contractor had overbilled TVA $63,755 including (1) $44,855 of unsupported costs and (2) an estimated $18,900 of ineligible travel expenses. The contractor agreed it had overbilled TVA $30,022 but stated (1) it disagreed with $25,000 of unsupported costs because a TVA employee had authorized the expenses and (2) the ineligible travel expenses would be reduced to $10,167 if TVA retroactively changes a contract reimbursement rate for mileage expenses. Summary Only

This report is Sensitive But Unclassified. To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.

To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.

To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.

To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.

This reporting period was marked by TVA leading the nation in the resurgence of nuclear power. TVA’s commitment to nuclear power was demonstrated by (1) the restart of the Browns Ferry Nuclear Plant (BFN) Unit 1 in North Alabama in May; (2) Board approval in August for completion of a second nuclear reactor at the Watts Bar Nuclear Plant (WBN) in East Tennessee; and (3) Board authorization in September to submit an application to the Nuclear Regulatory Commission (NRC) for a combined construction and operating license for two new nuclear units at TVA’s Bellefonte site in Hollywood, Alabama. The anticipated flurry of applications by private sector utilities with the NRC to build new nuclear plants is indicative of the belief within the utility industry that nuclear power is America’s best option to meet growing power demands. TVA’s successful restart of BFN Unit 1 on time and within budget has sparked renewed optimism that nuclear power is a viable, clean, and efficient source of energy. President George W. Bush recognized the significance of TVA’s role in this area by his attendance at a special ceremony at BFN on June 21, 2007. The TVA Board recently approved a $9.7 billion budget that includes $317 million to start work at WBN. The total projected cost to complete the project is $2.49 billion over the next five years. The Board also approved $423 million for additional natural gas generation. In addition to this new construction, the Board approved $22 million for the first phase of a renewed emphasis on energy efficiency and reduction in peak power demand. With this historic investment comes concomitant risks. The OIG’s role is to limit some of those risks by the oversight we provide. The OIG dedicated both investigators and auditors to BFN during the construction there, and we have similarly posted OIG personnel at WBN. The OIG staff is trained to anticipate areas in the construction process that are particularly vulnerable to fraud, our investigators and auditors develop confidential sources at the site, and we provide a confidential hotline, “Empowerline,” so people can report concerns anonymously 24/7. As with any major building project, we found fraud, waste, and abuse at BFN. We provided TVA management with details on each of our findings and “lessons learned” to avoid losses and to improve contracting and other processes at WBN. We generally were pleased with management’s response to the issues we raised, and we noted significant improvements. Of course, the work of the OIG extends beyond the oversight of TVA’s nuclear program. This report contains an expansive scope of audits, inspections, and investigations that have resulted in a stronger TVA. For example, the OIG recommended that TVA create a Chief Ethics and Compliance Officer position. The need for a more robust and comprehensive ethics program following the best practices of the industry was embraced both by the TVA Board Audit and Ethics Committee and TVA’s Chief Executive Officer (CEO), Tom Kilgore. This new more centralized approach to invigorating an already ethical culture will increase accountability and awareness of TVA employees’ ethical responsibilities. Peyton Hairston was named as TVA’s first Chief Ethics and Compliance Officer; he will report to the CEO and the Audit and Ethics Committee. We applaud TVA’s renewed commitment to excellence in this area. Finally, the work highlighted in this report demonstrates broad oversight coverage of TVA by the many dedicated employees of the OIG. Once again, their work has resulted in a healthier and more efficient TVA.

To obtain further information, please contact the OIG Office of Counsel at OIGCounsel@oig.treas.gov, (202) 927-0650, or by mail at Office of Treasury Inspector General, 1500 Pennsylvania Avenue, Washington DC 20220.