Federal Reports

We assessed TVA's compliance with applicable policies, procedures, and laws/regulations when conducting land disposal transactions. TVA's land disposal actions include easements, sales, abandonments, deed modifications, transfers, and leases. The TVA Act grants TVA authority to transfer land to government agencies, corporations, partnerships, or individuals. TVA's overall policy on the use, acquisition, and disposal of land is contained in TVA Code V, which was last updated in 1982. With regard to reservoir property:TVA maintains 293,000 acres of reservoir property. River Systems Operations and Environment (RSO&E) manages reservoir property and maintains Board-approved Land Management Plans for the major reservoir properties. In summary, we determined:TVA's policy on land disposals does not clearly articulate (1) criteria for considering which property is subject to disposal, (2) criteria for accepting or rejecting proposals, and (3) provisions for land swaps. RSO&E generally complied with their land disposal processes including (1) obtaining appropriate reviews and approvals, (2) ensuring independent appraisals of land value, and (3) receipt of payment for appraised values. However, we found documentation could be improved related to the non-requirement of public notice. Documentation is not required or being maintained for withdrawn or rejected Land Use Applications. RSO&E has scheduled reassessment of TVA's Land Management Plans beyond their planned ten-year horizon. No non-compliance with applicable laws and regulations. TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective action.

We reviewed TVA's contracts with a contractor that provided boiler pressure parts and burner parts and determined the contracts' compensation clauses were not adequate for determining and evaluating prices to be billed for the parts. We recommended TVA management (1) incorporate specific pricing criteria in the contracts for use in determining and evaluating prices and (2) revise/supplement the cost reimbursable payment terms under one of the contracts to specifically address costs/rates to be paid by TVA. TVA management agreed the contracts' pricing criteria should be revised and took appropriate action. Summary Only

We assessed the adequacy of controls applicable to the accounting for costs associated with non-nuclear insurable losses. TVA has negotiated and obtained insurance to cover two areas of non-nuclear operations: (1) non-nuclear property and (2) unplanned outages. The unplanned outage insurance covers Fossil's nine baseload units. In summary, we found that the Corporate Insurance Risk & Analysis Group (CIR&A) is in the process of developing policies and procedures to ensure identification of non-nuclear insurable losses and the accounting for associated costs. According to CIR&A, interim actions have been undertaken to capture the costs of non-nuclear insurable losses, including:The Risk Management Information System was implemented in 2002 for the purpose of capturing insurable loss information as it relates to TVA's non-nuclear operations.Insurable loss incidents are identified by maintaining contact with designated site personnel. CIR&A also reviews various reports and data generated within TVA to identify potential insurable loss incidents. CIR&A has trained TVA business managers and designated site personnel to identify the costs that need to be captured in the event an insurable loss occurs. Since this process is currently in a development stage, we plan to defer any further audit work until the process is fully implemented.

This Semiannual Report to Congress summarizes the activities of our office for the 6-month period