Federal Reports

This is my first report to TVA’s newly constituted Board since the new Board members were sworn in on March 31, 2006. Legislation signed by President Bush in 2004 expanded the Board from three full-time members to nine part-time members, with a full-time chief executive officer to run TVA on a day-to-day basis. As has been noted by many, this is a historic change to the governance structure of TVA.The impetus for this change was a growing sentiment over the years that TVA’s governance structure had become anachronistic. For 73 years, TVA was managed by three full-time board members. United States Senate Majority Leader Bill Frist, who introduced and helped secure passage of the restructuring legislation, has commented that the change is a matter of “common sense.” As the nation’s largest public utility, TVA will now have a corporate structure similar to that of its competitors. The hope is that the new governance structure will help position TVA to compete on a level playing field if as expected the traditional “fence” that has historically protected TVA’s market disappears.The focus of this governance change is accountability. We also focus on accountability as well as economy and efficiency. The OIG performs audits, inspections, and investigations that are designed to assist TVA in achieving its mission of providing affordable, reliable power, being a good steward of the environment, and fostering economic development. The work highlighted in this report is indicative of the efforts we take to help TVA achieve its goals. I am pleased to report that my experience has been that TVA management works collaboratively with the OIG and conscientiously implements our recommendations. There is a demonstrable commitment to excellence at TVA.I offer my sincere congratulations to the new board members and acting Chief Executive Officer Tom Kilgore. I want to extend my personal thanks to Directors Harris and Baxter who have demonstrated a commitment to supporting an independent OIG at TVA. I look forward to experiencing the same spirit of cooperation and partnership with the new board members.The challenges facing TVA are great, but the honor to serve the citizens of the Tennessee Valley is even greater. On this historic occasion, the OIG renews our pledge to provide independent, objective, and competent reports as TVA moves forward into a new era.

As a result of our review of the procedures and key control activities used to track and account for tools at Browns Ferry Nuclear Plant (Inspection No. 2005-526I), we performed an inspection to assess the processes and key control activities used to track and account for tools at SQN. TVA Nuclear (TVAN) Business Practice 226 (BP-226), Tool and Equipment Accountability, dated August 27, 2000:Established and implemented a plant accountability system for tools and equipment.Strengthened and standardized existing tool and equipment accountability practices. Provided for periodic reporting to control and minimize equipment losses. Our inspection identified a significant lack of tool accountability/tracking resulting from (1) noncompliance with processes and key control activities prescribed by TVAN BP-226 and (2) other process/control weaknesses. However, two control mechanisms were implemented to enhance tool room security -- access to the tool room was restricted using hand geometry and closed circuit cameras were installed in the tool room. Management agreed with our findings and has initiated corrective actions.

TVA's previous contract for administration of dental benefits went into effect on January 1, 1999. In April 2005, TVA's Employee Benefits and Procurement sent out a Request for Proposal for quotes from seven companies interested in providing administrative services for dental benefits to TVA's employees. Beginning January 1, 2006, a new dental administrator began administering TVA's dental benefit program.We assessed whether Employee Benefits/Procurement adequately considered the costs/benefits of switching to the new dental administrator for administration of the dental benefits program. In summary, we determined that it appears Employee Benefits/Procurement adequately considered the costs/benefits of switching. However, documentation could be improved. Specifically, no documentation was maintained supporting (1) the rationale behind the technical evaluation scoring methodology and (2) key assumptions used in the cost analysis (i.e., network penetration and average discount rates). Our review of the proposals also noted nothing to question the recommendation of the new dental administrator as the dental plan administration provider, assuming the unsupported network penetration and average discount rates used in Employee Benefits/Procurement's cost analysis were accurate. Management agreed with our findings and has taken or plans to take appropriate corrective actions. Summary Only

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.

We performed a limited scope review to assess the processes and controls over the sale of TVA assets on eBay, including how eBay is chosen for the sales mechanism, reserves are determined, and payments are received and accounted for. Our review of the TVA Investment Recovery (IR) procedures for eBay sales (eBay Sales), dated December 6, 2005, identified several opportunities for improvement. Specifically, the procedures did not adequately address the minimum acceptable price and payment processes/controls and provided TVA organizations, which may not have IR's expertise, the ability to sell TVA assets on eBay. Management agreed with our findings and has taken or plans to take appropriate corrective actions. Summary Only