Federal Reports

This report summarizes the oversight work performed by EAC OIG during the 6-month period ended March 31, 2009.

This report to Congress and the TVA Board comes at a time of historic challenges for TVA. We chronicle some of those recent challenges in the "Special Feature" on page 16 of our report. In many ways, a "perfect storm" has developed that has changed the landscape of TVA forever. As we note, a federal district court in Asheville, North Carolina, has ruled that a number of TVA's fossil fuel plants have created a "public nuisance" that must be abated in short order. This has significant implications for the composition of TVA's energy fleet and requires rethinking how TVA will meet the demand for power across the Valley.Perhaps the darkest of clouds for TVA came on the night of December 22, 2008, when a coal ash pond at Kingston, Tennessee, spilled five million cubic yards of water and coal fly ash onto approximately 300 acres including about 8 acres of privately owned property. This incident (compared in the media to the Exxon Valdez spill) precipitated intense Congressional scrutiny at two public hearings as well as a barrage of media coverage. Congress has vowed to provide more oversight of TVA and the ensuing litigation from residents of Roane County, Tennessee, promises to keep TVA in the spotlight for years to come. As one TVA executive aptly put it..."this event-painful and uncharacteristic as it may be-is now part of our history as well" despite the laudable contributions of TVA to the Valley and the Nation in years past.These events with significant adverse economic consequences for TVA are compounded by an economy that has driven down revenues for TVA due to business constrictions across the Tennessee Valley region. TVA's rates to its wholesale customers have fluctuated with the sharp increases drawing fire from retail residential customers while reductions in rates by TVA receive scant attention. Thus, TVA finds itself seemingly embattled on almost every front.We raise the question in the Special Feature article, "How is TVA doing?" While this question is of particular relevance today, the OIG started posing the question before TVA was beset with the current crisis. We had previously com-mitted to doing assessments that would relay to TVA's stakeholders how TVA was doing with regard to finances, customer relations, environmental stewardship, and operational effectiveness.Our reports provide an independent perspective of TVA operations in key strategic areas. We issued the customer relations report during the prior OIG semiannual period, and the remaining reports will be issued during the next semiannual period.

EAC OIG, through the independent public accounting firm of Clifton Gunderson LLP, audited EAC's financial statements as of September 30, 2009 and for the year then ended. This letter discusses matters involving internal control and other operational matters arising from that audit that should be brought to management's attention.