Federal Reports

We conducted four reviews to determine whether each coal supplier was in compliance with weighing and sampling provisions of the respective contract. We performed tests to verify that shipment weight documentation maintained at each mine supported the amounts used to support invoices to TVA for tonnage shipped. In summary, our reviews found documentation maintained at the respective mine for ten randomly selected shipments agreed with the information provided to TVA regarding tons shipped. Each supplier was also found to be in general compliance with the weighing and sampling requirements of the contracts. However, we did identify a few issues requiring management action related to bias testing. Specifically, we recommended the General Manager, TVA Fuel Supply:Include in future coal contracts a specific frequency requirement pertaining to the periodic bias testing of samplers.Follow up with one coal supplier to either identify a method of bias testing that is acceptable or amend the contract to extend the period in which the samplers need to be bias tested.Follow up with one coal supplier regarding correction of the qualified opinion received from the independent lab in its 2009 dynamic bias test of Sampler #2 and determine whether any further corrective actions are warranted when current bias test results are received.TVA management generally agreed with our findings and recommendations and plans to take corrective action. Summary Only

We performed a pre-implementation review of the Enterprise Asset Management (EAM) System, Phase 1 implementation, which provided for supply chain and work management processes. We determined plans and processes in place were adequate after actions were completed to address our concerns, regarding application access controls, system security, system testing, data conversion, and general controls. During our audit, the EAM Project Team and Information Services took actions to address our findings and initiated plans to implement additional corrective actions and address remaining concerns during subsequent system implementation phases. Summary Only

The OIG performed a review of the Hickman-Fulton Counties Rural Electric Cooperative Corporation (Hickman-Fulton) which is a distributor for TVA power based in Hickman, Kentucky. Our review of Hickman-Fulton found metering issues that could result in (1) inaccurate billing of electric sales by the distributor to their customers and therefore, impact the electric sales reported on the distributor's financial reports to TVA and (2) disparate treatment among similarly situated customers that could be construed, under Section 5 Resale Rates of the power contract, as discrimination in providing power to members of the same rate class. We were unable to estimate the monetary effect because sufficient information was not available.In addition, we found Hickman-Fulton had more than enough cash on hand to cover planned capital projects and provide a cash reserve. The cash reserve after planned capital projects was about 6 percent which was within the guidelines (cash ratio of 5 percent to 8 percent) TVA established to determine if a distributor has adequate cash reserves. We also found improvements were needed to comply with contract provisions in the area of customer contracts.Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA has not provided guidance for distributors on (1) what types of appurtenances are allowed or at what point in time the use must be predominately residential and (2) what constitutes prudent expenditures.We recommended the Chief Financial Officer (CFO) work with Hickman-Fulton to (1) develop and implement a process to test in-house any meters identified during independent testing with a power factor below 85 percent and install demand meters that measure kVA as needed and (2) ensure all customers with appurtenances used for commercial operations are metered the same. In addition, the CFO should establish guidance for distributors on allowable appurtenances and at what point in time the use must be predominately residential to qualify for a residential rate. TVA is in the process of addressing findings from previous reviews that we also found at Hickman-Fulton related to a lack of guidance for distributors on what constitutes prudent expenditures.TVA and Hickman-Fulton management agreed and are taking actions to address the first recommendation. However, TVA and Hickman-Fulton management disagreed with the recommendation related to ensuring all customers with appurtenances are metered the same and the recommendation to provide additional guidance to distributors on appurtenances.