Federal Reports

We performed four agreed-upon procedures solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2008. In summary, we found:The fiscal year 2008 Winning Performance goals were properly approved. However, during our review, we noted the definition sheets describing the formulas for the three TVA incentivized measures were not approved by the Board. We also found that although the PSO - Transmission System Services (TSS)'s performance measures were solely comprised of metrics from other scorecards that were approved on November 6, 2007, the approval of these metrics for measuring TSS's performance for purposes of the payout did not occur until September 8, 2008.Actual year-to-date inputs for the sampled metrics agreed with the respective supporting documentation.Actual inputs for the three incentivized TVA-wide metrics agreed with the underlying support provided by the Strategic Business Units with one exception related to the equivalent availability factor metric. This one exception did not affect the payout.The payout percentages were mathematically accurate after noted exceptions were corrected. Summary Only

The United States is facing an energy crisis of historic proportions and when coupled with the recent national economic instability, these two factors present utility companies like TVA with unique challenges. The electric utility industry is a very capital-intensive industry requiring TVA to make large scale capital investment decisions. Risk is inherent in the process. How TVA manages those risks is particularly important today. We examined TVA’s enterprise risk management program in this semiannual reporting period as part of our continued vigil as to how TVA is coping with challenging conditions.Like many organizations in America today, IT security is a significant risk at TVA and one that is being carefully examined both by TVA management and the OIG. TVA is making admirable strides to secure information technology in an ever increasingly risky environment. Our work in this area was recognized by the President’s Council on Integrity and Efficiency this past October in Washington, D.C., with an Award of Excellence. Our auditors who worked in this area are justly deserving of this special commendation for their contributions to a more effective and robust IS and IT program at TVA.I also want to congratulate our Investigations department and its team of investigators and auditors for their PCIE Award. The excellent work they did in the Kinder Morgan case achieving our largest civil settlement ever truly merits such recognition.This semiannual period we introduce a new series of inspection reports all designed to answer the basic question, “How is TVA doing?” My observation after more than five years as the Inspector General at TVA is that while there are multiple sources of information about TVA, many are hyper-technical and many are simply anecdotal – neither adequately informs TVA stakeholders as to exactly how TVA is doing in key areas. Some sources require interpretation from TVA management which lacks needed objectivity. With our reports on how TVA is doing with customer relations, financial strength, operational performance, and environmental stewardship, we hope to provide a reliable and readable analysis of “How TVA is doing.” The reports follow the tradition of Inspectors General in keeping the head of federal agencies and theCongress “fully and currently informed about problems and deficiencies relating to the administration of such programs and operations and the necessity for and progress of corrective action.” We believe that our benchmarking reports such as the one on customer relations will better serve Congress, the TVA Board, and the residents of the Tennessee Valley.As always, we are aware of the fact that our work was made infinitely better by the high level of support for our recommendations that we received from both the TVA Board and TVA management.

We reviewed the qualifications for contractor and subcontractor employees working on the Watts Bar Nuclear Plant Unit 2 (WBN U2) construction project to assess the hiring process and determine if those hired met minimal qualifications for their designated labor category (grades). We determined:TVA's engineering, procurement, and construction contract did not include minimum requirements for the 20 specified labor categories; moreover, the contractor lacked corporate criteria specifying minimum requirements for filling these positions at WBN U2. To establish the hiring requirements for positions to be filled for the WBN U2 project, the contractor relied on the job requisition process, resulting in varying and inconsistent minimum requirements for these positions.Requirements established through this requisitions process were sometimes not met. For example, when we compared employee qualifications to requirements in the associated job requisitions, we found 8 of the 56 individuals reviewed, or 14.3 percent, did not meet the requirements outlined in the requisitions. However, when questioned, the contractor provided explanation and asserted that all individuals were qualified for the work being performed.We recommended the Vice President, WBN U2, Nuclear Generation, Development and Construction, in conjunction with the contractor Project Director (1) require that job requisitions include minimum requirements for each position and the requirements be reviewed and approved by the contractor's Human Resource personnel to ensure consistency among job classifications and eliminate errors and document the rationale for hiring any candidate not meeting the minimum requirements but who is deemed qualified for the position; (2) evaluate the qualifications of the employees not meeting the qualifications in the job requisitions to determine if they are qualified to perform the assigned work; and (3) take steps to ensure resumes are thoroughly reviewed, and identified discrepancies are resolved prior to individuals being hired. Summary Only