Federal Reports

Seek link below for the full report, report summary, multimedia or any agency follow-up

Seek link below for the full report, report summary, multimedia or any agency follow-up.

We scheduled an audit of the Tennessee Valley Authority's (TVA) long-term wind power contracts after noting TVA paid about $37.7 million to four wind farm contractors for energy it did not receive between November 1, 2012, and January 3, 2017. Our audit objectives were to determine if (1) TVA's decision to enter into long-term wind power contracts was in TVA's economic interest and (2) the $37.7 million in energy curtailment payments were in TVA's economic interest.TVA's decision to enter into long-term wind power contracts has not proven to be in TVA's economic interest. The decision to enter into the wind power contracts was primarily due to TVA management's assumptions that (1) TVA and other utilities could be required to provide a greater portion of the electricity they sell by using renewable resources, (2) early approval of the wind power contracts would allow TVA to proactively obtain cost effective renewable and clean generation agreements prior to enactment of renewable energy standard legislation, and (3) the wind power contracts were competitive with forecasted market electricity prices. However, the assumptions TVA used in its decision-making process proved to be inaccurate.TVA accepted a significant amount of risk by locking into level fixed prices over the contract terms. TVA relied on net present value (NPV) analyses based in part on long-term forecasts of electricity prices over a 20-year time horizon. TVA's NPV analyses showed most of the contracts to have only a small positive NPV and a significant probability that the NPV would be negative. In addition, TVA's own analyses showed it would only begin to receive value, if any, in the last 10 years of the contracts' 20-year terms.As of TVA's most recent NPV calculation performed in March 2016, the total NPV of these contracts was a negative $1.4 billion. If TVA had issued one initial contract for 200 MW instead of contracting with nine wind farms for approximately 1,700 MW all at once, TVA management could have learned valuable insights into wind power contracting and the related risks.With regard to the $37.7 million in energy curtailment payments TVA made between November 1, 2012, and January 3, 2017, we determined these payments were in TVA's economic interest at the time the decisions were made.We recommended TVA's Senior Vice President, Distributed Energy Resources:Take a measured approach for large projects in areas TVA does not have familiarity or that are new to TVA. For instance, rather than entering into several large contracts in a short period of time, consideration should be given to entering into one small contract to gain a better understanding of the industry and market. Provide positive financial value earlier in future power purchase contract terms by negotiating terms that do not set a level fixed price over the contract term. Instead, use periodic price adjustments (quarterly or annually) based on a specific economic index or escalating the price at a predetermined rate over the contract term.TVA management concurred with our recommendations and noted actions taken to address them.(Summary Only)

The Office of the Inspector General conducted a review of Human Resources (HR) to identify operational and cultural strengths and risks that could impact HR's organizational effectiveness. Our report identified strengths within HR related to (1) organizational alignment, (2) collaboration within the departments, and (3) management support from some HR management. However, we also identified risks related to (1) management responsibilities and behaviors, including (a) performance reviews, (b) opportunities for advancement, (c) training and resources, and (d) relationship issues with three managers; (2) execution of HR strategy and programs; (3) perceptions by some of unethical practices; and (4) inclusion that could negatively affect the ability of HR to contribute to the Chief Human Resources Office's mission and to the success of the Tennessee Valley Authority.