OIG REPORTS

The Office of the Inspector General previously conducted an evaluation of Materials and Transportation Management (M&TM;) (Evaluation 2016-15586 issued July 27, 2017) to identify strengths and risks that could affect M&TM;'s organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions to address risks included in our initial organizational effectiveness evaluation. In summary, we determined management has taken actions to address most of the risks outlined in our initial organizational effectiveness evaluation, and management actions appear reasonable to address the remaining risks. However, three recommendations remain unresolved, including (1) one manager's behavior and teamwork at one location, (2) instances where goals were not SMART, and (3) cross functional risks related to business units.

  Full Report

The Office of the Inspector General conducted an evaluation of the Human Resources (HR) organization (Evaluation Report 2016-15445-05 issued September 26, 2017) to identify operational and cultural strengths and risks that could impact HR's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions to address the risks included in our initial evaluation for one of HR's three departments-Employee Health (EH). We determined EH has taken actions to address some of the risks outlined in our initial evaluation. However, two of the five recommendations from the original evaluation remain unresolved, including (1) the medical case management process and (2) inclusion concerns.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company proposed:

• Unit rates for a Bull Run Fossil Plant (BRF) project included overstated (1) equipment costs, (2) material costs, (3) indirect costs, and (4) labor costs. In addition, the BRF proposal contained various calculation errors that understated some of the company's costs.
• Costs for a Cumberland Fossil Plant (CUF) project included (1) overstated subcontractor costs, (2) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal, and (3) understated labor costs.
• Costs for a Paradise Fossil Plant (PAF) project included (1) overstated noncraft labor costs; (2) overstated labor burden markup rates (payroll taxes, insurance, and fringe benefits); and (3) excessive fee.
• Rate attachments (1) included incorrect craft labor rates, (2) did not include some of the craft labor classifications the company used in the BRF proposal, (3) included noncraft wage ranges that did not reflect the company's current wage ranges, and (4) did not include an information technology markup rate that the company included in its proposals for the PAF and CUF projects.

We estimated TVA could avoid about $17.63 million on the planned $50 million contract by negotiating appropriate reductions to (1) unit rates in the BRF proposal; (2) subcontractor, fee, and labor costs in the CUF proposal; and (3) labor costs, labor burden markup rates, and fee in the PAF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges.

(Summary Only)

The Office of the Inspector General previously conducted an evaluation of the Human Resources (HR) organization (Evaluation Report 2016-15445-05 issued September 26, 2017) to identify operational and cultural strengths and risks that could impact HR's organizational effectiveness. Our report identified several strengths and risks along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions to address the risks included in our initial organizational effectiveness evaluation. We determined HR has taken actions to address some of the risks outlined in our initial organizational effectiveness evaluation. However, issues related to (1) differences between the Human Resource generalist (HRG) and senior HRG roles; (2) execution risks, including the HRG transition to a more strategic role, employee feedback mechanism, and role clarity; and (3) ethical and inclusion concerns remain unresolved.

  Full Report

The Office of the Inspector General conducted a review of the Paradise Combined Cycle Plant (PCC) to identify operational and cultural strengths and risks that could impact PCC's organizational effectiveness. We identified strengths that positively affected the day-to-day activities of PCC's personnel and performance including, (1) organizational alignment, (2) teamwork, and (3) management support. However, we also identified issues that could pose risks to PCC's effectiveness and its continued ability to meet its responsibilities, including achievement of Gas Operations' initiatives in training and management communication.

  Full Report

Tennessee Valley Authority business units are expected to find, analyze, and fix conditions that affect personnel safety, asset reliability, adverse trends, or other conditions that do not meet expectations. Condition reports (CR) are created to record how problems are found, analyzed, and solved. Due to the importance of finding, analyzing, and resolving concerns identified at coal plants, we conducted an evaluation of CRs at TVA coal plants to determine if (1) Coal Operations generated CRs for reported safety, environmental, and operational incidents; and (2) actions taken to address coal CRs were timely and effective.

We found that CRs were originated for all environmental incidents; however, some safety and operational incidents did not result in CRs being originated as required by the procedure. We also found that not all actions taken to address CRs were timely, and some CR originators perceived that actions taken were not effective. In addition, we found opportunities for improvement related to (1) classification of CRs by significance level, (2) documentation of actions taken to address CRs, and (3) discrepancies in the Standard Programs and Processes that govern this process.

  Full Report

Due to the importance of the clearance procedure to plant personnel safety, and in response to recent fatalities resulting from clearance violations, we initiated a review of TVA's coal operations' clearance procedure. We determined the clearance procedure was being performed for work requiring clearances. However, the effectiveness of the clearance process is limited because (1) some clearances were not in compliance with the clearance procedure, (2) required training had not been completed by all personnel holding or working on clearances, and (3) audits performed were not in compliance with the procedure. We also identified opportunities for improvement related to procedure clarification and training.

  Full Report

Due to concerns with the high number of hearing loss claims filed by employees, we performed an evaluation of the actions taken to minimize TVA's financial exposure for hearing loss claims. We determined some Hearing Conservation Program requirements were not met, including: (1) personal noise monitoring and noise surveys in nuclear and (2) annual audiograms and training. Additionally, we identified opportunities for improvement related to (1) hearing loss claims documentation provided to DOL, (2) management statements provided to DOL, and (3) documentation of disciplinary actions for hearing protection violations. In addition, we determined that TVA did not verify the accuracy of the amounts billed by DOL.

  Full Report

We evaluated Nuclear Oversight to determine if the work environment was conducive to raising concerns without fear of retaliation. We found the work environment within Nuclear Oversight is not always conducive to raising concerns without fear of retaliation. Specifically, while all Nuclear Oversight employees indicated that they would report nuclear safety or quality problems and concerns, some expressed fear of retaliation for raising issues. We also found some aspects of the work environment within Nuclear Oversight have improved or stayed about the same, while others have declined since our previous evaluation. TVA has also taken steps to address employee concerns regarding how the use of rotational positions might negatively affect the independent performance of nuclear oversight roles. However, some employees continued to express concerns regarding rotational positions.

  Full Report

The Office of the Inspector General conducted a review of Sequoyah Nuclear Plant's (SQN) Site Security (SS) organization to identify operational and cultural strengths and risks that could impact SQN SS's organizational effectiveness. Our report identified strengths within SQN SS related to (1) organizational alignment, (2) teamwork, and (3) frontline management support. However, we also identified risks that could impact the effectiveness of SQN SS to achieve its responsibilities in support of the Nuclear mission. These risks included (1) ineffective senior management support related to communication, accountability, behaviors, and resources; and (2) perceptions of unethical actions.

  Full Report

The Office of the Inspector General audited the controls for key Sarbanes-Oxley (SOX) spreadsheets to determine if the controls are sufficiently defined, appropriately designed, and operating effectively. The audit's scope was information technology general controls for the SOX critical spreadsheets within TVA. We identified several issues that could provide a stronger control environment for critical spreadsheets. Specifically, we found (1) shared passwords used to modify critical spreadsheets are not appropriately managed, (2) one spreadsheet was accessible using a shared account with no known business need, (3) TVA's SOX Control Environment group's inventory controls over critical spreadsheets are ineffective, (4) critical spreadsheets are not documented consistently in SOX control narratives maintained by TVA's SOX Control Environment group, (5) naming convention controls are not being enforced which limits TVA's ability to quickly assess if critical spreadsheets are properly stored for access control and backup purposes, and (6) TVA's SOX Control Environment group's spreadsheet policy could be strengthened by adding controls for user training, baselining, templates, and testing. TVA management agreed with our findings and recommendations.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by CLEAResult East Operating, LLC (CR) for providing services to assist TVA in the Valley-wide implementation of its energy efficiency programs under Contract Nos. 5586 and 6632. Our audit included approximately $45.9 million in costs paid by TVA between April 1, 2014, and March 31, 2016. Our audit objective was to determine if the costs billed to TVA were in compliance with the terms and conditions of Contract Nos. 5586 and 6632.

In summary, we determined CR overbilled TVA $191,867, including (1) $158,812 in subcontractor costs, (2) $2,766 in unsupported labor costs, (3) $27,750 for ineligible sales tax costs, and (4) $2,539 in travel costs. In addition, we noted CR billed TVA approximately $1.15 million for holiday and paid time off (PTO) hours under Contract No. 5586 in which TVA did not (1) obtain any assurance CR's PTO costs were not also included in the hourly billing rates or (2) limit the amount of PTO CR could bill under the contract.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual (CCR) program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $25 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposed costs for a Cumberland Fossil Plant (CUF) project included overstated (1) material costs, (2) bond costs, (3) equipment costs, and (4) labor burden rates. In addition, the company included a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP).
• The company's proposed rate attachments included (1) incorrect labor billing rates, (2) noncraft wage ranges that did not reflect the company's current wage ranges, and (3) fee on cost reimbursable work that exceeded the maximum allowable fee in TVA's RFP. In addition, the company's proposed methodology for recovering overhead and general and administrative (G&A;) costs differed from the RFP's draft contract terms.

We estimated TVA could avoid $1.96 million on the planned $25 million contract by (1) negotiating appropriate reductions to material costs, bond costs, equipment costs, and labor burden rates; and (2) limiting the company's fee rate to the RFP's maximum allowable rates. In addition, we suggest TVA (1) negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges and costs, (2) negotiate a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP, and (3) modify the contract terms to reflect the company's intended methodology for recovering overhead and G&A; costs.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the labor and labor markup rates included in a contract TVA has with a contractor. Our examination objective was to determine if the contract's labor and labor markup rates were fairly stated for a planned 5-year contract extension.

In our opinion, the contract's labor and labor markup rates were fairly stated. However, we found the contract's current labor rate ranges are not reflective of the actual costs of the contractor's employees. We suggest that TVA request the contractor submit revised labor rate ranges that are more reflective of the actual minimum and maximum salary cost for each labor classification and incorporate these labor rate ranges into the contract.

(Summary Only)

The Office of the Inspector General reviewed TVA's three operating system baselines and how they are applied to the tools used to deploy and manage TVA systems. In summary, we found TVA management aligned two of the three server operating system baselines with the identified best practices and had documentation to support any deviations. However, we found one of the three operating system baselines did not fully align with the identified best practices and was not completely applied to the tools used to deploy and manage TVA server configurations. TVA management agreed with the audit findings and recommendation.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the labor and labor markup rates included in a contract TVA has with a contractor. Our examination objective was to determine if the contract's labor and labor markup rates were fairly stated for a planned 5-year contract extension.

In our opinion, the contract's labor and labor markup rates were fairly stated. Specifically, the contract's labor markup rates were supported by the contractor's actual historical costs, and the contractor's proposal to update the contract's wage ranges was reasonable.

(Summary Only)

The Office of the Inspector General conducted a review of Supply Chain's Sourcing organization to identify operational and cultural strengths and risks that could impact Sourcing's organizational effectiveness. Our report identified strengths within Sourcing related to (1) teamwork, (2) direct management support for 3 of 4 departments, (3) perceptions of an ethical culture, and (4) customer support. However, we also identified issues that, if left unresolved, could increase the risk that Sourcing will be unable to effectively meet its objective in the future. These risks related to (1) alignment, (2) the selection process, (3) management behaviors, and (4) work management.

  Full Report

The Office of the Inspector General audited the network architecture of a nuclear facility to determine if the network architecture and assets in use to support a specific nuclear plant's business and operational functions are compliant with TVA policies, procedures and identified best practices. In summary, we found TVA management used proven best practices in the design of the corporate physical and wireless networks and the control network. However, we found cabling that was not following manufacturer's guidelines and several control network device configurations deviated from TVA baselines and industry best practices. TVA management agreed with our findings and recommendations.

  Full Report

We evaluated TVA's administration of Coal Quality Adjustment Reports (CQAR) to determine if the Coal Quality Adjustment Reports were accurately calculated in accordance with the contract terms. We determined CQARs were not always calculated in accordance with the applicable contractual terms, and as a result, TVA did not accurately adjust the payments made to some coal vendors. The miscalculations were due to incorrect (1) rounding of moisture, ash, and British thermal units (BTU) quality adjustment rates and (2) weighted averages used for moisture, ash, and sulfur calculations. We estimated the incorrect calculations resulted in net underpayments to coal vendors totaling $103,576.

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�ܕb��f�>e not calculated correctly. Specifically, we determined the hourly heat rates were incorrect for four of the five CC plants. We did not determine the impact of any inaccurate calculations. We were unable to verify the accuracy of the data used to calculate coal hourly reference heat rates due to inconsistencies in system settings or data not being available. However, we did determine the hourly reference heat rates were not calculated for 6 hours at one of the eight coal plants.

  Full Report

We included an audit of the Tennessee Valley Authority's (TVA) capital projects post projects economic assessment process in our annual audit plan because of the capital-intensive nature of the electric utility industry. TVA spent $2.076 billion on capital expenditures in fiscal year (FY) 2017 and anticipates capital expenditures of $1.974, $1.885, and $1.706 billion, respectively, in FYs 2018, 2019, and 2020.

Our audit objective was to determine if TVA adequately monitors the actual return on investment of capital projects compared to those submitted during the budgeting and project review processes. We found TVA is not adequately monitoring actual return on investment of capital projects. Specifically, TVA Standard Programs and Processes requiring the assessments do not provide adequate guidance. We also found the required post-project benefits assessments were generally not being performed as only 1 assessment was performed in FYs 2015 through 2017 out of 22 projects completed. In addition, we found the estimated benefits in the project justification for the 1 assessment performed were not valid. Accordingly, the post-project assessment's basis for comparison was not valid.

  Full Report

We included an audit of the Tennessee Valley Authority's (TVA) economic development (ED) grants in our annual audit plan based on findings from our 2013 audit of TVA's Valley Investment Initiative, where we found TVA's oversight of that program could be improved. Currently, there are two main grant programs utilized-Performance Grant Program and InvestPrep Program. Our audit objectives were to determine if TVA has (1) adequate processes and procedures in place for awarding ED grants and (2) established performance metrics to determine if grant program objectives are met. The scope of the audit included ED grants active between June 1, 2015, and May 31, 2017.

We found (1) TVA has adequate processes in place for awarding ED grants but does not have a Standard Program and Process for InvestPrep grants, (2) ED has not included InvestPrep grants in any compliance review program, and (3) the ED organization has not established specific performance metrics to determine if grant program objectives are met.

  Full Report

We recently completed an audit of TVA's use of fixed-wing aircraft (FWA). Subsequent to issuance of our report (on March 29, 2018), we received a concern that TVA-owned FWA flew to Oxford, Mississippi, home of TVA's Board Chair, at least 76 times between January 2013 and February 2018. The concern stated "These trips to Oxford may represent additional occurrences of fraud and/or abuse, which deserve investigation by OIG. At the least, the Oxford trips are likely an inefficient use of TVA resources, which resulted in a significant number of flight legs where the aircraft [was] empty of passengers."

We performed a limited scope review of flights to and from Oxford, Mississippi, for the period January 9, 2013, through February 9, 2018, and determined none of the flights were for non-TVA business purposes. We did not look at the cost effectiveness of these flights because our previous audit determined one of the weaknesses of TVA's FWA program was that cost comparison analyses prior to use of FWA were not performed.

  Full Report

The Office of the Inspector General conducted a review of Supply Chain's Strategy and Performance (S&P;) organization to identify operational and cultural strengths and risks that could impact S&P;'s organizational effectiveness. Our report identified strengths within S&P; related to (1) organizational alignment, (2) teamwork within departments, and (3) management support of employees. We did not identify any significant risks.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Environmental Permitting and Compliance (EP&C;) (Evaluation Report 2016-15366 issued September 28, 2016) and identified strengths and risks along with recommendations for addressing those risks. We conducted a follow-up evaluation (Evaluation Report 2017-15497 issued September 28, 2017) and determined that EP&C; had taken actions to address most of the risks outlined in our initial organizational effectiveness evaluation; however, concerns with two managers' behaviors remained unresolved. The objective of this follow-up evaluation was to assess management's actions to address the remaining risks from our initial and follow-up EP&C; organizational effectiveness evaluations. We determined EP&C; has taken actions to address the remaining risks outlined in our initial organizational effectiveness evaluation. Specifically, EP&C; (1) addressed the risks associated with management behaviors and (2) developed a metric to measure adherence to agreed schedules with business partners.

  Full Report

The Office of the Inspector General conducted a review to determine if TVA's privacy program is effective and in compliance with applicable regulations, guidance, policies, and procedures. We found several areas of the privacy program to be generally effective, including (1) controls protecting privacy information on TVA-owned mobile devices, (2) privacy training taken by network users, (3) regular reviews of the privacy program by TVA management, (4) encryption controls protecting data in privacy systems, and (5) appropriate use and protection of reports in privacy systems. However, we identified several issues that should be addressed by TVA management to further increase the effectiveness of the privacy program. We also found gaps between TVA's policies and procedures governing the privacy program and applicable federal privacy regulations and guidance. TVA management agreed with our findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $200 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposed costs for a Cumberland Fossil Plant (CUF) project included overstated (1) equipment costs, (2) subcontract costs, (3) material costs, and (4) general and administrative (G&A;) rate. In addition, we found the company's CUF proposal included (1) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), (2) unallowable contingency costs, and (3) understated noncraft labor costs.
• The company's proposed rate attachments included (1) incorrect craft labor rates, (2) noncraft wages that were not in compliance with the RFP's requirements, (3) fee on cost reimbursable work that exceeded the maximum allowable fee in TVA's RFP, and (4) hourly overhead markup rates for project direct costs for which the company could not provide support.

We estimated TVA could avoid about $27.6 million on the planned $200 million contract by (1) negotiating the appropriate reductions to the company's proposed equipment costs, subcontract costs, material costs, and G&A; rate; (2) limiting the company's fee rate to the RFP's maximum allowable rate; (3) eliminating contingency costs on the CUF project and future cost reimbursable projects; and (4) negotiating changes to the company's proposed labor costs to more accurately reflect its actual labor rates. In addition, we suggest TVA (1) revise the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges, (2) negotiate a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP, and (3) remove the overhead markup rates from the rate attachments and require the company to bill actual direct project costs as incurred.

(Summary Only)

As a follow-up to an audit of a contractor where the Tennessee Valley Authority (TVA) missed early payment discount opportunities of $1,029,965, we audited TVA's management of early payment discounts on vendor invoices. Early payment discounts are offered by some contractors for payments made prior to the due dates on invoices. Our audit objective was to determine if early payment discounts are appropriately managed by TVA. Our scope included invoices from Supply Chain contracts and purchase orders with greater than $1 million in spending in any one fiscal year from October 1, 2014, through July 31, 2017.

We found TVA's management of early payment discounts needs improvement. TVA missed early payment discount opportunities of $932,340 out of $4,879,957 in early payment discounts available during our audit period. We also found early payment discount terms were generally entered accurately into TVA's Maximo system utilized to process and approve invoices. However, we noted a few exceptions where Maximo's payment terms did not accurately reflect the contractual payment terms.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Williams Plant Services, LLC (WPS) for providing indirect support services for Watts Bar Nuclear Plant Unit 2 start-up. Our audit included $104.3 million in costs paid by TVA between January 1, 2013, and August 31, 2015. Our audit objective was to determine if the costs WPS billed to TVA were in accordance with the terms of Contract No. 5487. In summary, we found WPS overbilled TVA $4,376,936 as follows:

• $3,458,285 in labor costs were overbilled due to the use of labor classifications not provided for in the contract.
• $430,322 in labor costs were overbilled, including (1) $42,921 in excessive nonmanual labor wage rates, (2) $17,417 in overbilled nonmanual labor markups, (3) $353,804 in ineligible craft labor overtime costs, and (4) $16,180 in unsupported labor costs and excessive craft labor costs due to misclassifications.
• $435,624 for ineligible and unsupported temporary living allowances and travel costs.
• $52,705 for ineligible material and fitness for duty costs.

In addition, we found WPS did not provide labor classifications for $20,458,040 in nonmanual employee labor costs when it billed TVA. Accordingly, TVA could not validate if the labor classifications were eligible for reimbursement or determine if the wage rates that were billed were within the ranges specified in the contract for each labor category.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual (CCR) program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project included (1) misapplication of overhead/general and administrative (G&A;) markup rates, (2) a fee rate that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), and (3) overstated material, equipment, travel, labor and labor burden costs. We also found the company's proposed rate attachments included (1) incorrect craft labor rates, (2) noncraft wage ranges that did not reflect the company's current wage ranges, (3) incorrect noncraft billing rates, (4) a contractor owned equipment rate schedule containing equipment that the company anticipates will be leased or rented from third parties, and (5) fee on cost reimbursable work that exceeded the maximum allowable fee rate in TVA's RFP.

We estimated TVA could avoid about $4.7 million on the planned $50 million contract by (1) limiting the company's application of overhead/G&A; to total direct costs, (2) limiting the company's fee rate to the RFP's maximum allowable rate, and (3) negotiating appropriate cost reductions to the company's proposed material, equipment, travel, labor, and labor burden costs. In addition, we suggest TVA negotiate (1) revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges and equipment usage, and (2) a reduction to the company's proposed fee for cost reimbursable work to the maximum allowable fee rate in TVA's RFP.

(Summary Only)

The Office of the Inspector General conducted an evaluation of Lagoon Creek Combined Cycle Plant (LCCC) to identify strengths and risks that could impact LCCC's organizational effectiveness. Our evaluation identified strengths related to (1) teamwork, (2) a supportive plant manager, and (3) organizational alignment. However, we also identified issues that could pose risks to LCCC's effectiveness and its continued ability to meet its responsibilities. Specifically, some employees expressed concerns related to expired certifications because of lack of training to maintain those certifications, and their lack of in-depth knowledge regarding the operating systems at LCCC. In addition, several employees stated that communication could be improved to better share information across groups.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we performed an audit of costs billed to TVA by ThyssenKrupp Elevator Americas (TKE) for providing elevator maintenance and repair services under Contract No. 8527. Our audit included approximately $2.83 million in costs billed to TVA from October 7, 2014, to December 31, 2016. Our audit objective was to determine if TKE billed TVA in compliance with the contract's terms and conditions.

In summary, we determined TKE overbilled TVA $439,620 in elevator service costs, including (1) $184,477 in ineligible modernization costs; (2) $170,900 in unsupported and overbilled repair costs; (3) $68,515 in overbilled preventative maintenance costs, in which a credit of $1,036 has been provided to TVA; and (4) $15,728 in overbilled callback service costs. Additionally, we noted several opportunities to improve contract administration by TVA. Specifically, we found (1) stand-alone purchase orders that should have been referenced to Contract No. 8527, (2) missing Maintenance Control Program documentation, (3) costs administratively paid under another contract that should have been administratively paid under Contract No. 8527, and (4) missed early payment discount opportunities.

(Summary Only)

The Office of the Inspector General conducted a review of Browns Ferry Nuclear Plant (BFN) Site Security to identify operational and cultural strengths and risks that could impact BFN Site Security's organizational effectiveness. Our report identified strengths within BFN Site Security related to (1) organizational alignment, (2) teamwork within departments, and (3) direct management support of employees. However, we also identified risks related to (1) ineffective leadership above first-line leaders due to inadequate communication, lack of individual accountability, insufficient management support, and noninclusive behaviors; (2) lack of collaboration between departments within BFN Site Security; (3) ineffective work management processes; and (4) perceptions of unethical behaviors.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Restoration Services, Inc. (RSI) for project control services for TVA's Generation Construction under Contract No. 6122. Our audit included approximately $12.5 million in costs billed to TVA from January 1, 2015, to June 30, 2017. Our audit objective was to determine if RSI billed TVA in accordance with the contract's terms.

In summary, we determined RSI overbilled TVA $109,504, including (1) $85,565 for ineligible and unsupported temporary living allowance costs and (2) $23,939 for unapproved and ineligible travel costs. In addition, RSI billed TVA $104,308 in fringe benefit costs it had not incurred because the contract did not provide a reduced fringe benefit markup rate for RSI employees who did not receive medical benefits.

(Summary Only)

The Office of the Inspector General conducted an evaluation of Lagoon Creek Combustion Turbine Plant (LCCT) to identify strengths and risks that could impact LCCT's organizational effectiveness. Our evaluation identified strengths related to (1) teamwork and (2) organizational alignment. However, we also identified issues that could pose risks to LCCT's effectiveness and its continued ability to meet its responsibilities. These issues related to (1) low morale caused by a lack of accountability and (2) perceptions of unethical behavior.

  Full Report

The Tennessee Valley Authority (TVA) purchased two new fixed-wing aircraft (FWA) through sole source contracts in May 2015 for $17.7 million. We audited TVA's FWA to determine (1) whether TVA's decision to purchase these aircraft was reasonable compared to aircraft used by other utilities, (2) how the cost and use of the aircraft compared to that of other utilities and industry standards, and (3) whether the use of the aircraft is consistent with applicable federal laws and regulations.

We determined the number of FWA in TVA's fleet is generally comparable to the number of FWA maintained by eight of its peers. However, we determined (1) TVA's stated justifications for sole sourcing the purchase of the aircraft were not supported and did not include any analyses of historical usage to determine TVA's FWA needs, and (2) the purchase of a jet instead of a second turboprop has not been cost effective. Additionally, (1) TVA may not have complied with Title 31, United States Code, Section 1344(a)(1), Passenger Carrier Use, and (2) TVA did not comply with various federal regulations and TVA policies and procedures regarding use of the aircraft.

Failure to follow the federal laws and regulations (1) prevents TVA from being able to accurately determine the need for owning aircraft, (2) prevents TVA from ensuring travel costs are managed effectively, and (3) may cause reputational risks for TVA with regard to misuse (or perceived misuse) of the aircraft. We made ten recommendations to TVA management to improve (1) controls around the purchase of any future aircraft, (2) use of the FWA, and (3) compliance with all applicable laws and regulations.

  Full Report

We evaluated TVA's management of employee medical work restrictions and accommodations to determine if they were effectively managed. We determined there were gaps in the management of employee medical work restrictions and accommodations which resulted in the process being ineffective. Specifically, (1) the medical case management process was not consistently followed, including (a) restrictions and accommodations were not managed in accordance with the medical case management process, (b) time limits of work assignment forms and follow-ups were not consistently met, and (c) the monthly constraint review process was not consistently performed; and (2) some line managers were unaware of the restrictions placed on their employees. We also identified other areas for improvement related to Medgate system limitations and training.

  Full Report

We evaluated TVA's fuel cost adjustment (FCA) calculations to determine whether TVA was using the appropriate data to calculate the FCA. We determined TVA was not using the appropriate sales data to calculate the FCA due to (1) inaccurate unbilled energy sales, (2) the misclassification of sales made to small direct-served customers, and (3) inaccurate hourly energy loads. In addition to the errors identified, we also determined the FCA process could be improved to reduce the risk of errors in the FCA. Specifically, the FCA process is reliant on many hand offs, manual calculations, queries, and complex spreadsheets. Further heightening the risk of error, we found TVA's FCA process was not documented.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $200 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project, proposed unit rates for a Bull Run Fossil Plant (BRF) project, and proposed costs for a Paradise Fossil Plant (PAF) project included overstated (1) labor markup and overhead/general and administrative rates, (2) material costs, (3) equipment costs, (4) labor costs, and (5) subcontractor costs. In addition, the company included (1) unsupported costs in the BRF project and (2) excessive project oversight costs in the PAF project. We also found the company's proposed rate attachments included (1) incorrect craft labor rates and (2) noncraft wage ranges that were not reflective of the company's actual wage ranges.

We estimated TVA could avoid $19.07 million on the planned $200 million contract by negotiating appropriate reductions to (1) labor markup and overhead/general and administrative rates, material costs, equipment costs, labor costs, and subcontractor costs; (2) unit rates in the BRF proposal; and (3) project oversight costs in the PAF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project and proposed unit rates for a Bull Run Fossil Plant project included overstated (1) labor markup rates, (2) labor costs, (3) material costs, (4) equipment costs, (5) subcontract costs, and (6) other direct costs. In addition, the company's proposed contract rate attachment for employees who receive no benefits was not representative of the company's actual benefit structure

We estimated TVA could avoid about $5.2 million on the planned $50 million contract by negotiating appropriate reductions to (1) labor markup rates, labor costs, material costs, equipment costs, subcontract costs, and other direct costs in the Cumberland Fossil Plant proposal and (2) unit rates in the Bull Run Fossil Plant proposal. In addition, we suggest TVA require the company (1) eliminate the rate attachment for field temporary or local hires with no benefits and (2) submit a rate attachment for employees with limited benefits to more accurately reflect the company's benefit structure.

(Summary Only)

We evaluated TVA's Corrective Action Program (CAP) to determine if the CAP was effective in resolving employee concerns at Browns Ferry Nuclear Plant. We determined reinforcement is needed on the importance of addressing CAP condition reports (CRs) in an effective and timely manner. Specifically, we determined some CRs classified as CAP were not resolved effectively because (1) a corrective action did not adequately address a condition, and (2) some actions were not completed by scheduled finish dates. In addition, we identified a CR that was inappropriately closed because a corrective action stated an employee completed a training course that was never taken.

We also identified areas for improvement related to (1) the classification of CRs, (2) CAP education and training, and (3) the routing of anonymous CRs to appropriate personnel.

  Full Report

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter to Watts Bar Nuclear Plant as a result of an investigation that concluded that a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without a fear of retaliation. In response to the Chilled Work Environment Letter, TVA assessed the actions taken in response to a Confirmatory Order (CO) issued in 2009 and determined that not all of the actions had been implemented effectively. As a result of the ineffective implementation, we initiated a review of the process TVA used to address the 2009 CO.

We concluded there was a weakness in the approach that TVA followed for addressing the 2009 CO. TVA did not have a formal process or procedure directly related to how a CO issued by the NRC should be addressed. TVA's approach did not assign accountability or provide oversight to govern the implementation and continued execution for on-going actions. A potential contributing cause was TVA's intent to address the underlying issue only and not to prevent recurrence.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $50 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant (CUF) project and proposed unit rates for a Bull Run Fossil Plant (BRF) project included overstated equipment costs, labor costs, temporary living allowance costs, and material costs. In addition, the company included (1) unallowable contingency costs for the CUF project, (2) a fee rate for the CUF project that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP), and (3) unsupported costs in the BRF project. We also found the company's proposed rate attachments for (1) noncraft labor, craft labor, and contractor-owned equipment contained errors, and (2) fee on cost reimbursable work exceeded the maximum allowable fee rate in TVA's RFP.

We estimated TVA could avoid $1.97 million on the planned $50 million contract by (1) negotiating appropriate reductions to equipment, labor, temporary living allowance, and material costs; (2) eliminating contingency costs from the company's CUF project and future cost reimbursable projects; (3) limiting the company's fee rate on the CUF project to the RFP's maximum allowable rate; (4) eliminating unsupported costs from the BRF proposal; and (5) negotiating appropriate reductions to the unit rates in the BRF proposal. In addition, we suggest TVA require revisions to the company's contract rate attachments.

(Summary Only)

The Office of the Inspector General conducted a review of the Chief Human Resource Office's (CHRO) organization to identify operational and cultural strengths and risks that could impact CHRO's organizational effectiveness. Our report identified strengths within CHRO related to (1) organizational alignment, (2) development of the CHRO strategy, and (3) management support within the business units. However, we also identified risks related to (1) collaboration across the CHRO, (2) relationship and inclusion issues, (3) potential for noncompliance with the Tennessee Valley Authority's code of conduct, and (4) the potential for ineffective CHRO measurements.

  Full Report

The Federal Information Security Modernization Act of 2014 (FISMA) requires each agency's Inspector General (IG) to conduct an annual independent evaluation to determine the effectiveness of the information security program (ISP) and practice of its respective agency. Our objective was to evaluate the Tennessee Valley Authority's (TVA) strategy and the progress of TVA's ISP and agency practices for ensuring compliance with FISMA and applicable standards, including guidelines issued by the Office of Management and Budget and the National Institute of Standards and Technology. Our audit scope was limited to answering the fiscal year (FY) 2017 IG metrics developed as a collaborative effort by Office of Management and Budget, Department of Homeland Security, and Council of Inspector Generals on Integrity and Efficiency in consultation with the Federal Chief Information Officer Council. The FY2017 IG FISMA metrics recommend a majority of the functions be at a maturity level 4 (managed and measurable) or higher to be considered effective. Based on our analysis of the metrics and associated maturity levels defined within the FY2017 IG FISMA metrics, we found TVA's ISP was operating in an effective manner.

  Full Report

We evaluated TVA's Corrective Action Program (CAP) to determine if the CAP was effective in resolving employee concerns at Sequoyah Nuclear Plant. We determined the Sequoyah CAP was generally effective in resolving employee concerns during calendar years 2015 and 2016. Specifically, we determined condition reports (CRs) classified as CAP were addressed effectively and in a timely manner. However, we identified areas for improvement related to (1) the classification of CRs, (2) routing and documentation of anonymous CRs, and (3) CAP training.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $100 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant project and proposed unit rates for a Bull Run Fossil Plant project included overstated (1) equipment costs, (2) material costs, (3) workers' compensation insurance costs, and (4) travel costs.

We estimated TVA could avoid about $3.75 million on the planned $100 million contract by negotiating appropriate reductions to (1) equipment, materials, workers' compensation, and travel costs in the Cumberland Fossil Plant proposal and (2) unit rates in the Bull Run Fossil Plant proposal.

(Summary Only)

The Tennessee Valley Authority's (TVA) Interruptible Power (IP) program implemented new products in October 2015 as part of the product redesign of TVA's demand response portfolio. We initiated this audit in response to concerns forwarded to our office regarding (1) the amount of credits provided through TVA's interruptible products and (2) whether or not these products were a cost effective way for TVA to obtain power. Our audit objective was to determine if the monetary value obtained by TVA during fiscal years 2016 and 2017 was more than the cost of providing these interruptible pricing products to customers. Our audit included interruptible product credits issued and other financial data related to interruption events for participating commercial and industrial customers from October 1, 2015, through March 31, 2017, which totaled $78.5 million.

In summary, we found the monetary value obtained by TVA during fiscal years 2016 and 2017 was more than the cost of providing the interruptible pricing products introduced in October 2015 to participating commercial and industrial customers. However, we also found documentation related to the interruptible valuation is not maintained in a central location. We recommended TVA's Vice President, Pricing and Contracts, maintain all supporting documentation related to the annual interruptible valuation in a central location. TVA management agreed with the audit findings and recommendation in this report and plans to take corrective action.

(Summary Only)

As part of our annual audit plan, we performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation (Bechtel) for providing engineering, procurement, construction, and related services in support of the completion of TVA's Watts Bar Nuclear Plant Unit 2 under Contract No. 65419. Our audit included about $502 million in craft labor costs billed to TVA from January 1, 2010, to June 30, 2015. Our audit objective was to determine if Bechtel billed TVA in accordance with the contract terms and conditions.

In summary, we determined Bechtel overbilled TVA $6,828,935. Specifically, Bechtel overbilled:

• $3,826,970 in ineligible craft labor and related costs, which included (1) $3,584,707 for ineligible overtime and double time costs billed, (2) $195,850 for ineligible personnel history questionnaire incentive payments, and (3) $46,413 for ineligible and/or unsupported meal allowances.
• $2,932,151 for ineligible and excessive craft labor costs for material handling.
• $60,808 in overbilled craft labor due to using an incorrect rate for the craft labor Helmets to Hardhats contribution.
• $9,006 in other unsupported and ineligible craft labor costs.

(Summary Only)

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2017 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with Government Auditing Standards.

  Full Report

We evaluated TVA's Corrective Action Program (CAP) to determine if the CAP was effective in resolving anonymous condition reports (CRs) at Watts Bar Nuclear Plant. We determined TVA took actions to address the anonymous CAP CRs in a timely manner. Specifically, we found for 22 of the 25 CAP CRs tested, the actions were completed within a reasonable time frame. The remaining 3 CAP CRs were appropriately closed to another CR that was previously initiated for the same concern and is scheduled for completion in May 2018. However, we identified an opportunity for improvement related to (1) routing of handwritten, anonymous CRs and (2) documenting that CRs are routed to the appropriate personnel.

  Full Report

The Office of Inspector General (OIG) performed procedures which were requested and agreed to by TVA management solely to assist management in determining the validity of the Winning Performance (WP) payout awards for fiscal year (FY) ended September 30, 2017. The WP payout award data that was provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY 2017 WP goals for the enterprise measures were properly approved. There were no change forms for FY 2017 measures.
• The FY 2017 goals (i.e., target) for the corporate multiplier measures were properly approved.
• The actual year-to-date results for the enterprise scorecard measures agreed with the underlying support.
• The actual year-to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
• The FY 2017 WP payout percentage provided by the Benchmarking and Enterprise Performance organization on November 6, 2017, was mathematically accurate and agreed with the OIG's recalculation.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $300 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found the company's proposed costs for a Cumberland Fossil Plant (CUF) project and proposed unit rates for a Bull Run Fossil Plant (BRF) project included overstated temporary living assignment (TLA) costs, equipment costs, performance and payment bond costs, labor costs, and insurance costs. In addition, the company (1) understated its small tools rate for the CUF project due to errors in the company's estimate and (2) proposed a fee rate for the CUF project that exceeded the maximum allowable fee rate in TVA's request for proposal (RFP). We also found the company's proposed markup rate for employees who receive no benefits was overstated.

We estimated TVA could avoid about $9.62 million on the planned $300 million contract by (1) negotiating appropriate reductions to TLA, equipment, performance and payment bond, labor, and insurance costs; (2) limiting the company's fee rate on the CUF project to the RFP's maximum allowable rate; and (3) negotiating appropriate reductions to unit rates in the BRF proposal. In addition, we suggest TVA negotiate revised markup rates for employees who receive no benefits.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $150 million contract.

In our opinion, the company's cost proposal was overstated. Specifically, we found:

• The company's proposals for a Cumberland Fossil Plant (CUF) project and a Bull Run Fossil Plant (BRF) project included overstated (1) equipment costs, (2) material costs, (3) general and administrative (G&A;) and small tool rates, and (4) labor costs. In addition, we found the company's proposed unit rate for BRF monthly maintenance was understated due to omissions in the company's unit rate cost buildup.
• The company's proposed labor rate attachments included (1) incorrect craft labor rates and (2) noncraft wage ranges that were not reflective of the company's actual wage ranges. In addition, the company's proposal omitted labor rate attachments for employees who receive limited or no benefits.

We estimated TVA could avoid about $6.6 million on the planned $150 million contract by negotiating appropriate reductions to (1) equipment, labor, and material costs and G&A; and small tools rates in the CUF proposal and (2) unit rates in the BRF proposal. In addition, we suggest TVA negotiate revisions to the company's contract rate attachments to correct errors and more accurately reflect the company's actual wage ranges.

(Summary Only)

The Office of the Inspector General previously conducted an evaluation of Environmental Permitting and Compliance (EP&C;) (Evaluation Report 2016-15366 issued September 28, 2016) to identify strengths and risks that could impact EP&C;'s organizational effectiveness. Our final report identified several strengths and risks along with recommendations for addressing those risks. In response to a draft of that report, Tennessee Valley Authority management provided their management decision. The objective of this follow-up evaluation was to assess management's actions to address risks from our initial organizational effectiveness evaluation. In summary, we determined EP&C; has taken actions to address most of the risks outlined in our initial organizational effectiveness evaluation. However, concerns with two managers' behaviors remained unresolved. Management had taken some actions to address behaviors of one manager but had not addressed the behaviors of the other manger. In addition, employees expressed continued concerns related to the process and database used to request environmental reviews of projects and accountability.

  Full Report

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:

1. 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.
2. 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.

  Full Report

The Office of the Inspector General audited the adequacy of the Tennessee Valley Authority's (TVA) process to surplus and dispose of information technology (IT) equipment due to the risk of (1) protected information disclosure and (2) environmental compliance and regulatory compliance violations associated with the surplus and disposal of IT equipment. We found weaknesses with TVA's policies, procedures, and process to surplus and dispose of IT equipment, including (1) surplus IT equipment was not properly sanitized, tracked, and processed; (2) badge access control reviews of areas holding surplus IT equipment were not being performed as required by policy; and (3) processes for the surplus and disposal of cathode ray tubes do not address environmental regulations to prevent release of the lead into the environment. TVA management agreed with our findings and recommendations.

  Full Report

The Tennessee Valley Authority (TVA) Standard Programs and Processes (SPP) 04.021, TVA Inventory Management Process, defines "surplus" as material that is not expected to be used within the next 3 years by TVA. Due to the risk of disposing of needed materials, and as a result of employee concerns shared during organizational effectiveness reviews at Cumberland and Kingston Fossil Plants in 2015, we initiated an evaluation of TVA's coal plant surplus materials process. The objective of our evaluation was to determine if coal plant materials designated for surplus were appropriate. The scope of our evaluation was materials surplused between October 1, 2013, and March 31, 2017.

We found that materials designated as surplus at active and transitional plants were generally appropriate. Of the $49.7 million of surplused materials from October 1, 2013, to March 31, 2017, less than 1 percent was repurchased by coal plants. However, retired plant materials may have been surplused unnecessarily resulting in missed opportunities to redeploy materials, including inventory and noninventory, within the fleet. Based on our review of TVA SPPs and best practices, we identified opportunities for TVA to improve its redeployment of both inventory and noninventory materials in future plant retirements. In addition, we identified conflicting criteria related to the time frame used in designating materials as surplus.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for civil projects and coal combustion residual program management work at TVA's steam electric power plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $100 million contract.

In our opinion, the company's cost proposal was overstated as follows:

• The company's proposal for a Cumberland Fossil Plant project included overstated (1) equipment costs, (2) overhead markup rates, and (3) material costs. In addition, the company's proposed fee rate exceeded the maximum allowable fee rate in TVA's request for proposal (RFP).
• Proposed time and material (T&M;) rates were not supported by the company's actual costs.
• The company did not comply with the RFP requirements regarding cost reimbursable work.

We estimated TVA could avoid about $11.1 million on the planned $100 million contract by (1) negotiating the appropriate reductions to the company's proposed equipment costs, material costs, and overhead rate, and (2) limiting the company's fee rate to the RFP's maximum allowable rate. In addition, we suggest TVA negotiate revisions to the company's T&M; rates to more accurately reflect its actual costs and require compliance with the RFP's cost reimbursable provisions.

(Summary Only)

Due to concerns identified in a prior review related to the length of time Transmission and Power Supply (TPS) direct charge materials had been stored at the Muscle Shoals Distribution Center (MSDC), we initiated an evaluation to determine if TPS direct charge materials were being managed appropriately. In summary, we determined TPS direct charge materials were not being managed appropriately because: (1) direct charge materials were not purchased in accordance with TVA policy, (2) TPS does not keep track of direct charge materials stored at MSDC, and (3) direct charge materials are being stored at MSDC even though the work orders for which they were purchased have closed. Inappropriately managing TPS direct charge materials could increase the risk of loss, theft, or the over purchase of materials. In addition, project costs could be overstated and funds spent on items that go unused.

  Full Report

The Office of the Inspector General conducted an evaluation of Safety and Performance Improvement (SPI) to identify strengths and risks that could impact SPI's organizational effectiveness. Our evaluation identified strengths within SPI related to (1) organizational alignment, (2) customer focus, (3) management support of employees, (4) employee teamwork and collaboration, and (5) proactive identification of safety risk behaviors. However, we identified issues that, if left unresolved, could increase the risk that SPI will be unable to effectively meet its objective in the future. These issues include (1) mixed messaging on the importance of safety, including the use of Recordable Injury Rate in TVA's Winning Performance Program, placement of the Designated Agency Safety and Health Official within TVA's organizational structure, and frequent movement and reorganization of the safety function and (2) nuclear Safety Consultants reporting structure. However, none of these risks are within the control of SPI, but are dependent on other TVA organizations for resolution.

  Full Report

TVA's Nuclear Quality Assurance (QA) provides monitoring and assessment of plant activities to ensure they are conducted in a quality manner. Periodically, reviews are performed (internal and external) of QA that identify improvement opportunities. Due to the importance of QA's role in monitoring and assessing nuclear plant activities, we initiated an evaluation to determine if QA has taken actions to address issues identified during the internal and external reviews. We determined QA generally took actions to address issues identified during reviews of QA. However, we determined better documentation was needed when actions are not deemed necessary.

  Full Report

The Office of the Inspector General audited cyber security of the Tennessee Valley Authority's (TVA) gas secure rooms that provide remote logical access to all TVA gas fired plants. We found the architecture, current standard programs and processes, and draft standard operating procedures contain appropriate information as suggested by best practices. However, we found the logical controls for the gas secure rooms could be strengthened. Specifically, we found issues with the (1) network devices at the gas secure rooms and a sample of combined cycle and combustion turbine plants and (2) workstations and servers at the gas secure rooms. Additionally, we found the gas secure rooms were not being used for access as originally intended. TVA management agreed with our findings and recommendations.

  Full Report

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Williams Plant Services, LLC (WPS) for providing facilities maintenance services and technical support services for Bellefonte Nuclear Plant under Contract No. 4067. Our audit included $23.9 million in costs paid by TVA between January 1, 2013, and August 31, 2015. Our audit objective was to determine if the costs WPS billed to TVA were in accordance with the terms of Contract No. 4067. In summary, we found WPS overbilled TVA $2,595,222 as follows:

• $1,560,515 in labor costs were overbilled due to the use of labor classifications and billing rates not provided for in the contract.
• $654,852 in labor and related costs were overbilled, including (1) $454,838 for ineligible general liability insurance markups applied to craft labor, (2) $177,443 in unapproved craft labor costs, (3) $14,136 in excessive nonmanual fringe benefits, (4) $6,302 in ineligible overtime costs, and (5) $2,133 in excessive payroll tax costs. WPS also acknowledged the 2015 payroll tax adjustment required by the contract had not been completed.
• $246,304 in unapproved subcontractor costs were billed.
• $133,551 in overbillings occurred due to ineligible and unsupported temporary living allowances and travel costs, excessive fees, discounts that were not provided to TVA, and ineligible materials, supplies, and fitness for duty costs.

(Summary Only)

The Office of the Inspector General conducted a review of Talent Acquisition and Diversity (TAD) to identify strengths and risks that could impact TAD's organizational effectiveness. Our evaluation identified strengths within TAD related to (1) organizational alignment, (2) collaboration, (3) support from TAD management, and (4) department morale and ethics. However, we also identified potential risks that could negatively affect the achievement of the mission. These risks include (1) the potential for increased noncompliance risk due to (a) the use of social media in the recruitment process and (b) no documentation requirements for hiring interns, (2) talent acquisition process inefficiencies, and (3) the potential for ineffective inclusion metrics and programs.

  Full Report

The Office of the Inspector General audited Tennessee Valley Authority (TVA) Internet-accessible Web sites to identify cyber security weaknesses through penetration testing. In summary, 37 Internet-accessible Web sites were tested, and 7 high risk vulnerabilities were identified. Two of the high risk vulnerabilities that were identified require additional testing by TVA's Information Technology for confirmation. TVA management agreed with our findings and recommendations.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Bull Run Fossil Plant (BRF) (Evaluation Report 2015-15357 issued March 30, 2016) to identify strengths and risks that could impact BRF's organizational effectiveness. Our final report identified several operational and cultural areas for improvement along with recommendations for addressing those issues. The objective of this follow-up evaluation was to assess management's actions in response to our recommendations from our initial organizational effectiveness evaluation. In summary, we determined the actions taken by BRF appear to address most areas for improvement identified during our initial organizational effectiveness evaluation, and for the most part, individuals reported seeing positive changes at BRF. Some concerns remain related to specific areas in the work management process, including planning of work and communication of work order and condition report statuses. However, resolution of these concerns relies on funding decisions that are generally outside of BRF's control.

  Full Report

The Office of the Inspector General conducted an evaluation of Materials and Transportation Management (M&TM;) to identify strengths and risks that could impact M&TM;'s organizational effectiveness. Our evaluation identified strengths within M&TM; related to (1) employee teamwork, (2) customer service, and (3) management's support of employees. However, we identified issues that, if left unresolved, could increase the risk that M&TM; will be unable to effectively meet its objective in the future. These issues include (1) 3 managers' behaviors and teamwork at 1 location, (2) process inefficiencies in completing purchase requisitions and inventory review processes, (3) the warehouse layout at 1 nuclear site, (4) communication concerns, (5) incomplete performance management documentation, and (6) cross-functional risks between M&TM;, Sourcing, and the plants.

  Full Report

The OIG audited the overall effectiveness of the Tennessee Valley Authority's (TVA) patch management process for high-risk, end-user desktops and laptops as they are most vulnerable to spear phishing, a very common tactic used in today's environment to infiltrate computer networks and spread malware. We found (1) TVA is at potential risk for compromise as the patching status was unknown for 12 percent of desktops and laptops in our sample due to desktops and laptops not being managed in patch management tools; (2) 1 of 162 desktops and laptops tested had a missing patch that could lead to remote code execution that has a public exploit available; and (3) the patching process for Mac desktops and laptops is not formally documented. TVA management agreed with our findings and recommendations.

  Full Report

Preventive maintenance (PM) includes tasks carried out on a predetermined interval to reduce the likelihood of a failure. Due to the importance of PM on the reliable operation of assets and as a result of findings identified related to nuclear and coal PM in previous evaluations, we initiated an evaluation of the TVA's transmission PM. The objective of our evaluation was to determine if transmission PM was performed in accordance with established schedules and, if not, what effects the deviations had.

We could not determine if transmission PM had been performed in accordance with established schedules because (1) work completion dates in Maximo, TVA's work management system, did not consistently match the date the PM was completed, and (2) TVA did not require supporting documentation evidencing work completion dates to be maintained. Additionally, we reviewed documentation related to equipment failures and did not identify any failures or Load Not Served, a measure of the magnitude and duration of transmission system outages, attributed to Transmission and Power Supply PM practices.

  Full Report

Preventive maintenance (PM) consists of servicing and data collection activities carried out at predetermined intervals and is intended to reduce the likelihood of equipment failures. Due to the importance of PM to the reliable operation of TVA's generating assets and as a result of findings identified related to nuclear and coal PM in previous evaluations, we initiated an evaluation of TVA's gas plant PM to determine if PM had been performed in accordance with established schedules and, if not, what effect the deviations had.

We determined PM regulated by the North American Electric Reliability Corporation (NERC) was performed in accordance with TVA's established schedules. However, we were unable to determine if non-NERC PM had been performed in accordance with established schedules due to unreliable dates and a lack of documentation in Maximo - the work management system used by TVA to manage PM. We also determined that inadequate PM contributed to 11 equipment failures; 9 of these failures resulted in forced outages. Through interviews with plant personnel, we identified potential areas for improvement including: (1) predictive maintenance, (2) implementation support for new PM programs,
(3) Maximo training and access, and (4) transition of coordinator responsibilities.

  Full Report

The Office of the Inspector General conducted a review of Compensation and Benefits (C&B;) to identify strengths and risks that could impact C&B;'s organizational effectiveness. Our evaluation identified strengths within C&B; related to (1) organizational alignment, (2) teamwork, (3) direct management support, (4) knowledge and experience, and
(5) customer service. However, we also identified an employee engagement risk related to a relationship issue with one manager.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Coal and Gas Services (Evaluation Report 2016-15365 issued August 29, 2016) to identify strengths and risks that could impact Coal and Gas Services' organizational effectiveness. Our final report identified several strengths and risks, along with recommendations for addressing those risks. The objective of this follow-up evaluation was to assess management's actions in response to risks and recommendations included in our initial organizational effectiveness evaluation. In summary, we determined actions taken by Coal and Gas Services appear to address the risks identified during our initial organizational effectiveness evaluation. In addition, employees felt management's actions taken to date have resulted in positive changes.

  Full Report

TVA has both fixed and variable costs that it must recover. Since fuel and purchased power cost can fluctuate significantly with changes in weather and shifts in global supply and demand, TVA recovers these variable costs through a monthly fuel cost adjustment (FCA). The TVA Act assigns rate setting duties to the TVA Board of Directors (Board). The rates approved by the Board include the formula used to calculate the monthly FCA, which represents approximately one-third of the wholesale rate. Due to the importance of TVA correctly calculating the FCA, we performed an evaluation to determine whether the FCA was calculated according to the Board-approved formula.

Based on our independent recalculation of the January 2017 FCA rates, we determined all but one calculation within the FCA was performed in accordance with the Board-approved formula, with the exception being the resource cost allocation (RCA). The RCA assigns variable costs based on usage and power supply cost to one of two customer categories. These categories, Non-Standard Service and Standard Service, are defined by the Board-approved formula and are generally based on a customer's demand. We noted TVA's method of calculating the RCA used in the FCA calculation was not in agreement with the approved methodology. Specifically, while calculating the RCA, TVA did not appropriately categorize some direct-served, federal, and interdivisional customers, based on their contract demand.

TVA subsequently determined that over a 16-month period (October 2015 through January 2017), the miscalculation of the RCA led to errors of about (1) $449,000 too much deferred cost in the Non-Standard Service Customer deferred account and (2) $462,000 too little deferred cost in the Standard Service Customer deferred account.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain's former Director of Sourcing, we audited costs billed to TVA by ScottMadden, Inc. (ScottMadden) under Contract Nos. 3526, 8579, and 8689. Under the contracts, ScottMadden provided consulting services that included, but were not limited to, financial management and business management services. Our audit scope included about $19.6 million in costs that ScottMadden billed to TVA from January 1, 2012, through December 31, 2015, under the three separate contracts. Our audit objectives were to determine if (1) the costs billed to TVA by ScottMadden were in compliance with the contracts' terms and (2) task authorizations awarded under the contracts were in compliance with TVA policies, processes, and procedures.

In summary, we determined ScottMadden billed TVA (1) $2,077,043 for work that was performed prior to authorization and (2) $273,890 for labor categories that were not included in the pricing schedules of Contract Nos. 3526 and 8579. In addition, although ScottMadden had a higher percentage of sole-source awarded tasks than its competitors, we determined Supply Chain was following its intended competitive model for the blanket contracts to obtain the best value for TVA.

(Summary Only)

The Tennessee Valley Authority (TVA) Act of 1933 and TVA Standard Programs and Processes 04.0, Management of the TVA Supply Chain Process, require that any contract action in excess of $25,000 be competed unless the contract action on a noncompetitive basis is properly justified and approved. To ensure compliance with these requirements, we scheduled an audit to determine if TVA's non-competed contracts are (1) identified in TVA systems and (2) executed in accordance with TVA policies and procedures.

We determined non-competed contracts are executed in accordance with TVA policies and procedures. However, identification and classification of non-competed contracts in TVA's Maximo system could be improved. We also noted improvements could be made in the maintenance and retention of contract file documents.

  Full Report

The Office of the Inspector General conducted a review of Learning, Growth, and Management (LG&M;) to identify strengths and risks that could impact LG&M;'s organizational effectiveness. Our evaluation identified strengths within the LG&M; organization related to (1) organizational alignment, (2) collaboration within the departments, (3) LG&M; management support of employees, and (4) positive relationships with other organizations. However, we also identified employee engagement risks related to management communication and morale that, if left unaddressed, could stifle the maturity of LG&M; programs and negatively affect the ability of LG&M; to contribute to the mission of the Chief Human Resources Office. Specifically, some individuals mentioned (1) communication issues related to perception of having unproductive meetings and the need for communicating through direct supervisors prior to communicating to other levels of management and (2) low morale due to potential workload fatigue, which affected employee development opportunities.

  Full Report

The Office of the Inspector General conducted a review of the Human Resources Business Office and Ombudsman (HRBO) to identify strengths and risks that could impact HRBO's organizational effectiveness. Our evaluation identified strengths within HRBO related to (1) organizational alignment, (2) leadership, (3) teamwork/collaboration, (4) direct management support, and (5) relationships with customers. However, we also identified risks that could impact the effectiveness of HRBO to contribute to the overall mission of the Chief Human Resources Office. These risks are (1) noncompliance with Equal Employment Opportunity regulations and (2) employee engagement.

  Full Report

The Office of the Inspector General previously conducted an evaluation of Kingston Fossil Plant (KIF) (Evaluation Report 2015-15329, dated March 10, 2016) to identify operational and cultural strengths and areas for improvement that could impact KIF's organizational effectiveness. Our final report identified several operational and cultural areas for improvement, along with recommendations for addressing those issues. We subsequently received KIF's management decision on June 20, 2016. The objective of this follow-up evaluation was to assess management's actions to address areas for improvement from our initial organizational effectiveness review. In summary, we determined the actions taken by KIF appear to address most areas for improvement identified during our initial organizational effectiveness evaluation. Some concerns remain related to the administration of discipline and unresolved conflict in one group. However, in general, individuals reported seeing positive changes at KIF.

  Full Report

The Office of the Inspector General (OIG) received an EmPowerline complaint on January 4, 2016, alleging a chilled/hostile working environment in Operations at Watts Bar Nuclear (WBN) plant. The OIG investigated the allegation and communicated information related to the chilled work environment to the Nuclear Regulatory Commission (NRC). On March 23, 2016, the NRC issued TVA a chilled work environment letter (CWEL) and required TVA to conduct a root cause analysis and take other actions.

Due to the technical nature of the issues, the OIG engaged a consulting firm with expertise in the nuclear power industry, NTD Consulting Group, LLC (NTD) to (1) assess whether TVA's analyses of its April 22, 2016, response to the NRC CWEL were thorough and adequate; and (2) review the history of nuclear safety culture issues at TVA for the past several years. In summary NTD found:

• TVA's two analyses were incomplete and inadequate, as was TVA's April 22, 2016 response to the NRC CWEL.
• TVA's planned corrective actions to address the chilled work environment are unlikely to have long-term effectiveness or sustainability and the probability of success will remain low until an independent and critical evaluation is conducted, and the associated changes are embraced throughout the organization.
• The precursors of the chilled work environment went unrecognized by management, internal and external oversight groups, and TVA barrier programs and processes such as the corrective action program, the Employee Concerns Program, Quality Assurance, Nuclear Safety Culture Monitoring Panel, and the Nuclear Safety Review Board which are the programmatic barriers put in place to detect such precursors.
• Documentation, data, and interview results indicate TVA management has inappropriately influenced the outcome of causal analyses and independent investigations pertaining to nuclear safety culture/safety conscious work environment issues at WBN.

The amount of stress and fear noted in the survey comments over the past several years, as well as current interviews undertaken by OIG, and the recent NRC inspections and TVA commissioned independent assessment results, are atypical of an organization on its way to improved performance, but rather, one that could well reach negative outcomes. It is imperative that the trust issues be addressed and remedied to permit other corrective actions to be successful. Unless and until TVA addresses the harassment, intimidation, retaliation, and discrimination (HIRD) behaviors of management (WBN senior leadership team and others), TVA will not be able to overcome the trust issues at WBN.

In response to NTD's report, TVA management generally agreed with the recommendations and noted that a number of corrective actions were taken or are underway since the first draft of the report was issued. Additionally, TVA management reiterated that they "previously stated to the OIG and, more importantly, to the NRC, its belief that there is a chilled work environment at WBN 1. Moreover, TVA has expressly acknowledged management's role in creating the condition and its responsibility for correcting it."

  Full Report

We audited the Tennessee Valley Authority's (TVA) corporate card transactions from October 1, 2013, through June 30, 2016, totaling $45.2 million to determine the effectiveness of the processes TVA has in place for tax-exempt credit card transactions. We found the processes TVA has in place for tax-exempt corporate card transactions are not effective. Specifically, we identified (1) an estimated $2.48 million of taxes TVA paid on tax-exempt transactions; (2) tax information provided by TVA's credit card supplier, Comdata Network, Inc., was inaccurate; and (3) transactions were approved in TVA's Expense Reimbursement System without adequate support.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a company for handling and maintenance of coal combustion products. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the company's cost proposal contained overstated time and material (T&M;) and fixed unit rates as follows:

• The proposed T&M; rates included: (1) markups on third-party equipment rentals not provided for in the draft contract; (2) overstated hourly, daily, and weekly equipment rental rates; (3) overstated hourly craft and noncraft labor rates and noncraft labor classifications for labor costs that are typically recovered through the company's overhead markup rate; and (4) markups on subcontract costs not provided for in the draft contract.
• The proposed fixed unit rates included overstated equipment, overstated labor, and markups not provided for in the draft contract.

We estimated TVA could avoid about $8.934 million on the $100 million contract by negotiating the appropriate reductions to the company's proposed T&M; and fixed unit rates.

(Summary Only)

This report is a follow-up to an interim report we issued on July 11, 2016, regarding TVA's proposed sale of Bellefonte Nuclear Plant site (Evaluation 2016-15376). Under the interim report, we determined TVA had taken reasonable actions to date to promote transparency of the sales process and evaluated alternative uses for the site. In addition, we determined TVA appears to have considered the significant risks associated with selling the Bellefonte site.

The objective of this follow-up evaluation was to determine if the sale of the Bellefonte site was conducted according to TVA's policies and procedures. We determined the sale complied with most of the steps in TVA's land disposal policies and procedures. However, the sale was a unique transaction that resulted in some deviations from TVA's policies and procedures. Also, we noted some land disposal guidance was outdated.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for nuclear modifications, outage and supplemental maintenance, and technical support services at TVA's three operating nuclear plants. Our examination objective was to determine if the company's cost proposal was fairly stated for a planned $950 million contract. In our opinion, the company's cost proposal was fairly stated. Specifically, the labor markup rates proposed were supported by the company's actual historical costs.

(Summary Only)

The Tennessee Valley Authority (TVA) uses anhydrous ammonia in selective catalytic reduction systems to aid in the removal of nitrogen oxide, a by-product of burning coal. Anhydrous ammonia is hazardous when inhaled, ingested, or when it comes in contact with the eyes, skin, or mucous membranes. Based on safety risks associated with the handling of ammonia, we initiated an evaluation to determine the adequacy of staffing and training of ammonia operations at coal plants.

Based on our review of the training required by the Occupational Safety and Health Administration and the Environmental Protection Agency regulations, we determined the ammonia training provided by TVA addressed most of the federal training requirements; however, some elements may not be addressed. We also found (1) some personnel had not completed all of the required training, and (2) training could be improved by adding hands-on and more frequent training. Additionally, based on interviews with plant personnel, we determined the staffing of maintenance personnel for ammonia systems was adequate at the four coal plants we reviewed. However, staffing for assistant unit operators was inadequate or needed improvement at two of the four plants.

  Full Report

John Sevier Fossil Plant (JSF) is the first in a series of planned plant retirements to enter the demolition phase of the Tennessee Valley Authority's (TVA) Decommissioning, Deactivation, Decontamination, and Demolition (D4) process. In the demolition phase, the plant, associated equipment, facilities, and structures are removed. Demolition also includes creating conditions for proper site drainage and establishing vegetation.

TVA contracted with Brandenburg Industrial Service Company (Brandenburg) to perform the demolition at JSF. We initiated this evaluation due to inherent safety risks associated with the demolition phase of deconstruction and TVA's lack of recent experience in fossil plant demolition. Our objective was to determine whether demolition activities at JSF were adhering to safety principles found in the TVA D4 Program Guide and were in compliance with selected safety criteria established in Brandenburg's Health and Safety Plan (HASP) for JSF.

Our evaluation found TVA and Brandenburg met most of the safety requirements included in TVA's D4 Program Guide and Brandenburg's HASP for JSF and selected for review by the OIG. However, we determined Brandenburg was not in compliance with hazard identification requirements outlined in its HASP and the D4 Overview training records were not maintained at JSF by Brandenburg for 6 of the 25 sampled Brandenburg employees. We also noted potential safety hazards that were corrected subsequent to our site visit.

  Full Report

The OIG analyzed the metrics and associated maturity levels defined within the Fiscal Year (FY) 2016 Inspectors General (IG) Federal Information Security Modernization Act of 2014 (FISMA) Reporting Metrics and found TVA's maturity levels for the five cybersecurity functional areas ranged from level 1, ad hoc, to level 3, consistently implemented. The Chief Information Officer (CIO), Information Technology ( IT), in consultation with TVA executive management, will continue to be responsible for determining the desired level of maturity to achieve in each of the five functional areas, and actions necessary to reach the desired maturity level, while considering efficiency and budgeting constraints. The OIG will continue to reassess progress and TVA status on an annual basis as prescribed by the Office of Management and Budget and the Department of Homeland Security, utilizing the annual IG metrics and maturity models prescribed by the Council of Inspectors General on Integrity and Efficiency. We recommended the CIO, IT, perform a risk assessment of the FY 2016 IG metrics not met and determine actions necessary to reduce cybersecurity risk to TVA in FY 2017.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for non-nuclear modification and supplemental maintenance services and technical support services. Our objective was to determine if the cost proposal was fairly stated for a planned $950 million contract. In our opinion, the cost proposal was overstated. Specifically, the proposal included overstated nonmanual payroll tax rates and fringe benefit rates. We estimated TVA could avoid $1.14 million on the planned $950 million contract by negotiating reduced (1) non-manual payroll tax rates that are fixed for the contract term and (2) fringe benefit rates.

(Summary Only)

The Tennessee Valley Authority (TVA) vendor management system is a cloud based system physically located away from TVA facilities and outsourced to a third party. The OIG audited the vendor management system to assess the (1) data processing and application controls to ensure data integrity and reliability and (2) logical security controls to ensure only authorized access to system resources and protection of sensitive information. Our scope included TVA's vendor management system and its interfaces to TVA systems. We found TVA system interfaces associated with the vendor management system had reasonable data processing and application controls to ensure data integrity and reliability. However, we found weaknesses in the logical security controls that increase the risk of unauthorized access to TVA data. TVA and the third party responsible for the vendor management system agreed with our findings and recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined the cost proposal submitted by a company for construction services for TVA bottom ash dewatering facilities. Our objective was to determine if this company's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the company's cost proposal was overstated. Specifically, the company's cost proposal for the Kingston Fossil Plant (KIF) baseline project included overstated fees and costs. We estimated TVA could avoid about $4.5 million on the $100 million contract by (1) negotiating reductions to the proposed fee rate and only applying fee to costs specified in TVA's request for proposal, and (2) revising the KIF baseline project estimated costs to eliminate unsupported engineering costs and reflect the correct markup rates. Additionally, we found the company's cost proposal included incorrect craft labor rates.

(Summary Only)

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined the cost proposal submitted by a company for engineering and management services for hydroelectric power train and associated systems. Our objective was to determine if the company's cost proposal was fairly stated for a planned $90 million contract. In our opinion, the markup rates included in the company's proposal were fairly stated. However, we estimated that TVA could avoid about $2.88 million on the $90 million contract by (1) utilizing TVA personnel to purchase materials needed for the scope of work rather than having this company procure necessary materials, and (2) ensuring the markup rates applied to affiliate company subcontract labor costs are limited to rates applied to this company's labor costs. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the company.

(Summary Only)

In keeping with its responsibilities under the Inspector General Act of 1978, as amended, the OIG monitored the audit of TVA's fiscal year 2016 financial statements performed by Ernst and Young LLP (EY) to assure their work complied with Government Auditing Standards. Our review of EY's work disclosed no instance in which the firm did not comply in all material respects with generally accepted government auditing standards.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined a cost proposal submitted by a company for construction services for TVA bottom ash dewatering facilities. Our objective was to determine if the company's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal was overstated. Specifically, the company's proposal included: (1) overstated fees, (2) excessive subcontractor craft labor costs, and (3) contingency costs that could inflate the final costs paid for the services. We estimated TVA could avoid about $10.81 million on the planned $100 million contract by: (1) negotiating reductions to the proposed fee rate and only applying fee to costs specified in TVA's request for proposal (RFP), (2) limiting subcontractor craft labor billing rates to the rates for the company's craft labor employees as required by the RFP, and (3) eliminating contingency costs from cost-based target cost estimate projects. Additionally, we found the company's cost proposal included incorrect craft labor rates.

(Summary Only)

The OIG performed procedures which were requested and agreed to by TVA management solely to assist management in determining the validity of the Winning Performance (WP) payout awards for fiscal year (FY) ended September 30, 2016. The WP payout award data that was provided to the OIG and to which the agreed-upon procedures were applied is the responsibility of TVA management. In summary, procedures applied by the OIG found:

• The FY 2016 WP goals for the enterprise-wide and strategic business unit measures were properly approved.
• One scorecard adjustment change form for FY2016 was approved on July 26, 2016. The change form affected one measure that was on five scorecards.
• The FY2016 goals (i.e., target) for the corporate multiplier measures were properly approved.
• The actual year-to-date results for the strategic business unit scorecard measures agreed with the respective supporting documentation.
• The actual year-to-date results for the enterprise-wide scorecard measures agreed with the underlying support.
• The actual year-to-date results for the corporate multiplier measures agreed with the underlying support.
• The FY2016 WP payout percentages provided by the Benchmarking and Performance Analysis organization on October 31, 2016, were mathematically accurate and agreed with the OIG's recalculations.

  Full Report

The OIG audited Information Technology's (IT) use of non-craft staff augmentation (SA) contractor employees working in IT positions during February 2016 for which TVA paid about $1.8 million in labor costs and associated labor markups. Overall, we found the majority of the 207 SA contractor employees had straight-time hourly pay rates less than or equal to TVA midpoint hourly pay rates and the rates were comparable to TVA employee pay rates for the corresponding job codes. However, we also found (1) TVA management's approval of SA contractor employee compensation exceeding the midpoint rate did not take into account the contractor's indirect cost markup rates applied to the pay rate, (2) IT does not currently have a policy in place requiring knowledge transfer from contractor to TVA employees, (3) manual data entry is required to update minimum and midpoint pay rates from the TVA human resource information system, People Lifecycle Unified System, into TVA's contractor system, IQNavigator (IQN), and (4) IQN compares a contractor employee's hourly rate change (e.g., pay increase) to the midpoint rate in effect for the job code when the assignment was made, rather than to the current midpoint rate, unless a new assignment is created.

  Full Report

The OIG audited the physical and logical network architecture at a TVA location and found (1) TVA management used proven best practices in the design of the physical and wireless corporate networks; (2) the network was appropriately architected; and (3) the cable plant was installed in a neat and organized manner. However, we found the TVA network equipment was located in an unsecured room and configurations of some network devices did not follow TVA suggested baselines.

(Summary Only)

The OIG identified strengths within the Generation Construction (GC) Projects organization related to (1) organizational alignment, (2) collaboration within GC departments,
(3) management support of employees, and (4) employee engagement. However, we also identified inherent project management risks that, coupled with relationship issues between GC personnel and customer and support organizations, could increase the risk that GC will not be able to effectively meet its mission in the future. Specifically, both GC personnel and customer and support organizations mentioned lack of recognition of how each organization affects the other, lack of knowledge of TVA Standard Programs and Processes, lack of collaboration and communication, and conflicting priorities as issues that affect their relationships.

  Full Report

As part of our annual audit plan, the OIG audited costs billed to the Tennessee Valley Authority (TVA) by CSX Transportation, Inc. (CSXT) for the transportation of coal from various coal mines and blending facilities to the Bull Run Fossil Plant (BRF) under contract numbers 65133, 14474, 86072, 85702, and 85770. Our audit included approximately $41.5 million in costs CSXT billed to TVA from October 1, 2014, to March 31, 2016, under these five contracts. Our objective was to determine if the costs billed to TVA by CSXT were in compliance with the contracts' terms and conditions. In summary, we determined CSXT overbilled TVA $8,045,846 for costs billed under contract numbers 65133 and 85702. The overbilling included (1) $8,040,045 for overstated adjustments of per-ton rates under contract number 65133 dating back to January1, 2007, and (2) $5,801 for overstated fuel price adjustments under contract number 85702.

(Summary Only)

The OIG audited TVA's compliance with the North American Electric Reliability Corporation's (NERC) Critical Infrastructure Protection (CIP) standards for logical and physical access for systems and locations that are considered high risk assets under NERC CIP standards. We found TVA was within the NERC CIP compliance standards for logical and physical access to high risk systems and locations with minor exceptions that were addressed during the audit. In addition, during our testing, we noted discrepancies between initial clearance dates in the hard copy and electronic records that were addressed during the audit.

(Summary Only)

The OIG found the implementation of wireless local area network physical and logical access controls generally followed recommended best practices. However, we found TVA could strengthen wireless security and improve unauthorized wireless access point detection.

(Summary Only)

Actions taken at the Cumberland plant appear to have addressed areas for improvement identified in our initial organizational effectiveness review. Employees and management reported positive change at the plant, including better communication, an improved safety culture, and a general acknowledgement by employees of management's efforts to improve its relationship with them.

  Full Report

Environmental Permitting and Compliance (EP&C;), a business unit falling under TVA's Safety, River Management, and Environment, is responsible for providing oversight, consistency, and standardization in TVA's permitting and compliance activities, interactions with regulators, and alignment of environmental policy with line organization execution. EP&C;'s long-term vision is to "continue to improve TVA's environmental performance and reputation through integrated project planning and execution, compliance guidance and oversight, and strong regulatory strategy and engagement." The OIG assessed strengths and risks that could affect EP&C;'s organizational effectiveness.

Our review identified strengths within EP&C; related to (1) compliance with regulations, (2) providing support to Operations, (3) relationships with regulators, (4) teamwork, (5) safety, and (6) direct management support of employees. However, we also identified internal and external factors that, if left unresolved, could increase the risk that EP&C; will not be able to effectively meet its long-term vision and could impact TVA's ability to meet the environmental portion of its mission. These factors are related to (1) organizational alignment and role clarity within TVA's environmental functions, (2) resource availability to cover the current and emerging TVA risk landscape, and (3) employee engagement risks.

  Full Report

The OIG audited the hydroelectric dam network architecture at a TVA facility to identify security zones and perimeters and analyze network devices and the physical infrastructure for compliance with policies, procedures, and best practices. We found TVA has used proven best practices in the design of the physical and wireless corporate networks, as well as the control network. These networks were architected appropriately and the cable plant was installed in a neat and organized manner. However, we found one corporate network switch was physically unsecure and another lacked a remote access list which would reduce the risk of inappropriate access.

(Summary Only)

Environmental Operations (EO) is responsible for the environmental site and field support for all operations, including inspections, environmental sampling, regulatory reporting, and oversight. The OIG assessed strengths and risks that could affect EO's organizational effectiveness.

Our review identified strengths in EO related to (1) organizational alignment, (2) positive work relationships with other organizations, (3) management support of employees, and (4) employee teamwork. However, we also identified issues that, if left unresolved, could increase the risk EO will be unable to effectively meet its responsibilities in the future. Specifically, our interviews of EO personnel and review of operational information disclosed issues related to (1) role clarity and relationship issues with Nuclear, (2) staffing concerns and environmental audit coverage, and (3) concerns with one manager's behavior.

  Full Report

At the request of TVA Supply Chain, the OIG examined the cost proposal submitted by a contractor, for engineering, design, and construction support for Holistic Industrial Wastewater Treatment Program services at TVA fossil plants. Our objective was to determine if the cost proposal was fairly stated for a planned $45 million contract. In our opinion, the cost proposal was overstated. We estimated TVA could save about $3.68 million on the planned $45 million contract by negotiating reductions to the proposed labor markup rates, including labor markup rates for work performed at TVA sites, and negotiating reductions to the proposed escalation rate and fee rate. In addition, we found the contractor did not propose labor wage ranges for cost reimbursable work, as required by the request for proposal. We also identified compensation terms in the draft contract that needed to be revised to reduce the potential for future billing discrepancies.

(Summary Only)

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter for Watts Bar Nuclear Plant. The NRC concluded a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without fear of retaliation. According to the NRC Policy Statement for Nuclear Employees Raising Safety Concerns Without Fear of Retaliation, "A reluctance on the part of employees to raise concerns is detrimental to nuclear safety."

Employees interviewed by the OIG in the Operations Department at the Browns Ferry Nuclear Plant (BFN) generally felt free to raise concerns without fear of retaliation. All but one employee reported feeling free to report nuclear safety, quality, or technical concerns without fear of retaliation. Also, most employees were comfortable reporting nuclear safety or quality concerns through multiple avenues. A few employees were aware of retaliation, mostly citing events dating back several years. However, several employees relayed a perception there could be retaliation for raising concerns. Interviews of Operations Department employees at BFN identified issues that could impact an employee's willingness to report concerns in the future, including (1) inadequate resolution of concerns, (2) employee distrust of management, (3) the Outage Control Center and management pressuring employees, and (4) limited awareness and understanding of the Employee Concerns Program.

  Full Report

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter for Watts Bar Nuclear Plant. The NRC concluded a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without fear of retaliation. According to the NRC Policy Statement for Nuclear Employees Raising Safety Concerns Without Fear of Retaliation, "A reluctance on the part of employees to raise concerns is detrimental to nuclear safety."

Employees interviewed by the OIG in the Operations Department at the Sequoyah Nuclear Plant generally felt free to raise concerns without fear of retaliation. All but one employee reported feeling free to report nuclear safety, quality, or technical concerns without fear of retaliation. Also, most employees were comfortable reporting nuclear safety or quality concerns through multiple avenues. However, 11 percent indicated there could be retaliation when expressing concerns. Even though the potential for retaliation may not currently impact an employee's decision to report concerns, it could in the long term. Our interviews with the operators identified other issues that could impact an employee's willingness to report concerns in the future, including (1) the Outage Control Center and management overriding and pressuring employees, (2) employee distrust of management, and (3) a lack of confidence in the effectiveness of the Corrective Action Program and Employee Concerns Program.

  Full Report

The Enterprise Project Management Office (EPMO) is responsible for the development and deployment of project management processes, systems, tools, and training to project organizations within Generation Construction, Projects, and Services, as well as TVA fleet-wide. Additionally, the EPMO is responsible for evaluating project performance. The OIG assessed the strengths and risks that could impact the organizational effectiveness of the EPMO.

Our review found the EPMO to be effective in achieving its current goals and objectives. To meet its responsibilities, the EPMO has deployed project management guidance, risk assessment tools, and a project lessons learned database and is currently developing an integrated suite of project management tools. Our review identified strengths related to (1) organizational alignment, (2) trust and accountability, (3) management support of employees and (4) employee engagement. We also identified an inherent risk pertaining to organizational resistance to change that if not well mitigated, could threaten the mission of the EPMO, as well as the potential for sustainable project management culture change across TVA. EPMO is in the process of mitigating this risk. As a result of actions recently taken by the EPMO to mitigate risks to alignment, execution, and engagement, no recommendations were made.

  Full Report

In March 2016, the Nuclear Regulatory Commission (NRC) issued a Chilled Work Environment Letter for Watts Bar Nuclear Plant. The NRC concluded a chilled work environment existed in the Operations Department because of a perception that operators were not free to raise safety concerns using all available avenues without fear of retaliation. According to the NRC Policy Statement for Nuclear Employees Raising Safety Concerns Without Fear of Retaliation, "A reluctance on the part of employees to raise concerns is detrimental to nuclear safety." The Nuclear Oversight group, through the Quality Assurance (QA) function, should provide reasonable assurance that plant safety functions are performed in a satisfactory manner. Additionally, Nuclear Oversight's Employee Concerns Program (ECP) is charged with providing an independent avenue for employees to raise concerns. With these key roles, it is crucial that employees in Nuclear Oversight feel free to raise concerns without fear of retaliation.

The OIG found the work environment for Nuclear Oversight is not always conducive to raising concerns without fear of retaliation. Most QA employees felt free to raise concerns or problems without fear of retaliation; however, one QA employee informed us that although they would report a nuclear quality problem or concern, they would not report these problems or concerns to their management. While most QA employees felt free to raise concerns or problems, most ECP employees did not without fear of retaliation. Our interviews with QA and ECP personnel identified issues that could be impacting employees' willingness to report concerns, including (1) distrust of management, (2) past concerns being overridden or ignored, (3) work being influenced, and (4) QA rotational positions.

  Full Report

The Office of the Inspector General found Coal and Gas Services (CGS) met its reliability metrics for gas and coal in fiscal year (FY) 2015 through January, FY 2016. However, some of its cost-effectiveness and fuel flexibility targets during the same period were not met because of outside factors. We identified strengths related to (1) employee teamwork, (2) management support of its employees, (3) employee engagement, and (4) working relationships with other TVA organizations. However, we also identified issues that if left unresolved could negatively impact CGS's effectiveness both now and in the future. Specifically, we identified employee perceptions concerning management favoritism and lack of transparency in specific areas which could be the result of alignment and goal measurement issues in CGS performance reviews. In addition, we noted conditions that could negatively affect business relationships with gas pipeline companies and result in increased transportation risk. Finally, we identified issues related to knowledge transfer. TVA management agreed with our findings and recommendations and provided planned actions to address our recommendations.

  Full Report

The Office of the Inspector General audited local rate adjustments processed during fiscal year 2015 to determine if TVA's process for reviewing Local Power Company (LPC) rate change requests complied with the approved Revised Rate Review Process (RRRP) in the TVA regulatory policy. We found TVA's process for reviewing LPC rate change requests did not comply with the approved RRRP in the TVA regulatory policy due to improper and unapproved calculations of the Guideline Amount in two areas. We also noted the method used to initially calculate an LPC's cash ratio excluded loans and investments of electric system funds to third parties. We recommended TVA's Vice President, Operational and Regulatory Assurance calculate the Guideline Amount as stated in the RRRP or obtain approval for the current calculation method and include any loans or investments of electric system funds in the initial calculation to determine the LPC's cash ratio.

  Full Report

The Office of the Inspector General previously conducted a review of Corporate Accounting (Evaluation Report 2015-15313, issued November 5, 2015) to identify operational and cultural strengths and areas for improvement that could impact Corporate Accounting's organizational effectiveness. Our report identified several operational and cultural areas for improvement and included recommendations to address this. In response, we received Corporate Accounting's management decision on January 4, 2016. The objective of this follow-up review was to assess management's actions taken to address areas for improvement since our initial review. In summary, we determined actions taken by Corporate Accounting appear to have addressed the areas for improvement identified during our initial organizational effectiveness review. In addition, employees felt management's actions taken to date have resulted in positive change.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the Office of the Inspector General examined the cost proposal submitted by a contractor, for engineering, design, and construction support for Holistic Industrial Wastewater Treatment Program services at TVA fossil plants. Our objective was to determine if the contractor's cost proposal was fairly stated for a planned $45 million contract. In our opinion, the cost proposal was overstated. We estimated TVA could save about $1.12 million on the planned $45 million contract by negotiating reductions to the proposed labor markup rates and fee rate, including labor markup rates for work performed at TVA sites, and removing the markup on subcontract costs. In addition, we identified compensation terms in the draft contract that need to be revised to reduce the potential for billing discrepancies.

(Summary Only)

Along with steam, the coal combustion process produces hot gases (called flue gases), including sulfur dioxide, nitrogen oxides, and ash particles. Flue gas moves through ductwork to various air pollution control devices prior to being emitted through the stack. The objective of our evaluation was to determine if TVA is taking actions to address environmental and safety risks related to flue gas ductwork at coal plants. Since scrubbers increase the risk of corrosion within flue gas ductwork, our evaluation included plants with operational scrubbers. We found TVA has completed repairs to address environmental risks associated with flue gas ductwork at coal plants. However, TVA's framework for repairing and reporting ductwork leaks could be improved by (1) clarifying thresholds to repair and report cumulative leaks, (2) establishing realistic repair timelines, and (3) prioritizing the most environmentally damaging leaks for repair. We also found TVA has completed some repairs designed to address safety risks associated with ductwork, but TVA site management indicated long-term capital projects are needed and planned for remediation at Bull Run Fossil Plant and Cumberland where the worst material conditions were present. In addition, we found weakness in the identification of safety concerns related to ductwork at the sites. Additionally, we determined TVA is incurring risk by adopting a strategy to apply internal thermal coatings to ductwork at Cumberland to resist corrosion. Thermal coatings have not previously been used for this application nor have they been through a technical review involving Generation Engineering. This could result in TVA spending several million dollars on a solution that may not work.

  Full Report

The OIG audited TVA's fraud risk management activities to determine if it had incorporated the practices in its organizational culture and structure conducive to fraud risk management as identified by the U.S. Government Accountability Office (GAO) framework for managing fraud risk. In summary, we found while TVA has attempted to demonstrate a senior-level management commitment to integrity through various ethics and code of conduct policies, improvements are needed in TVA's practices to combat fraud and involve all levels of the agency in setting an antifraud tone. In addition, TVA management has not formally designated an entity to design and oversee fraud risk management activities.

We recommended TVA management consider (1) developing policies and practices that directly communicate the senior-level commitment to combating fraud; (2) implementing practices, such as training and other fraud-awareness activities, that involve all levels of TVA in setting an antifraud tone that permeates the organizational culture; and (3) designating an entity within TVA to lead fraud risk management activities in accordance with the guidelines provided by the GAO framework. TVA management agreed with our recommendations, stating they were consistent with Public Law 114-186 signed by President Obama on June 30, 2016.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined the cost proposal submitted by a contractor for construction management services. Our objective was to determine if the contractor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the proposed general and administrative (G&A;) rates were overstated in the proposal, compared to the G&A; rates included in a current contract TVA has with this contractor. We estimated TVA could avoid about $4.1million on the planned $100 million contract by reducing the proposed G&A; rates to the rates established in the other contract.

(Summary Only)

This interim report provides the results of an OIG review of the transparency of the sale of the Bellefonte Nuclear Plant site, evaluation of alternative uses for the site, and risks associated with the potential sale. We determined TVA has taken reasonable actions to date to promote transparency of the sales process and evaluated alternative uses for the site. In addition, we determined TVA appears to have considered the significant risks associated with selling the Bellefonte site.

TVA management requested approval by the Board of Directors to surplus the Bellefonte site during its May 5, 2016, public board meeting so TVA could begin the process for selling it. After considering future needs for the site, as well as the risks associated with a potential sale, the Board voted to surplus Bellefonte. TVA can now go forward with the sale. We plan to complete a follow-up review after the sale of the property to determine whether the sales process was conducted in accordance with TVA policies and procedures.

  Full Report

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by ABB, Inc. (ABB), for providing large and medium power transformers under Contract No. 4645. Our audit included $83.3 million in costs paid by TVA between June 1, 2011, and March 31, 2015. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we determined TVA missed payment discount opportunities of $1,029,965, including (1) $936,596 due to incorrect payment terms input into the Maximo system on purchase orders (PO) for which TVA opted to make progress payments, and (2) $93,369 for POs for which TVA opted not to make progress payments. Also, ABB overbilled TVA $155,577 for transformer and other costs, and TVA is due a $188,000 rebate for a transformer that had been purchased. In addition, we noted several opportunities to improve contract administration by TVA. Specifically, we found (1) ABB billed TVA $10,293,437 for materials, equipment, and services not provided for under the contract scope of work; (2) TVA payments exceeded the contract monetary limits; (3) ABB billed TVA $506,592 for instrument transformer purchases that should have been ordered and paid for under a different contract TVA had with ABB; and (4) ABB had not provided the price adjustment formulas for each transformer design type required by the contract.

TVA management (1) changed the contract payment terms in the Maximo system on March 21, 2014, from Net 45 days to 2 percent-16 days/Net 45 days, which corrected the problem of missed payment discount opportunities when TVA had opted to make progress payments, and (2) issued Contract Amendment No. 4, effective July 28, 2015, which partially addressed the contract scope of work and fully addressed the price adjustment formulas. However, the contract scope of work needs to be further amended to include materials and services.

(Summary Only)

In 2008, the Tennessee Valley Authority's (TVA) Office of the Inspector General (OIG) performed an audit (2007-11348, Information Services Organizational Effectiveness, March 27, 2008) on the effectiveness of the Information Technology (IT) organization and made several recommendations for improvements. In 2011, TVA OIG completed a follow-up audit (2010-13366, Information Technology Organizational Effectiveness, April 5, 2011) and determined the actions taken were not carried through year to year, and as a result, effectiveness in many areas decreased. Accordingly, recommendations in that audit report were focused on creating sustainable processes. In addition, TVA's former Chief Information Officer created a program titled 1,000 Days to Success (IT1K) to address findings from the 2011 audit as well as other observations he made as to the current state of IT.

In December 2013, IT informed the OIG that management action plans to address recommendations from the 2011 audit were complete. Soon thereafter, IT informed us it had also completed implementation of the IT1K program. To assess the results of the management action plans, the IT1K program, and to determine the current state of IT's organizational effectiveness, a follow-up IT organizational effectiveness audit was scheduled. The objective of this audit was to evaluate the effectiveness of organizations within IT in meeting TVA's mission and values. To accomplish this, we evaluated (1) current effectiveness of operational groups within IT, (2) IT's alignment with TVA values, (3) the outcomes of IT1K initiatives, and (4) the outcomes of management action.

We found operational maturity levels were generally trending upward; however, actions are needed to improve alignment with TVA values in two IT groups, and some IT1K initiatives and management action plans have not been completed or sustained. In addition, we found IT could make improvements in three areas that were not previously covered in our audits of the individual groups under IT-(1) progression planning, (2) support for critical applications, and (3) job descriptions.

(Summary Only)

The objective of this evaluation was to determine if the Tennessee Valley Authority's (TVA) delivered costs of fuel included all appropriate costs and were calculated consistently across commodities. We hired a consultant, Synapse Energy Economics, Inc. (Synapse), to (1) review TVA's delivered cost of fuel components and calculations and (2) research industry practices related to calculating fuel costs for dispatch purposes.

In summary, in conjunction with Synapse, we determined TVA was making dispatch decisions using inaccurate cost information. The dispatch costs were inaccurate because TVA's delivered costs of fuel, which is the major component of dispatch costs, did not include all appropriate costs, were not calculated consistently across commodities, and were not calculated correctly. The errors we identified skewed coal dispatch costs up to 8.4 percent and gas dispatch costs up to 2.8 percent. In addition, other opportunities for improvement were identified related to inflation and escalation rates used in the delivered cost of coal calculations and the usage percentages assigned to each gas hub used by TVA in calculating the delivered cost of gas.

(Summary Only)

As part of the OIG's annual audit plan, we audited $172.6 million in costs billed to the Tennessee Valley Authority (TVA) by Medco Health Solutions, Inc. (Medco), for prescription drug benefits services from January 1, 2012, through December 31, 2013, under Contract No. 00077345. The contract required Medco to provide a fully integrated prescription drug program that would include retail pharmacy, mail order pharmacy, and specialty drug pharmacy services. In summary, we determined Medco overbilled TVA $562,498 and overbilled program participants $121,048 because Medco did not use the contractually defined methodology for pricing certain claims. Medco also overbilled TVA $106,788, including (1) $50,000 for performance standard penalties not paid to TVA, (2) $38,815 for ineligible claim dispensing fees, (3) $13,820 in duplicate claim costs, and (4) $4,153 in ineligible utilization management fees. Medco issued a $50,000 credit to TVA for the performance standard penalties on October 19, 2015. In addition, we noted instances of inadequate contract administration. Specifically, we found Medicare eligible individuals were enrolled in the Commercial account, rather than the Medicare Supplement account, which we estimated has cost TVA up to $200,420 in federal subsidies. We also determined TVA did not perform any independent analyses to verify Medco had achieved the contractually defined operational and pricing guarantees.

(Summary Only)

The OIG completed procedures agreed to by TVA and the Center for Resource Solutions (CRS) to assist in determining TVA's compliance with the annual reporting requirements of the CRS's Green-e Energy program for the reporting year 2015. Results of the agreed-upon procedures applied were provided to TVA and CRS.

(Summary Only)

Maintenance personnel at coal plants use firearms (i.e., shotguns) to remove boiler slag, which is the buildup of molten ash. The objective of this evaluation was to determine if firearms and ammunition at coal plants are properly accounted for and safeguarded. In summary, we determined TVA does not have standardized guidance related to the accountability of firearms and ammunition used at coal plants. Instead, each plant has implemented individualized accountability processes. Although three plants have written guidance related to accounting for and safeguarding firearms and ammunition, two plants did not. Our review of the written guidance and actual practices utilized at each plant found they were insufficient to account for and safeguard firearms and ammunition. Additionally, a firearm sent to Cumberland Fossil Plant by TVA Police & Emergency Management could not be located by plant personnel.

  Full Report

The OIG audited the payments TVA made to Seven States Power Corporation (Seven States) under Contract No. 544179 for a demand response pilot study in which Seven States was to demonstrate its capability to provide aggregated demand response (ADR) services. Under the ADR Proof of Concept (POC) program, Seven States serves in an administrative role, coordinating recruitment of customers, communication with TVA, and tracking of program performance. Participating customers are incentivized to reduce power usage at specific times when called on by TVA. Seven States aggregates the load reduction estimates submitted by participating customers each month and provides TVA with an overall estimate of the load reduction available for the ADR POC program as a whole. End-use customers are compensated through separate agreements.

Our audit objectives were to (1) determine if the amounts invoiced by Seven States were in compliance with the contract terms and (2) assess the effectiveness and management of the ADR POC program. Our audit included $2.34 million in payments made to Seven States from August 1, 2013, through February 5, 2016. In summary, we found Seven States invoiced amounts to TVA in accordance with the contract terms and conditions. However, we also found (1) Seven States has not met capacity nominations, and (2) TVA's management of the ADR POC program needs improvement. Specifically, TVA management did not establish capacity nomination limits that reflected Seven States' actual load curtailment capability and penalties for underperformance until September 30, 2015, which resulted in TVA incurring approximately $1,028,000 in additional costs; has not performed a cost/benefit analysis of the six load curtailment events; and has not established criteria to measure the program's effectiveness.

(Summary Only)

The OIG audited cyber security at a power generation facility to determine (1) the adequacy of physical and environmental controls, logical security controls, network infrastructure controls, and general controls such as backup and recovery, change control, and incident response, and (2) compliance with the Maritime Transportation Security Act (MTSA). In summary, we found opportunities for improvement in the areas of (1) physical access and environmental controls, (2) logical access controls, (3) network infrastructure controls, and (4) general controls. Additionally, during our review of MTSA requirements, we found no issues with compliance. Lastly, we identified no control weaknesses during our testing of (1) a sample of business network laptops, desktops, and servers, (2) wireless access points, and (3) modems. TVA management generally agreed with our findings and recommendations.

(Summary Only)

The Tennessee Valley Authority (TVA) uses bulk industrial gases, including oxygen, hydrogen, nitrogen, and carbon dioxide as part of its normal operations. Due to hazards associated with handling bulk industrial gases and the importance of worker and public safety at TVA, the OIG initiated an audit of TVA's mitigation of risks from bulk industrial gases. We limited our scope to the explosive and flammable risks of hydrogen and oxygen and the asphyxiation risks of nitrogen and carbon dioxide. Our objective was to determine whether TVA designed mitigating actions for fire, explosion, and asphyxiation risks related to hydrogen, oxygen, nitrogen, and carbon dioxide bulk industrial gases. We determined TVA designed mitigating actions for fire, explosion, and asphyxiation risks related to hydrogen, oxygen, nitrogen, and carbon dioxide bulk industrial gases. However, we identified several areas for improvement to further mitigate the risks from bulk industrial gases. Specifically, we found (1) contract terms did not require a supplier to provide TVA with inspection and maintenance reports for bulk gas tanks, (2) emergency plans do not list types and quantities of on-site gases, and (3) unsecured portable compressed gas cylinders at Gallatin Fossil Plant and Widows Creek Fossil Plant. We recommended the Senior Vice President, Power Operations, update site emergency plans to identify types and quantities of compressed gases and cryogenic fluids stored at generating plants and assess the root cause of unsecured compressed gas cylinders at Gallatin Fossil Plant and Widows Creek Fossil Plant and address as appropriate. In addition, we recommended the Vice President, Supply Chain, amend gas supplier contracts to require suppliers to provide TVA with inspection and maintenance reports that show contractor compliance with appropriate inspection/maintenance-related codes and regulations and enable TVA to confirm the supplier is meeting its obligations for tank safety. TVA management agreed with our findings and provided the actions they have taken or plan to take to address each of our recommendations.

  Full Report

The OIG assessed operational and cultural strengths and areas for improvement that could impact Bull Run Fossil Plant's (BRF) organizational effectiveness. We determined, overall, BRF has significant opportunity to improve its effectiveness. While we identified strengths associated with trust of first-line supervisors and teamwork, BRF's performance in fiscal year 2015 was mixed, and the morale of the workforce was low primarily due to the impacts of corporate decisions and limited trust between plant management and employees. The specific areas identified for operational improvement included: (1) plant performance, (2) equipment condition, (3) work management, (4) safety, and (5) staffing. In addition, we found a number of factors that impacted trust and employee morale, including: (1) corporate decisions, (2) behaviors displayed by a manager, (3) an increase in contractor usage, and (4) ineffective communication between plant management and employees. These operational and work environment issues, if left unresolved, could increase the risk that BRF employee engagement and performance levels will not be sufficient for the plant to meet its mission.

  Full Report

As part of its annual audit plan, the OIG audited $16.7 million in costs billed to the Tennessee Valley Authority (TVA) by EnergySolutions, LLC (ES) under Contract No. 69836. The contract provided for ES to furnish personnel, equipment, chemicals, and consumables necessary to process liquid radioactive waste for all three TVA nuclear operating sites. Our objective was to determine if the costs billed to TVA were in accordance with the provisions of TVA's Contract No. 69836 with ES. In summary, we determined ES overbilled TVA $85,246, including: (1) $42,229 in ineligible and unsupported supply, per diem, and travel costs for spent fuel pool cleanout work; (2)$28,967 in ineligible equipment costs; (3) $11,500 in unauthorized waste shipments; and (4) $2,500 in ineligible dewatering and cask costs. ES agreed the ineligible equipment costs were overbilled and issued a credit to TVA on January 14, 2015. In addition, we found $68,898 in costs paid under Contract No. 69836 that should have been paid under Contract No. 69885. We recommended TVA management take action to (1) recover the remaining $56,279 in overbilled costs from ES and (2) ensure future costs paid to ES are paid under the correct contract.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined a cost proposal submitted for engineering and management services for hydroelectric power train and associated systems. Our objective was to determine if the vendor's cost proposal was fairly stated for a planned $90 million contract. In our opinion, proposed overhead rate to be applied to noncraft salaries was fairly stated. However, we found the proposed 13 percent profit rate to be applied to total costs was (a) double its actual historical profit margins and (b) not in accordance with the application base requested by TVA. We estimated TVA could avoid about $3.45 million on the planned $90 million contract by negotiating a profit rate to be applied to fully burdened noncraft labor costs only and unnecessary markup rates for craft burden, project related insurance, and performance and payment bonds. In addition, we identified compensation terms in the draft contract that needed to be revised to reduce a potential for billing discrepancies.

(Summary Only)

We assessed operational and cultural strengths and areas for improvement that could impact Kingston Fossil Plant's (KIF) organizational effectiveness. We determined overall, KIF has significant opportunity to improve its effectiveness. While we identified strengths associated with trust of first-line supervisors and teamwork, KIF's operational performance in fiscal year 2015 was mixed, and the morale of the workforce was low primarily due to a lack of trust between plant management and employees. The specific areas we identified for operational improvement included: (1) work management, (2) ammonia operations staffing, (3) training, and (4) inventory. In addition, we found a number of factors that impacted trust and employee morale, including: (1) behaviors displayed by a few influential employees, (2) consistency of disciplinary actions, (3) ineffective communication, and (4) unresolved conflict. We also identified concerns based on corporate decisions surrounding staffing levels and management selections that have directly impacted employees. These operational and work environment issues, if left unresolved, could increase the risk that KIF employee engagement and performance levels will not be sufficient for the plant to meet its mission.

  Full Report

At the request of the Tennessee Valley Authority (TVA) Supply Chain, the OIG examined a cost proposal submitted for construction and modification services. Our objective was to determine if the vendor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the proposal (1) included inconsistent and overstated labor markup rates; (2) did not comply with the request for proposal requirements related to nonmanual wages, resulting in overstated wage rates; and (3) included multiple fees in the Paradise Fossil Plant baseline costs. We estimated TVA could avoid about $3.34 million by (1) negotiating reduced labor markup rates and (2) reimbursing the contractor's actual salaries within established wage ranges instead of paying a single estimated wage rate for each labor classification. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

The OIG audited TVA's Ethics Program to determine (1) compliance with applicable statutes and regulations and (2) if management has identified and incorporated best practices. In summary, we did not identify any areas where TVA's Ethics Program did not comply with requirements for federal agencies' ethics programs in Title 5, Code of Federal Regulations, § 2638.203. Additionally, TVA's Ethics Program has incorporated many of the best practices identified, with the exception of having embedded ethics champions throughout the organization. We also found references to an Ethics Council in TVA's Code of Conduct, but we found the Council has been inactive since at least 2011. We recommended TVA's Executive Vice President and General Counsel and Designated Agency Ethics Official consider (1) having ethics champions embedded throughout the organization who could emphasize the importance of ethical conduct at an individual and organizational level and (2) reinstating the Ethics Council or removing references to it from the TVA Code of Conduct. TVA management agreed with our findings and recommendations and plans to take corrective actions.

  Full Report

The OIG performed this audit to evaluate the effectiveness of TVA's Information Technology (IT) Enterprise Solutions Delivery (ESD) group in meeting TVA's mission and values. In summary, we found that ESD's operational maturity is well defined; however, there are opportunities to improve efficiencies in the documentation of IT development work. In addition, Enterprise Data Warehouse efforts in IT's 1,000 Days to Success transformation initiative were not fully implemented as originally planned. TVA management agreed with our findings and recommendations.

  Full Report

The OIG performed this evaluation to determine whether the Nuclear Employee Concerns Program (ECP) was addressing employee concerns in an effective and timely manner for fiscal years 2013 and 2014. In summary, we determined Nuclear ECP generally addressed employee concerns in an effective manner; however, we identified areas for improvement related to documentation, the resolution follow-up process, and reporting to site management. We could not form an overall conclusion related to timeliness in addressing Nuclear ECP cases because there was no defined timeliness goal for some types of cases; however, the Nuclear ECP did not meet its timeliness goal of 45 days for eight of ten sample cases we reviewed that were classified as Concerns (i.e., issues that require ECP to open an investigation). TVA management agreed with our findings and recommendations.

  Full Report

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by URS Energy and Construction, Inc. (URS), under contract numbers 66777 and 72142. The audit included approximately $113.6 million in costs URS billed to TVA from January 1, 2012, to November 26, 2013.

The OIG determined URS may have overbilled TVA $6,885,835 in shared cost savings and $317,852 for a completion bonus, due to potential misrepresentations in estimated material costs included in the Target Cost Estimate for the John Sevier Combined Cycle project. In addition, we determined URS overbilled TVA $1,205,758, including: (1) $378,212 in overbilled temporary assignment costs, (2) $325,876 in other direct costs, (3) $439,189 in labor costs, (4) $55,390 in markup costs, and (5) $7,091 in travel costs. URS issued credits and refunds to TVA during the course of our audit, which reduced the amount to be recovered by $76,745.

(Summary Only)

The OIG performed this audit to evaluate the effectiveness of TVA's Information Technology Infrastructure Delivery (ID) group in meeting TVA's mission and values. In summary, we found that ID's operational maturity is well defined. However, there are opportunities for ID to improve its disaster recovery program and improve communications within one of ID's operational groups. TVA management agreed with our findings and recommendations.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined proposed hourly labor rates and drilling services unit rates for a managed task contract for TVA's Dam Safety Assurance Program. Our objective was to determine if the proposed hourly labor rates and drilling services unit rates were fairly stated. In our opinion, the proposed hourly labor rates were fairly stated. However, we found (1) the proposed drilling services unit rates included overstated labor markup rates, and (2) the hourly labor rates did not include a driller helper labor classification to be utilized for drilling services when additional helpers were needed. TVA's Supply Chain subsequently entered into a contract with the vendor and was successful in negotiating a (1) reduction in proposed drilling services unit rates which will potentially save TVA $46,300, based on TVA's plans to spend $40 million over 5 years, and (2) new labor category within drilling services for use when additional support is needed in the field. In addition, we compared the vendor's effective profit included in the proposed hourly labor rates to the profit rates included in a similar contract TVA has with the vendor and found the mix of field and home office labor will determine which contract would result in lower costs to TVA.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined a cost proposal submitted for construction/modification services. Our objective was to determine if the cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal (1) included inconsistent equipment and labor markup rates, (2) included overstated labor markup rates, (3) overstated the Paradise Fossil Plant baseline project price, and (4) overstated the minimum non-manual wage rates. We estimated TVA could avoid about $4.1 million on the planned $100 million contract by negotiating reduced markup rates and ensuring fixed price estimates are calculated correctly with negotiated rates. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

FISMA is meant to bolster computer and network security within the federal government. In accordance with FISMA and guidance from the Office of Management and Budget, TVA and the TVA OIG are required to report on agency-wide IT security and privacy practices annually. In our 2015 review of TVA's information security program, we found TVA was in compliance in the security program control areas of (1) identity and access management, (2) incident response and reporting, (3) plan of action and milestones, (4) remote access management, and (5) contingency planning. However, TVA still has ongoing actions in the following areas: (1) continuous monitoring management, (2) configuration management, (3) risk management, (4) security training, and (5) contractor systems control. Additionally, we found controls over the issuing of virtual private network tokens could be improved. TVA management agreed with our findings and recommendations and is implementing its remediation plan.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, the OIG examined a cost proposal submitted for construction/modification services. Our objective was to determine if the vendor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal (1) overstated the other direct cost (ODC) markup rate in the Gallatin Fossil Plant and Paradise Fossil Plant baseline project prices, (2) overstated the payroll tax rate in the craft labor rate schedule, and (3) included non-manual hourly wage ranges that were not reflective of actual salary costs. We estimated TVA could save about $1.2 million on the planned $100 million contract by negotiating reductions to the proposed ODC markup rate and craft labor payroll tax rate. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

The OIG audited corporate card transactions totaling $17.3 million for the period March 1, 2014, through August 31, 2014, to determine if appropriate policies and controls were in place to mitigate the risk of charge card fraud and abuse. We found policies could be strengthened and appropriate controls put in place to mitigate the risk of charge card fraud and abuse. We also found there was no documentation to explain the various database tables or the contents of corporate card data fields in the Employee Reimbursement System (ERS). Additionally, potential cost savings may not be achieved due to insufficient tax-related data and confusion within the organization and among vendors regarding TVA's tax status. Our recommendations to TVA management included: (1) requiring annual training for approvers, (2) implementing multiple ERS modifications to strengthen automated controls and enhance compliance with policies, (3) reviewing potentially duplicate and ineligible transactions identified to determine if TVA was due reimbursement, (4) performing periodic review of ERS data to identify potentially ineligible charges, (5) evaluating the appropriateness of delegation of supervisory approval, (6) formally documenting ERS, and (7) determining which corporate card transactions are exempt from state and local taxes. TVA management agreed to or has taken actions to address some, but not all of our recommendations to mitigate the risk of charge card fraud and abuse.

  Full Report

The Inspector General Act of 1978, as amended, requires federal inspectors general, including the Tennessee Valley Authority (TVA) OIG to review the work of nonfederal auditors to assure their work complies with Government Auditing Standards (GAS) as set forth by the Comptroller General of the United States. We reviewed the work of Ernst & Young LLP (EY) in relation to its audit of TVA's fiscal year 2015 financial statements and internal control over financial reporting. Our review, as differentiated from an audit in accordance with GAS, was not intended to enable us to express, and we do not express, an opinion on TVA's financial statements or the effectiveness of TVA's internal control over financial reporting. EY is responsible for the auditor's reports dated November 20, 2015, and the conclusions expressed in those reports. However, our review of EY's work disclosed no instances where they did not comply, in all material respects, with GAS.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we examined the cost proposal submitted by a contractor for construction and modification services. Our examination objective was to determine if the contractor's cost proposal was fairly stated for a planned $100 million contract. In our opinion, the cost proposal (1) overstated the rates in the equipment rate schedule, (2) understated the overhead and general and administrative (G&A;) rates in the labor markup rate schedule, (3) overstated subcontractor costs in the coal plant's baseline project price, and (4) overstated the minimum and maximum non-manual wage rates. We estimated TVA could achieve a net savings of about $2.96 million on the planned $100 million contract by reducing the equipment rates, increasing the labor markups, and ensuring an indirect cost markup is not applied to subcontractor costs. In addition, we found the contract's compensation terms and related attachments were inconsistent with the methodology TVA intends to use to compensate the contractor.

(Summary Only)

The OIG performed procedures which were requested and agreed to by Tennessee Valley Authority (TVA) management solely to assist management in determining the validity of the Winning Performance (WP) payout awards for the fiscal year (FY) ended September 30, 2015. TVA management is responsible for the WP payout award data. In summary, we found the FY 2015 WP goals for the enterprise-wide and Strategic Business Unit (SBU) measures were properly approved. Two scorecard adjustment change forms for FY 2015 were approved on February 4, 2015; one change form was approved on March 2, 2015; and one change form was approved on June 24, 2015. The change forms affected seven scorecards and seven measures and/or payout percentages. The FY 2015 goals (i.e., target) for the corporate multiplier measures were properly approved. The actual year-to-date results for the SBU scorecard measures agreed with the respective supporting documentation, without exception. The actual year-to-date results for the enterprise-wide scorecard measures agreed with the underlying support, without exception. The actual year-to-date results for the corporate multiplier measures agreed with the underlying support, without exception. The FY 2015 WP payout percentages provided by the Benchmarking and Performance Analysis organization on November 4, 2015, were mathematically accurate and agreed with OIG calculations.

  Full Report

Corporate Accounting provides financial services to the Tennessee Valley Authority (TVA) and is comprised of the following functional areas: (1) Accounting Reporting and Research, which includes Accounting Policy and Research, External Reporting, and Fuel Accounting; (2) Disbursement Services, which includes Payment Services and Payroll Operations; (3) Revenue; and (4) Sarbanes-Oxley. As of March 24, 2015, Corporate Accounting had 72 employees. Our review assessed operational and cultural strengths and opportunities for improvement within Corporate Accounting. We used operational expectations as defined in Corporate Accounting's business plan and behavioral expectations as defined by TVA's values as the criteria for the review. We identified several operational and cultural strengths within Corporate Accounting. Specifically, we found Corporate Accounting effectively provides business support to TVA operations and works well with other TVA organizations. Additionally, employees reported they have the financial information systems they need to do their jobs. We also found Corporate Accounting has an ethical environment, engaged workforce, leadership that is trusted and respected, strong teams, and opportunities for input that are satisfactory to employees. However, we also identified several operational and cultural areas for improvement within Corporate Accounting. Operational areas for improvement included missing and misaligned performance measures for core services, not formally soliciting customer feedback, and differing management and employee perspectives around adequacy of staffing resources. Cultural areas for improvement included minimal response to prior cultural surveys, perceived unfairness in hiring and promotion practices, lack of cohesion between Corporate Accounting departments, relationship issues with two managers, and perceived negative impacts from reorganizations and recent cost-cutting measures. These types of issues, if left unresolved, can undermine employee trust in management and negatively impact both employee engagement and operational performance.

  Full Report

Cumberland Fossil Plant (CUF) is one of the fossil plants relied upon to assist the Tennessee Valley Authority (TVA) in meeting its mission. CUF's mission, in support of the overarching TVA mission, is "to provide low cost, reliable generation and ancillary services while keeping our people safe and ensuring compliance with environmental regulations." Our review identified operational and cultural strengths and opportunities for improvement at TVA's CUF. We used operational expectations as defined in the business plan and behavioral expectations as defined by TVA values as the criteria for the review. We identified several operational and cultural strengths at CUF. Specifically, we found CUF is currently meeting or exceeding expectations related to key measures in its current business plan. In addition, the plant manager is generally seen as open, approachable, and respected, and some managers within midlevel management are viewed as trusted and supportive of their crews. We also found CUF employees exhibit a high degree of enthusiasm and commitment to the plant mission and seem genuinely motivated to make the plant a highly successful operation. Additionally, employees generally view CUF's safety program framework favorably. However, employees expressed frustrations related to a number of management decisions and actions. These decisions and actions included mixed messaging related to safety, unintended consequences of safety accountability, enforcement of the sick leave policy, use of contractors, perceptions of inadequate staffing, disposal of materials, distrust of some midlevel management, use of an integrated supplier, overreactions by management, perception of conflicting priorities, and Fossil versus Nuclear.

  Full Report

As part of our annual audit plan, the OIG audited costs billed to the Tennessee Valley Authority (TVA) by VECTOR. VECTOR is a joint venture between Bechtel Power Corporation and Sargent & Lundy, L.L.C. (S&L;) that provided engineering services for Bellefonte Nuclear Plant Unit 1. Our objective was to determine if the $26.8 million in S&L; costs paid by TVA from October 1, 2010, through December 31, 2012, were in accordance with the contract terms and conditions. In summary, we determined VECTOR overbilled TVA $322,535 for S&L;'s services. The overbilled costs included (1) $236,224 in excessive labor markup costs, (2) $50,685 in ineligible temporary living allowance and travel costs, (3) $14,171 in other ineligible costs, and (4) $21,455 in unsupported costs.

(Summary Only)

In August 2008, numerous newspaper articles questioned the fairness of a TVA Maintain and Gain transaction granting water access to The Cove at Blackberry Ridge LLC (Blackberry). The articles raised questions about whether the Blackberry's primary investor, a Congressman, used his position to influence TVA's decision to grant Blackberry's request for water access. Because doubt was cast on the fairness of a TVA process, the OIG conducted an inspection and found no evidence of pressure on TVA from the Congressman to give Blackberry water access on this lakefront project. However, the appearance of possible favoritism resulted in reputational harm to both the Congressman and TVA. As a result of that inspection, TVA and the Board of Directors developed the "Obtaining Things of Value from TVA Protocol" (Protocol) in June 2009 to provide a means to identify the potential of actual or apparent conflicts of interest or the appearance of the exertion of undue influence on the part of a person applying for a TVA benefit.

This audit was initiated to determine whether (1) the design provides reasonable assurance of meeting its intended purpose and (2) the Protocol was implemented as required. We determined the Protocol provides false assurance TVA is mitigating the risk of undue influence due to several factors: (1) the design not meeting its intended purpose, (2) the Protocol not being implemented as required, due to inconsistent incorporation into policies and procedures and noncompliance with some Protocol requirements, (3) a lack of consequences for the applicant's noncompliance with self-disclosure, and (4) an absence of instructions on how an employee should disclose knowledge of actual or apparent undue influence limits the likelihood it will be identified and prevented. Ultimately, this poses a risk of reputational harm to TVA and the applicant, person, corporation, or entity seen as receiving the benefit.

We recommended TVA (1) perform a risk assessment to determine what types of "things of value" and "covered persons" should be defined in the Protocol; (2) enhance the Protocol by evaluating the benefit of whether to define applicant violation consequences, incorporating reporting guidelines for employees, and revising immediately, and requiring review cadence; (3) require implementation of the Protocol for benefits identified as "things of value," into all TVA related policies and processes; (4) develop a repository for all types of defined "covered person" requests other than those related to Section 26a permit and interest in real property requests; (5) identify who is responsible to brief the TVA Board's Audit, Risk, and Regulation Committee; (6) provide annual training; and (7) disseminate the Protocol annually, at a minimum, to TVA personnel who could be affected by its requirements.

  Full Report

The TVA developed an integrated resource plan (IRP) to guide the organization in meeting future energy demand. Due to the importance of the TVA's IRP as a directional document for TVA's future, the OIG evaluated the adequacy of TVA's development process for the 2015 IRP, including demand-side and supply-side strategies. We determined TVA's process for developing the 2015 IRP was adequate in considering potential future uncertainties and associated responses. Specifically, we determined the IRP project team met stakeholder input objectives by engaging numerous stakeholders and incorporating public opinions into the development of the IRP; considered project risks, including those related to project management; and incorporated practices commonly seen in integrated planning processes, as well as best practices, into the IRP. In our opinion, the IRP team improved on integrated resource planning efforts as the 2015 IRP incorporated lessons learned from the 2011 IRP, where applicable. Additionally, we determined scenario and strategy development and consideration of IRP inputs were consistent with those of other organizations. TVA developed metrics to analyze the portfolios generated in the 2015 IRP that reflected stakeholder input, where applicable, and were consistent with TVA's strategic mission and imperatives. Lastly, we determine considerations included in the Supplemental Environmental Impact Statement were adequate.

  Full Report

The OIG audited TVA's Contractor Workforce Management (CWM) process for acquiring craft and noncraft staff augmentation contractors to determine whether the process was operating as intended and risks were being adequately mitigated. The purpose of the process was to "maintain the highest performing contractor workforce at the lowest total cost of ownership."

We determined there was no assurance the process was operating as intended, and some risks were not being adequately mitigated. Specifically, we determined (1) the process was primarily designed to acquire and process staff augmentation contractors, but the process could only provide limited assurance of assembling the least-cost contractor workforce; (2) controls around contractor employment tenure could be improved; (3) numerous exceptions to a control capping noncraft staff augmentation contractor salaries were being granted; (4) hiring managers could choose job positions in the contractor selection system with higher pay rates than intended for the position being filled; (5) CWM performance metrics were not being calculated; and (6) contractor data inaccuracies existed within TVA systems. We also identified three CWM process risks that may not be adequately mitigated, including compliance with TVA's Citizenship Requirements policy, conflicting employer-employee relationships, and compliance with United States Citizenship and Immigration Services guidance. TVA management agreed with our recommendations to address the findings and risks noted above.

(Summary Only)

In October 2014, the OIG completed an audit of the TVA executive retention. As a follow-up to that audit, we initiated an audit of TVA's executive incentives. Our objectives were to determine (1) if executive incentives align with TVA's objectives and goals, and (2) whether processes for establishing executive incentive performance measures are followed. TVA currently has two executive incentive plans, the Executive Annual Incentive Plan (EAIP) and the Executive Long-Term Incentive Plan (ELTIP), which include performance-based incentives tied to the achievement of TVA's goals and objectives. The performance measures associated with EAIP are based on the accomplishment of approved goals identified in TVA's Winning Performance Team Incentive Plan balanced scorecards. Since the performance measures associated with EAIP are not executive specific, we focused this audit on the alignment and development of ELTIP performance measures. We determined long-term performance measures currently included in the ELTIP align with three of the five strategic imperatives included in TVA's Strategic Plan. However, we noted two of the five strategic imperatives, Debt and People and Performance Excellence, are not incentivized in the ELTIP.

In our opinion, aligning long-term incentives with all strategic imperatives would (1) benefit TVA by promoting accountability in all areas identified as crucial to the achievement of TVA's mission in TVA's Strategic Plan, and (2) continue to emphasize these areas as members cycle off of the TVA Board of Directors and executives leave TVA.

We also reviewed the process for establishing long-term performance measures for the ELTIP and found the process was followed by TVA and the TVA Board. However, one potential area for improvement was noted regarding the inclusion of additional information in the plan documents that clearly describe the ELTIP performance measures development process. The People and Performance Committee and TVA management acknowledged our recommendations and provided planned actions.

  Full Report

The OIG performed this audit to determine TVA Information Technology Enterprise Customer Operations' (ECO): (1) current effectiveness, (2) actions completed in the implementation of management action plans and Information Technology (IT) 1K initiatives in relation to achieving outcomes, and (3) design of the management action plans in response to Audit No. 2010-13366 and IT1K program for gaps related to any outcomes not met. ECO has worked to improve the end-user experience by adopting industry standard best practices, building a new customer operations center, offering expanded self-service options to end users, and providing strong and constructive leadership to its staff, creating a positive work environment. While ECO has succeeded in many efforts, it has yet to establish proper application service levels. Field Operations Services provides technical support across the valley, including network, desktop, phone, and server support. While the group is managing the current workload, there are concerns the quality of work and customer wait times may suffer if the workload increases. According to IT management, one IT1K outcome relating to manual inventory and tagging of IT assets was not completed, and the management action plan related to Service Level Agreements made in response to Audit No. 2010-13366 was not implemented. TVA management agreed with our recommendations.

  Full Report

The OIG performed this audit to determine whether (1) TVA systems development processes were being followed and (2) business processes were considered during implementation of the project. In summary, we determined the TVA project team followed TVA systems development processes and included consideration of business processes during implementation. However, we noted (1) three individuals had access to the sensitive data without the appropriate security clearance, (2) access groups which control work order approval levels were not being maintained, and (3) historical supporting documents have not been properly linked to transactions within the application. TVA management agreed with our recommendations to improve controls and address the document linkage for the remaining historical documents.

(Summary Only)

The OIG performed this audit to (1) identify excessive amounts of overtime, (2) determine if overtime was properly approved and (3) determine if controls are in place to prevent situations where fatigue could reduce the ability of operating personnel to work in a safe condition. During our audit, we found overtime hours were not passed to TVA's payroll system for payment until they had been approved in the time-reporting system, eWorkplace. Although the post approval process appears adequate, we found inconsistent methods for documenting preapproval of overtime. Additionally, we noted TVA lacks organizational guidance for management of fatigue and work-hour limits in all operational areas other than TVA Nuclear.

We recommended TVA's Executive Vice President and Chief Operating Officer, Operations: (1) implement a common procedure for preapproval of overtime; (2) develop guidance for all of TVA for managing fatigue and controlling work hours; and (3) review positions within the organization where employees are working excessive amounts of overtime on a regular basis, to determine whether safety and/or productivity are a concern. TVA management agreed with our findings and recommendations and provided planned actions to address them.

  Full Report

The OIG performed this audit to determine TVA Information Technology Operation Solution Delivery's (OSD) current effectiveness, including alignment with TVA values. During our interviews with OSD personnel and customers, we found both groups expressed concern regarding the number of resources assigned to OSD. While OSD is currently able to meet needs and cover the workload for supporting operational applications, OSD's resources are stretched, and as new technologies and needs arise, the current level of staff may not be able to meet customers' needs. In addition, the OSD staff expressed frustrations with the time it takes for changes to be applied to software and other services to be received from other IT organizational groups. TVA management agreed with our recommendations.

  Full Report

The OIG audited the Area Access Manager (AAM) application to determine the adequacy of: (1) data processing and application controls to ensure data integrity and reliability, (2) logical security controls to ensure only authorized access to system resources and protection of sensitive information, and (3) automated controls for granting physical access to sensitive TVA locations. In summary, we determined logical security controls were generally operating effectively and controls around granting physical access to sensitive TVA locations were operating in accordance with TVA policy. However, we found: (1) electronic copies of completed TVA form 15589, TVA Facility Access Request, which included the requester's social security number, were not stored encrypted, as required by TVA Standard Programs and Processes; (2) the level of access for three system administrators appeared to be greater than what was needed to perform their jobs; and (3) documentation of periodic reviews of the AAM was not maintained. (Note: We found AAM performs limited data processing and does not update any other systems. Therefore, we did not test data processing and application controls.) TVA management (1) corrected the system administrators' level of access during the audit, (2) agreed with our recommendations to secure the electronic copies of completed TVA form 15589 and to maintain documentation of periodic reviews, and (3) has begun or is planning to take action to implement the recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain and Watts Bar Nuclear Plant Unit 2 (WBN2) construction management, we reviewed a contractor's potential rework and damages liability in association with work performed at WBN2. Our objective was to determine the reasonableness of TVA's methodology for identifying and estimating the contractor's rework and damages liability. In summary, we found TVA's methodology could be improved and recommended TVA management take action to improve its processes for identifying and estimating the contractor's rework and damages liability. TVA management agreed with our findings and is taking action to address the recommendations.

(Summary Only)

At the request of the TVA Supply Chain, we reviewed a cost proposal submitted for a planned $30 million contract to provide hydro modernization, unit rehabilitation, and functional support services in support of TVA's hydro facilities. The objective of our review was to determine if the cost proposal was fairly stated. In summary, except for excessive costs included in the proposed markup rates and labor and burden rates, nothing came to our attention that indicated the cost proposal was not fairly stated. We concluded TVA could avoid up to $2.11 million on the planned $30 million contract by negotiating reductions to the labor and burden rates and certain markup rates that correspond to the proposing company's actual 2014 costs and expected future costs.

(Summary Only)

The OIG performed this audit to determine Enterprise Architecture and Planning's (EAP) current effectiveness and actions completed in the implementation of management action plans in response to a previous audit, and TVA IT's 1,000 Days to Success initiative (IT1K). The TVA OIG also assessed the design of the management action plans and IT1K program as well as identified gaps related to any outcomes not met.

We found while EAP's operational maturity has improved, actual IT project delivery has been inconsistent. A review of a judgmentally selected sample of recently completed and ongoing projects identified various possible causes for this inconsistency, including:

1. IT resource engagement, including level of involvement and resource availability.
2. Level of IT senior leadership team's project engagement.
3. Project Manager (PM) effectiveness, including the level of authority to acquire resources and the impact of PM turnover on projects.
4. Inconsistent business engagement in IT projects.
5. Inconsistent project processes, including the identification, documentation, testing, and tracking of business and functional requirements.

(Summary Only)

The likelihood of fire is lower at hydro plants than at coal plants, but hydro plants are not without fire risk. Hydroelectric stations share many of the same fire hazards as coal plants, such as oil-filled transformers, electrical cables and switchgear, air-cooled generators, and large quantities of combustible hydraulic oil. Hydro plants are typically an underground/underwater windowless structure. In many ways, a hydro plant poses more extreme safety issues and rescue risks, because of limited building access, lack of natural lighting, and embedded structures, all of which increase the potential a fire on a higher level will trap workers on a lower level.

During our review, TVA indicated fire protection systems and equipment were generally maintained and in good condition, with some exceptions. Additionally, Hydro Generation was making improvements to condition assessments of fire protection equipment. However, we found the following: (1) risk assessment reports indicated hydro plants could use more fire protection equipment, and additional documentation of inspection, testing, and maintenance were still needed; (2) TVA indicated fire drills were being conducted on a routine basis, but were not being documented as required, fire incidents were not being tracked, and lessons learned were not consistently shared; (3) TVA had not fully implemented the Emergency Response Liaison (ERL) role; and (4) the increased risk from replacing the ERL role had not been considered in TVA's enterprise risk process. We made recommendations to management to address the findings.

  Full Report

This review was initiated to assess recent efforts by the TVA Nuclear Power Group (NPG) to improve outage performance. The objective of the OIG's review was to determine whether the initiatives implemented by the NPG to improve outage performance achieved planned results and current improvement efforts can be improved. We found cost structure development and controls initiatives improved outage performance with respect to cost; however, outage duration and dose continue to miss business plan goals. Additionally, we found outage performance initiatives continually changed and excellence/improvement initiative plans did not include all planned actions. While some initiatives have been completed, others are ongoing and have rolled over to different plans, making it a challenge to tie changes to measurable results.

  Full Report

In response to increasing workplace violence occurring throughout the country and weaknesses identified in a previous OIG evaluation, 2012-14636 - Master Key Program Management - Property and Natural Resources, the OIG initiated a review of TVA firearms and ammunition. The objective of our review was to determine if firearms and ammunition are properly accounted for and safeguarded. Our review found TVA Police and Emergency Management (TVAP&EM;) were accounting for and safeguarding firearms and ammunition; however, coal plant-owned shotguns on the 2014 inventory were not included in the annual hands-on inventory list. Unissued firearms are safeguarded in secured storage areas. These firearms, and those issued to TVAP&EM; employees, are accounted for through an annual hands-on inventory. During testing, TVAP&EM; were able to provide documentation for a sample of firearms that were either destroyed or transferred. While TVAP&EM; guidelines require all TVA-issued firearms to be carried while on duty, one employee was unable to initially provide a firearm for physical inventory due to the firearm being in his home. Additionally, while TVAP&EM; were able to provide documentation for destroyed and transferred firearms, some improvements could be made to better comply with guidelines for the documentation of transfers. Finally, there were a few instances in the guidelines regarding firearms and ammunition responsibility that did not match actual practice.

(Summary Only)

Due to TVA aging equipment and the risk parts would be unavailable, the OIG scheduled a review of Hydro Generation obsolete equipment. The objective of our review was to determine if Hydro Generation was effectively managing obsolete equipment. During our review, we found Hydro Generation could more effectively manage obsolete equipment. We found there was no documented guidance to specify how obsolete equipment should be managed. In addition, we found obsolete equipment had extended outage durations. We also found some equipment condition assessments (ECA) included an "Availability of Spare Parts" indicator, which measures the availability and willingness of the original equipment manufacturer to support existing, installed equipment with parts and service; however, the indicator was not always included in the equipment condition assessments.

  Full Report

Fires in substations can severely impact the supply of power to customers and the utility company's revenue and assets. These fires can also create a fire hazard to utility personnel, emergency personnel, and the general public. There are 14 sites managed by Transmission that have fire protection systems to protect their 500-kilovolt transformers. According to TVA management, fire protection systems have been established where needed; however, the risk that fire protection systems will not function effectively is increased by the condition of systems and systems not meeting national code or TVA requirements. The current systems have antiquated equipment that is being replaced as funding allows. The upgrades do not include modifying the current system's water supply which does not meet National Fire Protection Association code or TVA Standard Process and Procedure requirements. While TVA management indicated TVA is not required to meet national code, not doing so in the case of the water supply could limit the effectiveness of the fire protection system if it were engaged during a fire. According to TVA management, maintenance on fire protection equipment is performed or requested by personnel at the Transmission Service Center; however, maintenance is not always documented. We found there were no requirements to track the fire protection systems or their condition. In addition, the inspections of fire protection equipment that were part of the preventive maintenance program were not conducted consistently. There is an increased risk an issue could go unrecognized if systems are not being consistently inspected and the condition tracked. We made recommendations to management to address the findings.

  Full Report

The OIG audited electronic communications by the TVA Board of Directors. The objective was to evaluate controls over the electronic distribution of TVA business information to and from the Board by non-TVA managed mediums. We determined current Board email practices were consistent with the Presidential and Federal Records Act Amendments of 2014. In addition, we found the third-party service used to distribute sensitive documents to the Board had appropriate processes and controls in place as reported by another independent audit company. However, improvements could be made to reduce the risk of exposing TVA business information. The Board of Directors agreed with the findings and will continue to explore options around the recommendations.

  Full Report

The OIG evaluated the efficiency of TVA's hiring process from when the need to hire an annual employee was identified until the position was filled. We determined the process was inefficient due to the following: (1) a lack of training in (a) the use of the People Lifecycle Unified System (PLUS) to initiate a vacancy, (b) requesting a recruiting strategy, and (c) policies for obtaining approvals and posting vacancies within and outside TVA; delays in receipt of documentation by the hiring manager and fingerprinting potential candidates; a lack of defined job requirements for job codes; redundancy in the application and background investigation process; lack of a repository to capture feedback on Human Relations' performance; and deficiencies in PLUS that hinders updating of data by applicants, running queries, and issuance of unique employee identification numbers; and (2) issues impacting the usefulness of the time-to-fill metric as a reliable performance measure. In addition, we identified two areas where TVA does not comply with the Office of Personnel Management requirements related to Selective Service registration and internal requirements for psychological evaluations for system operators and dispatchers. Three additional matters came to our attention during the audit related to completing psychological evaluations and motor vehicle checks for certain positions. These three matters were not directly related to our audit objectives but were included in the report for management's consideration and action, as necessary.

Except for suggested actions to assess the risk of having armed guards without psychological evaluations and use a single application to reduce redundancy in the application process, TVA management generally agreed with our recommendations.

  Full Report

Nuclear Power Group (NPG) Business Practice (BP) 247, Revision 9, Emerging Regulatory Issues Management Process, "establishes a process to identify, categorize, manage, monitor and provide statuses to senior management on issues that may have regulatory impacts on Nuclear Power Group (NPG) or NPG managed material licenses." The OIG determined the process for addressing nuclear emerging regulatory issues (ERI) is generally effective.

During the period of our review, September 26, 2009, through September 26, 2014, we identified no instances where TVA overlooked an ERI related to NRC-proposed rulemaking; however, we did identify areas where the BP 247 was not being followed. Specifically, (1) the ERI Monitoring Table was not being filled out completely and consistently, (2) formal executive briefings were not consistently occurring, and (3) executive sponsors were not being assigned to ERIs with significant impacts on NPG resources. As a result of our audit, TVA began taking corrective action by issuing a revision to BP 247, with an effective date of December 12, 2014.

  Full Report

At the request of TVA Supply Chain, the OIG audited the costs billed to TVA by Hayward Baker, Inc. (HBI), for remediation work performed at Blue Ridge Hydro Dam under Contract No. 6902. Our objective was to determine if the costs billed were in accordance with the contract terms and conditions. The audit included $2,928,773 in costs and fee billed by HBI for work performed between December 2012 and April 2013. TVA disputed $947,282 of the amount billed and paid HBI $1,981,491 on December 31, 2013. The audit found the costs HBI billed to TVA were in accordance with the contract terms and conditions. TVA and HBI reached preliminary agreement on May 27, 2015, and final settlement occurred on June 11, 2015.

(Summary Only)

The OIG audited TVA's invoice approval process to (1) assess TVA's policies and procedures related to the review and approval of invoices, (2) determine compliance with applicable policies and procedures, and (3) determine if TVA's invoice approvers have adequate information, including clear contractual compensation provisions and sufficient invoice detail to effectively perform their role. The scope of our audit included Supply Chain non-receiving contracts and purchase orders with fiscal year 2013 payments totaling $3,363,603,152.

We found policies and procedures were not followed to ensure effective review and approval of supplier invoices. Specifically, our review of 143 invoices totaling $184,339,674 found inadequate reviews were performed on 104 invoices or 73 percent. Based on our review, we identified several possible underlying causes why effective invoice reviews were not performed: (1) contracts contained unclear and/or conflicting compensation provisions; (2) some contracts do not provide specific requirements regarding invoice detail and for those contracts that do, the requirements are not being followed or enforced; (3) not all relevant contract and purchase orders are attached to the invoice or available in TVA's Enterprise Asset Management (EAM) system; (4) required field invoice approver (FIA) training does not include details on how to access and approve invoices in TVA's EAM system; (5) clear and frequent communication does not always exist between the FIA and contracting officer (CO); (6) an approval stamp used at a nuclear plant implied the OIG reviews the invoices; and (7) the current invoice review process is a manual process within an automated system.

We recommended TVA management: (1) develop a contract quality assurance program to ensure clear, concise, and easy to follow compensation terms, (2) ensure the FIAs and contract technical stewards have the most up-to-date terms and conditions of a contract by developing an approach to provide access (dependent upon business need) to contract documents, (3) require training for those accessing and approving invoices in TVA's EAM system, (4) revise policies to require the CO to confirm FIAs understand their responsibilities in approving invoices for payment, and (5) revise policies to clarify CO responsibility for monitoring the invoice approval process and verifying the contractor's invoices contain adequate detail in a format that facilitates the review. In addition, we recommended TVA management utilize the technology available to expedite and improve the invoice review process by implementing automated steps in the invoice review process where possible, including: (1) requiring electronic data from vendors that allows for 100 percent review, (2) setting parameters to identify exceptions, (3) following up on items identified as exceptions before making payment on those items, (4) establishing automatic notifications be sent to FIAs, contract managers, and others regarding exceptions to ensure the exceptions are reviewed, and (5) establishing automated analytical reviews, as necessary.

TVA management generally agreed with our findings and stated they would take action to address our recommendations.

  Full Report

The OIG performed this audit to determine Enterprise Information Security and Policy (EISP) organization's (1) current effectiveness, (2) actions completed in the implementation of management action plans in response to a previous audit and TVA IT's 1,000 Days to Success initiative (IT1K); and (3) the design of management action plans and the IT1K program and identify gaps related to any outcomes not met. EISP has improved operations through the expansion of internal processes. While EISP has improved operations, some process improvements may not be not sustainable, had inconsistent engagement in some areas and small gaps in staff experience and skills. In addition, TVA's defined values were not always reflected in EISP's work and communications. Concurrent with this audit the new EISP Director, who started his position in November 2014, was engaged in meeting with EISP staff and identified many of the same issues as noted in the report findings. In response, the Director of EISP began taking actions to address these issues.

(Summary Only)

The OIG completed procedures agreed to by TVA and the Center for Resource Solutions (CRS) to assist CRS in determining TVA compliance with annual reporting requirements of its Green-e Energy program for the reporting year 2014.This is a requirement of the CRS accreditation and certification program. Results of the procedures performed were provided to CRS and TVA.

(Summary Only)

As part of the OIG's annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Geosyntec Consultants, Inc., for professional environmental services under Contract No. 00050771. Our audit included $6 million in costs paid by TVA between November 14, 2011, and May 1, 2014. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we determined Geosyntec overbilled TVA $162,307, including (1) $95,425 in travel costs and (2) $66,882 in miscellaneous expenses. Additionally, we found Geosyntec (1) did not obtain advance written approval from TVA's Contracting Officer for $333,556 in subcontract costs billed and (2) billed TVA $32,386 using lump sum pricing provisions not provided for in the contract.

(Summary Only)

At the request of Tennessee Valley Authority's (TVA) Supply Chain, we audited AREVA NP, Inc.'s, calendar year 2012 and 2013 rate adjustments required under Contract No. 004027. The contract provided for AREVA to complete engineering, licensing, construction, and start-up operations of a single Bellefonte Nuclear Plant unit by the end of 2017. The objective of our audit was to determine if AREVA's rate adjustments were in accordance with the contract terms. In summary, we determined AREVA's 2012 and 2013 rate adjustments totaling $5,107,878 were overstated by $1,817,940. AREVA previously issued TVA credits totaling $607,637. Accordingly, TVA is due the remaining $1,210,303. In addition, we found AREVA billed $5,618,666 in labor costs and associated fee in 2012 and 2013 using cost center rates not included in the contract.

(Summary Only)

At the request of Tennessee Valley Authority (TVA) management, the Office of the Inspector General (OIG) audited the TVA project to implement ComTrac for use in managing TVA's coal supply fuel chain. Our objectives were to evaluate whether (1) federal and TVA systems development processes were being followed and (2) server and application controls were considered during implementation of the project. In summary, we determined the TVA project team followed TVA systems development processes and included consideration of business processes during implementation. During the audit, items of potential risk and concern identified by the OIG were communicated to the project management team, project sponsors, and/or Executive Steering Committee. The project team addressed all of our findings by either implementing our recommendations or accepting the risk to the project prior to the time ComTrac went live.

(Summary Only)

Personally identifiable information (PII) is defined by the U.S. Office of Management and Budget in Memorandum 07-16 and refers to information which can be used alone to distinguish or trace an individual's identity. This includes an individual's name, social security number, biometric records, or when combined with other personal/identifying information, is linked or linkable to a specific individual, such as date and place of birth or mother's maiden name. The OIG conducted this audit as an independent review of TVA's use of PII in accordance with privacy provisions of the Consolidated Appropriations Act of 2005.

This is our fourth audit since the requirement was enacted. Since the OIG's previous audit, TVA hired a Senior Program Manager for Privacy to manage the agency's privacy program. We generally found the privacy program improved since our prior audit; however, we found that controls could be strengthened in the areas of: (1) written policies, (2) storage of hard copy and electronic PII, (3) monitoring of systems containing PII, and (4) system inventory. TVA management agreed with our findings and recommendations.

(Summary Only)

The Federal Information Security Management Act of 2002 (FISMA) is meant to bolster computer and network security within the federal government. In accordance with FISMA and guidance from the U.S. Office of Management and Budget, TVA and the TVA OIG are required to report on agency-wide IT security and privacy practices annually. In our 2014 review of TVA's information security program, we found TVA was in compliance in the areas of: (1) incident response and reporting, (2) plan of action and milestones, (3) remote access management, (4) contingency planning, and (5) security capital planning. However, TVA needs improvements in the areas of: (1) continuous monitoring management, (2) configuration management, (3) identity and access management, (4) risk management, (5) security training, and (6) contractor systems. We recommended TVA implement additional improvements in its security configuration management program, update its security awareness and training, update interconnection security agreements, and update the FISMA system inventory. TVA management agreed with our findings and recommendations and is implementing its remediation plan.

(Summary Only)

While, generally, TVA effectively monitors gas and pipeline transportation costs and efficiently manages storage capacity, the OIG identified opportunities to improve the monitoring of natural gas and transportation costs. Specifically, we determined TVA did not (1) track the financial impact of penalties, (2) consistently witness pipeline meter testing, and (3) verify the accuracy of the variable cost portion of pipeline transportation invoices. We also determined TVA's reconciliation process addressed the risk of overpayments to natural gas suppliers; however, we identified a $20,000 credit provided to TVA by a natural gas supplier that management determined was credited in error. Additionally, TVA was efficiently managing storage capacity; however, TVA did not actively manage pipeline transportation capacity due to a strategic decision to base firm transportation capacity needs on a percentage of the plants' capacities to ensure reliability. We recommended the Senior Vice President, Power Operations, perform a periodic assessment of gas pipeline penalties and require meter tests be consistently witnessed by appropriately trained personnel. We recommended the Senior Vice President, Power Operations, in collaboration with the Vice President and Controller, Corporate Accounting, implement a process to verify the accuracy of transportation invoices and take action to reimburse the $20,000 mistakenly credited to TVA.

  Full Report

As part of our annual audit plan, the OIG performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Canal Barge Company, Inc. (Canal) for transporting coal by barge to the Cumberland Fossil Plant under contract number 40753. Our audit included $141.3 million in costs paid by TVA from February 1, 2009, through May 7, 2014. The contract's original compensation provisions were effective February 1, 2009, through December 31, 2011, and provided for TVA to pay per ton rates to Canal for barge services based on the origin loading point. The compensation provisions were amended effective January 1, 2012, to provide for (1) fixed monthly rate(s) for the number of boats Canal utilized and (2) a variable rate per ton based on the origin loading point. Our objectives were to determine if (1) the costs Canal billed to TVA were in accordance with the contract terms and conditions and (2) the data and assumptions TVA used in its analysis to support the amended pricing structure were reasonable. In summary, we found Canal billed costs to TVA in accordance with the contract terms and conditions. However, TVA's analysis for determining a revised pricing methodology for its contract with Canal used assumptions that were not supported by the contract or available historical information. As a result, the amended pricing structure will result in TVA paying up to an estimated $6 million more from January 1, 2012, to December 31, 2014, than would have been incurred under the original pricing structure. In response to our draft audit report, TVA management stated they agreed with the conclusions and recommendation and will (1) work to ensure that measures used in the analysis are reasonable based on contract provisions and (2) utilize historical information where it is relevant and available. However, management also stated (1) Coal and Gas Services (C&GS;) had received differing legal opinions regarding how to value liquidated damages when it constructed the contract amendments, and (2) historical information is only one of several inputs utilized in generating potential scenarios. We agreed with TVA management's stated actions. However, with regard to management's other statements, (1) C&GS; could not provide documentation that it had received differing legal opinions regarding how to value liquidated damages, and (2) historical information was the most reliable data source to determine towing capacity scenarios, but it was not a key data component used in TVA's analysis.

(Summary Only)

The OIG audited approximately $3.36 million in costs billed to TVA by Bristol Tennessee Essential Services (BTES) as of September 30, 2014. In summary, we found costs billed to TVA were supported by invoices paid to third parties by BTES. However, we noted (1) instances where costs billed were not supported by evidence the work associated with invoices had been completed, (2) BTES had not completed all actions required under the contract, and (3) TVA had not determined the benefits of the project. Finally, we noted TVA was providing excessive credits to BTES each month under an existing Direct Load Control (DLC) program based on documentation provided to us by BTES. We recommended TVA (1) ensure all payments made to BTES under contract number 00072597 are for work completed in accordance with the specifications and timelines required by the contract and determine what actions to take if all switches are not installed and working properly by January 30, 2015, (2) receive adequate support to ensure all work related to an invoice has been completed prior to payment and make receipt of key deliverables a requirement for payment under any future research and development related contracts, and (3) determine, based on the findings of the project, whether load control schemes produce the desired effect for TVA, distributors, and residential customers before moving into a new program. Additionally, we recommended TVA reduce the monthly credits given to BTES under the existing DLC program to reflect BTES documentation of switches installed under that program. TVA management is working on plans to address the recommendations in the report.

(Summary Only)

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by VECTOR JV. VECTOR is a joint venture between Bechtel Power Corporation and Sargent & Lundy LLC, providing engineering services for Bellefonte Nuclear Plant Unit 1. Our objective was to determine if the $60.7 million in costs paid by TVA for Bechtel's services from October 1, 2010, through December 31, 2012, were billed in accordance with the contract terms and conditions. In summary, we determined VECTOR overbilled TVA an estimated $358,434 in costs for Bechtel's services, including:

• $246,353 in ineligible other direct costs.
• An estimated $47,978 in temporary living costs.
• $64,103 in ineligible labor costs.

In addition, we noted several opportunities to improve contract administration by TVA. Specifically, we found TVA paid VECTOR (1) an estimated $1,747,353 in temporary living allowance (TLA) costs for Bechtel employees for time periods not shown on employee TLA certification forms and (2) an estimated $50,486 in excess costs because temporary living monthly allowances were not included in the contract's compensation terms until April 30, 2011.

(Summary Only)

As part of our annual audit plan, we audited costs billed to the Tennessee Valley Authority (TVA) by Nexant, Inc., for commercial and industrial energy efficiency services. Our audit included $63.6 million in costs paid by TVA between December 29, 2009, and March 21, 2014. Our objective was to determine if the costs billed to TVA were in compliance with the contract's terms and conditions. In summary, we determined Nexant overbilled TVA an estimated $431,846, including:

• $269,009 in subcontractor costs.
• An estimated $144,570 in labor costs.
• An estimated $18,267 in travel costs.

Additionally, we found TVA overpaid $67,189 in incentive payments of which Nexant has refunded $15,685.

(Summary Only)

As part of our annual audit plan, we performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation for providing engineering, procurement, construction, and related services in support of the completion of TVA's Watts Bar Nuclear Plant Unit 2. Our audit included about $520 million in noncraft costs billed to TVA from January 1, 2010, to September 30, 2013, (craft costs will be audited separately). Our objective was to determine if Bechtel billed TVA in accordance with the contract terms and conditions. In summary, we determined Bechtel overbilled TVA an estimated $2,066,495, including:

• $923,231 in labor and related costs, which included (1) $696,841 in ineligible labor hours and rates billed, (2) $228,490 in ineligible home office labor costs,(3) $24,044 in excessive payroll additive costs, and (4) a net credit of $26,144 in other labor costs.
• $938,928 in ineligible or unsupported relocation, permanent and temporary assignment, and travel costs, which included (1) $520,370 in relocation costs,(2) $372,048 in permanent and temporary assignment monthly allowances,(3) $23,932 in other temporary assignment costs, and (4) $22,578 in travel costs.
• $204,336 in ineligible or unsupported affiliate company and subcontractor costs.

(Summary Only)

The OIG monitored the work of TVA's external auditor, Ernst & Young LLP (EY), to assure the work was performed in accordance with generally accepted government auditing standards (GAGAS). Our review of their work, as differentiated from an audit in accordance with GAGAS, was not intended to enable us to express, and we did not express, an opinion on TVA's financial statements or on the effectiveness of TVA's system of internal control over financial reporting. EY is responsible for the auditor's reports dated November 14, 2014, and the conclusions expressed in those reports. Our review disclosed no instances where EY did not comply in all material respects with GAGAS.

  Full Report

The OIG performed six agreed-upon procedures requested solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2014. Following are the results of the procedures applied.

1. The fiscal year (FY) 2014 Winning Performance goals for the enterprise-wide and Strategic Business Unit measures were properly approved. One change form for FY 2014 was approved by the Chief Executive Officer on September 22, 2014. The change form affected three scorecards and resulted in no change to payout.
2. The FY 2014 goals (i.e., target) for the corporate multiplier measures were properly approved.
3. The actual year-to-date results for the Strategic Business Unit scorecard measures agreed with the respective supporting documentation, without exception.
4. The actual year-to-date results for the enterprise-wide scorecard measures agreed with the underlying support, without exception.
5. The actual year-to-date results for the corporate multiplier measures agreed with the underlying support, without exception.
6. The FY 2014 Winning Performance payout percentages provided by the Benchmarking and Performance Analysis organization on October 20, 2014, were mathematically accurate and agreed with the Office of Inspector General's recalculations.

  Full Report

The Tennessee Valley Authority (TVA) engaged in three major initiatives during fiscal year (FY) 2009 through FY 2013 related to workforce productivity and operational performance: DeWolff, Boberg & Associates, Inc.'s (DBA) workforce performance, McKinsey and Company's Pilot and Performance Boost, and TVA's Diet and Exercise (D&E;). Our audit objective was to assess the effectiveness of TVA's management of those productivity and operational performance improvement initiatives. Based on our assessment of the effectiveness of TVA's management of the DBA, McKinsey Pilot and Boost, and D&E; initiatives, we determined TVA management did not effectively monitor achievement of all performance improvements. Specifically, we identified a deficiency in the control design related to monitoring and tracking for verification of savings claimed from the DBA and the McKinsey initiatives. In addition, the sustainability of the performance improvement initiatives was hindered by a lack of employee engagement and resource constraints that made operational efficiency improvements unachievable or unrealistic. Further, employee morale suffered during the DBA initiative due to employees' perceptions of disrespectful behavior towards them by DBA. Morale also suffered during the McKinsey initiative from a perceived lack of follow-through by TVA management to provide funding to implement improvements. Based on the above, we recommended TVA (1) assess the cultural climate through meaningful dialogue with employees about the impacts of the initiatives to determine the long-term effects on employee engagement and morale and (2) establish a standard process and procedure for future improvement programs. TVA management reviewed a draft of the report and agreed the contents were factually correct. TVA management is working on a plan to address our recommendations.

(Summary Only)

Over the last several years, there has been anecdotal information indicating a high level of turnover among the Tennessee Valley Authority's (TVA) executives. We initiated this audit to review the costs associated with the hiring and dismissal of executives brought in from outside TVA since the change to TVA's part-time Board of Directors. For the purposes of this audit, we considered an executive to be an employee with the title of vice president or above.

To perform our audit, we reviewed TVA's documentation of personnel who were classified as executives for the period March 2005 through May 2014. Also, we reviewed TVA's recruiting, hiring, and severance expense information for executives who were hired and departed during the period. In summary, we found:

• As of March 1, 2005, TVA had 46 executives compared to 54 executives as of May 31, 2014. During the period, TVA hired 47 executives and promoted 55 employees to executive level positions. TVA also demoted and/or reclassified 15 executives to nonexecutive level positions and 79 executives departed TVA.
• Executives who were promoted from within appeared to remain a TVA executive longer than those who were hired from outside TVA.
• TVA incurred approximately $7.4 million in recruiting, hiring, and severance expenses for 20 executives who were hired and also departed TVA during the period. We estimate it costs TVA an average of almost $400,000 when an executive leaves TVA and another executive is recruited and hired to fill the vacancy.

We also compared the number of TVA's executive departures as reported to the Securities and Exchange Commission (SEC) to the reported departures of TVA's compensation peer group for the period of January 2007 through May 2014. Although we found TVA reported more executive departures than most of the peers, companies may interpret SEC filing requirements differently, making it difficult to ensure the information reported by TVA's peer group was consistent with TVA's reporting.

  Full Report

This review was initiated as part of the Office of the Inspector General's commitment to provide oversight of coal combustion product (CCP) management. The objective of our review was to determine if TVA was meeting its commitments for CCP management.

We found TVA was meeting its commitments for CCP management. Specifically, we found TVA has implemented programmatic improvements, stabilized its coal ash storage facilities, and improved oversight of CCP management. Additionally, we found TVA was taking steps to become an industry leader in CCP management. The report did not include any recommendations.

  Full Report

This review was initiated as a follow-up to Inspection 2010-13530, Review of TVA's Fossil Fire Protection Systems, issued September 30, 2011. Fire protection systems are a combination of mechanical and electrical components and like power generation equipment, need regular attention. The objective of our review was to determine if the fire protection systems were adequately maintained and mitigating actions were taken to minimize the impact of fires at TVA fossil plants.

We found TVA's maintenance of fire protection systems was improving; however, there was heightened risk of damaging fires at TVA sites due to (1) restoration times for certain priority systems exceeding TVA targets; (2) delays in addressing fire protection work orders; (3) instances of noncompliance with TVA's inspection, testing, and maintenance procedure; and (4) difficulties in maintaining aging equipment. We noted improvements were made to minimize the impact of fire, such as equipping fire trucks for each plant, replacing the fire brigade room at Kingston, and updating a portion of personal protective equipment for brigade members. However, many issues noted in the original inspection remained. For example, fire brigade members continued to have concerns about fire response preparedness and lessons learned were not shared consistently across the fleet. We also found Fire Protection Self-Assessments presented the condition of TVA's fire protection systems in a more positive manner than other sources might suggest was warranted.

We recommended the Senior Vice President, Power Operations, (1) take steps, as appropriate, to restore impaired fire protection systems to service and determine if additional personnel or resources are needed to expedite repairs of fire protection systems in the future; (2) determine the equipment needs of fire brigade members and take steps to provide that equipment; (3) identify additional training needs for fire brigade members and take steps to provide that training; (4) determine whether increased staffing is warranted for fire brigades; (5) create and implement a formal process for capturing and sharing lessons learned from fire events across the fleet; (6) amend the Fire Protection Self-Assessments to include ratings of fire protection system equipment, provide a more objective means for determining whether preventive maintenance was performed, reflect prioritization of impairments and work orders outstanding, and provide a synopsis of additional drivers of fire risk at each site. TVA Management agreed with the findings and recommendations.

  Full Report

As a result of findings in a recent evaluation 2012-14845, Review of TVA's Nuclear Power Group Preventive Maintenance, we conducted a review of coal plant preventive maintenance (PM). The objective of our review was to determine if PM was performed in accordance with established schedules and if not, what effect the deviations were having.

We found compliance with PM schedules varies by plant, and the PM compliance metric captured may not fully represent all PM activities not completed. The monthly PM compliance percentage varied from 10.5 to 100 percent. The most common reasons cited for not completing PM or adjusting the PM schedule was resource driven and/or due to emergent/sponsored work. We also found if a work order did not have the correct reconciliation code, a canceled PM task would be counted as completed, which skewed the data. Reconciliation codes are essential for accurate reporting, but they are not a required field in Maximo.

We found that both uncompleted and unestablished PM contributed to equipment failures. In a review of 65 Problem Evaluation Reports (PERs), we identified six PERs linking failures to PM issues. Four of those PERs related to equipment for which no PM schedule or requirement had been established, and two PERs related to uncompleted PM tasks. We also found plants were making progress implementing the new Maintenance Basis Optimization (MBO) but had seen some delays in achieving target dates. Support of outages had impacted some sites' abilities to complete its MBO phases. Additionally, we found the absence of PM requirements could make it harder to manage equipment reliability risk.

We recommended the Senior Vice President, Power Operations, (1) increase PM completion/reduce deviations from PM schedules and reinforce the importance of PM activities, (2) develop a way to more accurately capture and report PM compliance and other appropriate PM tracking metrics, (3) expedite MBO efforts, and (4) consider the potential impact of having PM governed only by guidelines and not requirements. TVA management generally agreed with the recommendations in the report.

  Full Report

Based on the findings of a previous review, we evaluated the TVA Nuclear Power Group (NPG) Groundwater Protection Program (GWPP). The objectives of our review were to determine if NPG's GWPP performed required monitoring and reporting and completed required corrective actions based on monitoring results.

While NPG's GWPP performed required reporting, we could not verify the monitoring requirements in TVA's NPG standard programs and processes were followed. Our review also found corrective actions were taken to address the leaks and spills at TVA's nuclear plants reported to the NRC for the time frame of our review. However, we found opportunities for programmatic improvements. There were instances where programmatic weaknesses were identified several times over the last five years and were not remediated. External assessments also noted deficiencies in the program that were downgraded or excluded when NPG performed its fleet self-assessment. In addition, there was not a formal process in place to ensure recommendations made by external consultants were addressed. We made recommendations to management, accordingly, to address the findings in the report.

  Full Report

The Office of the Inspector General included a review of Revenue Billing's invoice preparation process for local power companies (LPC) on its annual audit plan because of the significance of this source of revenue to TVA. We audited the invoice preparation process for the period April 1, 2011, through July 31, 2013, to determine if: (1) wholesale invoices were calculated correctly, (2) controls to prevent/detect invoice errors were adequate, and (3) Oracle Utilities had appropriate/adequate information technology general and application level controls.

Our audit of the invoice preparation process for LPCs during the period, found: (1) wholesale invoices were calculated correctly, (2) controls to prevent/detect invoice errors were adequate, and (3) Oracle Utilities had appropriate/adequate IT general and application level controls. However, we identified minor issues where changes could strengthen and/or improve the revenue billing process and decrease the likelihood of errors or adjustments.

  Full Report

The Office of the Inspector General audited costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation for services provided by Bartlett Holdings, Inc. Bartlett was to furnish qualified personnel to Bechtel on a seconded basis for the Watts Bar Nuclear Plant Unit 2 construction completion project. Our audit included approximately $121.4 million in payments made by TVA for services provided under the subcontract from January 1, 2010, through September 30, 2013. Our objective was to determine if the costs billed to TVA were in accordance with the provisions of TVA's contract with Bechtel and Bechtel's agreement with Bartlett.

In summary, we determined TVA was overbilled $1,547,434 for costs and fees billed under the contract associated with the Bechtel-Bartlett subcontract. The overbilling included (1) $1,484,582 in excessive payroll tax and insurance costs and related fee, (2) $60,287 in ineligible temporary living allowance costs, and (3) $2,565 in excessive labor costs and related fee. We recommended TVA management take action to recover $1,547,434 in overbilled costs from Bechtel and ensure payroll tax and insurance reconciliations are performed on an annual basis.

(Summary Only)

The Office of the Inspector General performed this review as part of its ongoing effort to provide oversight of the Kingston Recovery Project to determine if TVA is meeting its commitments for the Kingston Recovery Project.

Our review found TVA has met or is meeting its commitments for the Kingston Recovery Project. Community leaders and regulatory personnel interviewed were satisfied with TVA's actions to meet its commitments.

In order to address these commitments, TVA has taken a number of steps. Specifically, TVA has cleaned up the ash spill and restored the area, protected public health and safety, kept the public and stakeholders informed and involved in the process, and helped with the economic development of Roane County. Some community leaders believe TVA has worked to make the area better than it was before the spill.

  Full Report

The Office of the Inspector General initiated a review of the Energy Services Company (ESCO), currently known as the Federal Energy Services Program. The objective of the review was to evaluate whether the program was meeting its intended purpose of providing energy efficiency for the customer. TVA was unable to provide documentation to allow determination of the amount of actual energy efficiency achieved, specifically by ESCO, for two of the three current customers participating in the program. As a result, we were unable to determine the total impact of ESCO in providing energy efficiency for the customer and the degree ESCO supported the accomplishment of TVA's 2020 vision of greater energy efficiency. Also, as part of the audit, we assessed TVA GOES (government, oversight, execution, and support) and business case documentation and found that while substantial improvements were being made to the program, programmatic gaps and other opportunities for improvement existed.

  Full Report

The Office of the Inspector General evaluated the effectiveness of the Tennessee Valley Authority (TVA) processes for identifying and managing actual and potential environmental issues and risks. TVA's Environmental Management System (EMS) program was established to manage environmental impacts of TVA operations and help fulfill commitments of TVA's Environmental Policy. Within this purpose, EMS plays a significant role in managing environmental risks across TVA and sustaining a high level of environmental compliance in TVA operations.

Generally, TVA had effective processes for identifying and managing actual and potential environmental issues and risks. However, we noted areas where environmental risk management processes can be strengthened as of the end of FY2013. Specifically, we found environmental risks identified for business planning could be more comprehensive, more clearly identified, and integrated agency wide in order to help ensure their recognition and resource availability. In addition, weaknesses in environmental review processes increase TVA risks and can be strengthened to demonstrate regulatory compliance and due diligence in assessing the potential environmental impacts of proposed agency decisions.

Many positive aspects of the EMS program were evident and demonstrated effectiveness of functions related to environmental risk management. However, we determined opportunities for enhancing TVA's EMS exist in communicating with regulators, coordinating planning processes, emergency response preparedness, environmental training, and sharing lessons learned.

We recommended process improvements related to identifying risks and integrating environmental information sources, system enhancements to strengthen environmental reviews, and enhancements to EMS functions. By implementing our recommended actions, TVA can improve process efficiencies that will help sustain EMS effectiveness in the face of current challenges and impacts from budget constraints.

  Full Report

During a prior review of how TVA organizations assess the condition of its assets, we learned that asset condition assessments done by the Fossil Power Group (FPG) determined some generation assets were in poor condition. As a follow up to this prior work, we initiated a review to determine whether TVA was taking actions to address FPG systems and programs with poor ratings.

We found actions were taken to address some programs and systems with poor health. We identified that 785 out of 1,617 programs and systems within FPG had been rated red or yellow and randomly selected 35 programs and systems for detailed review. Actions taken by FPG to address the poor health resulted in an improvement in color rating or overall health of 17 programs and systems. However, there was no upgraded rating or improvement in system health for 18 systems. Of these 18 systems, 7 had no actions completed, while 11 had some actions completed without improvement in system health. The major reason cited for not completing actions was lack of funding.

We also found system health reports were not completed or documented and required program health reports could not be provided. Additionally, FPG-SPP-09.045, Performance of Engineering Programs, and FPG-SPP-09.030.03, System Health Reports, were superseded by engineering guidance documents which have no requirements, only recommendations. This may increase the number of health reports not completed or not completed in a timely manner. The absence of accurate and timely equipment health reports could make it more difficult for TVA to effectively manage equipment reliability risk.

We recommended the Senior Vice President, Power Operations, (1) document justification when actions are not taken to address systems and programs with red and yellow ratings, (2) reinforce the importance of consistent documentation of system health reports, and (3) consider the potential impact of eliminating the requirement to do asset health assessments on TVA's non-nuclear asset condition risk and determine a schedule for completing health assessments that will mitigate the risk of equipment failure TVA management responded they will incorporate our feedback into their review effort to have a consistent approach to system health with appropriate documentation.

  Full Report

The OIG audited the costs billed to TVA by Choctaw Generation Limited Partnership (CGLP) for power purchases. TVA and Choctaw Generation, Inc., entered into a contract with an effective date of February 20, 1997. Choctaw Generation, Inc. became CGLP through an assignment agreed to by TVA, effective April 30, 1998. The contract obligated TVA to buy 92 percent of the annual power generated for 30 years from a coal generation plant to be built by CGLP in Choctaw County, Mississippi.

CGLP constructed the Red Hills Generation Facility (RH) to burn lignite coal in two fluidized-bed combustion boilers generating a combined 440 megawatts of power. The facility's fuel is supplied by Mississippi Lignite Mining Company's lignite mine located adjacent to RH. TVA's 30-year obligation to buy power from CGLP started when RH began commercial operation April 1, 2002. Our audit included $400.3 million in costs billed by CGLP associated with the period October 1, 2010, through September 30, 2013. Our objective was to determine if the costs billed were in accordance with the contract's terms and conditions.

In summary, we found:

• TVA's electronic workbook used to calculate the invoice amount does not contain a formula needed to account for unexcused hours when TVA directs RH to provide less energy than at full capacity (derated) and RH cannot produce any power.
• TVA needs to improve documentation and communication of adjustments to the RH meter data.
• CGLP billed TVA $12,674 in costs for meter readings not supported by actual meter data on the October 2011 invoice.
• CGLP overbilled TVA a net $5,135 due to data entry errors made by TVA in the electronic workbook used to calculate the invoice amount.

We recommended TVA management take action to (1) revise the electronic workbook to include a formula to address time periods when TVA directs RH to provide derated capacity and RH cannot produce any power; (2) recover $12,674 in unsupported costs; (3) establish a procedure for documenting and communicating adjustments to the RH meter data; and (4) recover $5,135 in overbilled costs.

(Summary Only)

The OIG found official stations were generally appropriate for TVA's most frequent travelers. However, we noted departments with employees who frequently travel to multiple locations assign official stations in differing ways. Additionally, controls and policies could be strengthened by including guidance on evaluating official stations and requiring approval from the appropriate level of management for decisions not to change official stations based on the dollar values of travel expenses incurred or expected to be incurred. As part of our audit we followed up on TVA management's actions taken in response to the OIG's previous travel review, Inspection 2006-522I, Review of TVA Travel Reimbursements, we noted action plans agreed to in the past do not appear to have been fully implemented.

  Full Report

The OIG audited TVA's payments to the Alabama Emergency Management Agency (AEMA) and the Alabama Department of Public Health (ADPH) under two contracts with the State of Alabama. Under the contracts, AEMA and ADPH cooperated in a program to operate and maintain the Radiological Emergency Preparedness (REP) programs for TVA's Browns Ferry and Sequoyah Nuclear plants. Our objective was to determine if the costs paid under the contracts were in compliance with the contract terms. Our audit included $6,601,445 TVA paid to AEMA ($5,666,875) and ADPH ($934,570) for the period October 1, 2007, through September 30, 2013.

In summary, we found the current contract's compensation terms should be revised to (1) clarify whether TVA will reimburse costs incurred or pay an annual lump sum to AEMA and ADPH and (2) require AEMA, ADPH, and the five counties, Lauderdale, Lawrence, Limestone, Madison, and Morgan, to provide details to TVA on actual funds spent during a fiscal year in support of the REP program. We also noted the salaries paid to emergency management personnel varied significantly between the five counties.

We recommended TVA management take action to revise the contract language to address the two issues noted above. TVA management agreed the contract language needs to be revised in these areas and plans to revise the language accordingly in a new contract with the State of Alabama to be effective October 1, 2014.

(Summary Only)

In a previous OIG review of how TVA organizations assess the condition of assets, we learned asset condition assessments completed by River Operations (RO) had determined some assets were deteriorated. As a follow up to our prior work, we reviewed whether TVA was taking action to address RO systems and components with deteriorated conditions. These assets were designated as "red" or "yellow." According to RO personnel, a red rating indicated equipment condition was poor, while a yellow rating indicated equipment condition was marginal.

In RO, 1,438 systems and components had been rated red or yellow. We randomly selected 50 systems and components for review, eight with a red rating and 42 with a yellow rating. We found actions had been taken to address some systems and components with poor or marginal health. Of the eight systems and components with a red rating, all had either a project or work order developed to address the condition as required by the guidance. For five, actions to improve the asset condition were currently in progress, and for three, no actions were underway or planned within the next three years. Of the 42 systems and components with yellow ratings, for 32, no action had been taken, and for 10, projects were being developed to address the identified deficiency. Of the 10 that had projects under development, two had projects that were funded or being worked, seven had projects that were not currently funded, and one had a project that was completed.

Additionally, we found TVA had identified asset condition of non-nuclear generation as a top Enterprise Risk Management risk in FY2014. ROR-SPP-09.21, System and Component Health Program, was superseded by an engineering guidance document, which had no requirements, only recommendations. This could result in health report assessments not being completed. Without accurate and timely equipment health report assessments, TVA cannot effectively manage equipment reliability risk.

  Full Report

The OIG assessed the effectiveness of the Enterprise Risk Management (ERM) organization's role within TVA's overall risk management program. To aid in our assessment, we compiled the results of prior relevant audits and evaluations to identify common themes that bear on the ERM organization's effectiveness.

We found TVA has made improvements in its ERM program since a 2008 OIG inspection was completed. However, we made the following observations in our recent review: (1) risks were not aligned to strategic objectives that support TVA's mission, (2) TVA had not established and communicated a risk appetite or risk appetite statement, (3) the risk management culture was not fully embedded throughout the organization, (4) risk tolerances reported by SBUs/BUs could be improved, and (5) multi-point risk assessments were not used as part of the risk assessment process. Also, the current application used to collect and analyze risks limits the effectiveness and efficiency of the ERM program, and information in and the process for reviewing TVA's risk management program guidelines and policy could be improved.

We made six recommendations for improving the effectiveness of the ERM program. Prior to our issuing the final report, TVA addressed the deficiencies in its risk management policy and guidelines. Management generally agreed with the remaining findings and recommendations.

(Summary Only)

At the request of the Tennessee Valley Authority (TVA) Supply Chain organization, the OIG audited $22.7 million in costs billed to TVA by Comdata Network, Inc. The contractor was to provide TVA with a MasterCard platform and issue fuel cards to TVA personnel to purchase fuel, vehicle fluids, and car washes for TVA-related business. The objective of the audit was to determine if costs paid by TVA from October 1, 2011, through June 30, 2013, were billed in accordance with contract terms. In summary, the OIG determined TVA was overbilled $1,044,302, including:

• $846,022 for duplicate invoices submitted by the contractor.
• $83,271 in duplicate costs charged on merchant transactions.
• A net $106,174 in state taxes paid on fuel purchases which included (1) $157,065 in state fuel taxes from which TVA was exempt, (2) $59,229 in state fuel excise taxes that had been stripped from invoices by the contractor and for which TVA was liable, and (3) $8,338 in state excise taxes from states outside TVA's service region and from which TVA may be exempt.
• $8,835 in unauthorized transactions.

In addition, the contractor owes TVA $11,459 in interest on overpayments made by TVA due to duplicate invoices submitted by the contractor.

In response to our draft report, the contractor stated TVA should reimburse it a net $192,042 for state taxes stripped from invoices for which either TVA is liable ($65,907) or the contractor cannot file for a refund from the states ($126,135). Based on additional documentation provided, the OIG determined TVA may owe the contractor up to $164,663 of the $192,042 it claimed it was owed for state taxes that had been stripped from invoices, including:

• $59,229 in state taxes applicable to TVA (discussed above).
• $93,227 in Alabama state taxes that the contractor had stripped from invoices and for which the contractor cannot file for a refund. (TVA will need to recover the taxes from Alabama and provide a credit to the contractor for the stripped amount.)
• $9,411 in Tennessee state taxes that the contractor had stripped from invoices that should not have been.
• $3,045 in Georgia state taxes that had been stripped from invoices and for which the contractor cannot file a refund. (TVA will need to recover the taxes from Georgia and provide a credit to the contractor for the stripped amount.)
• Less the $249 overbilled to TVA for North Carolina taxes.

The OIG recommended TVA management take action to recover:

• $846,022 from the contractor for payments made on duplicate invoices plus $11,459 in interest.
• $83,271 overbilled by merchants due to duplicate costs charged on merchant transactions.
• $253,337 from the appropriate party for state fuel taxes billed by the contractor for tax exempt fuel purchases, pay the contractor $164,663 for state fuel taxes stripped from invoices for which either TVA is liable or the contractor cannot file for a refund from the respective state, and determine if TVA can recover $8,338 in state excise taxes billed by the contractor for other states outside TVA's service region.
• $8,835 from the contractor for unauthorized charges billed.

(Summary Only)

The OIG reviewed Coal Operations' (CO) 4th quarter fiscal year (FY) 2012 and 2nd and 4th quarters FY2013 enterprise risk maps for asset performance vulnerability to assess whether risk mitigation plans and actions were established and properly designed to manage risks. We determined the 4th quarter FY2013 mitigation plans and actions were adequately designed to manage the risks. Although the risk rating and trend had increased from 2 years ago, in our opinion, mitigation plans and actions that consider utilization of assessment tools, replacing components during planned outages, development and implementation of projects and programs to avoid consequences, and reclassification of components to capital from operations and maintenance to increase investment in long-term improvements reasonably address the risk of asset performance vulnerability in CO. We also identified an opportunity to improve CO's risk mitigation documentation which was addressed during our audit.

  Full Report

During 2012, we completed an audit of TVA's Financial Trading Program (FTP) audit number 2011-14477. The program, which started in 2003, was designed to hedge or otherwise limit economic risk associated with the price of commodities recovered in TVA's fuel cost adjustment (FCA). Since the hedging of natural gas comprised the majority of the hedging program, we generally limited our scope to the gas hedging program. Although our audit determined the overall design of TVA's FTP control structure was appropriate, we also identified several areas where management oversight needed improvement to validate the usefulness and effectiveness of the program, as well as ensure TVA stakeholders' understanding of the program.

As a follow-up to audit 2011-14477, we contracted with Mercatus Energy Advisors (Mercatus) to provide a third-party review of the final actions taken by TVA management with regard to the recommendations from our audit and determine if TVA's Financial Gas Hedging program was designed and functioning in a manner to achieve program objectives in the most efficient and effective manner.

In summary, Mercatus agreed the overall design of TVA's FTP control structure was appropriate. However, Mercatus identified several additional areas regarding the design and function of the program that required attention. To address these areas, Mercatus recommended TVA

• Determine risk tolerance and proper size of the FTP.
• Analyze volumetric risk on a regular consistent basis and communicate with stakeholders having a vested interest in this aspect of the FTP.
• Redesign hedging strategies to better match the characteristics of the exposures being hedged.
• Improve and consolidate performance reports.
• Cease using "Value at Risk" as a primary risk metric and replace it with at risk type of metric(s) that includes financial natural gas hedges and the physical exposures being hedged.
• Conduct stress testing on a routine basis.
• Ensure actions required by governance documents are adhered to or if language in the documents is inaccurate, revise the documents to reflect actual practices.
• Conduct a proper cost/benefit analysis of the FTP and compare all-in hedged cost of fuel to the cost of fuel without hedging (market price).
• Properly analyze and manage all of TVA's energy commodity exposure.

TVA management generally agreed with the recommendations and provided a plan of action to address the recommendations.

  Full Report

In completing project number 2009-12883, Survey of TVA's Process for Determining Condition of Assets, with a report dated September 20, 2012, the OIG learned that asset condition assessments performed by the Nuclear Power Group (NPG) had determined some generation assets were in poor condition. As a follow up to our prior work, we performed a review to determine whether TVA was taking action to address NPG systems, components, and programs with poor ratings. Under NPG's health report process, actions were required when ratings were designated red or yellow. Red ratings are defined as requiring excessive monitoring/resources to maintain, and yellow ratings indicate a need for additional attention.

We found 333 systems, programs, and components within NPG had been designated red or yellow. We randomly sampled 25 for detailed review. Our analysis showed at least two actions were taken to address 24 of the 25 samples. For 1 component, only one action was completed and other actions were awaiting approval. These actions resulted in an improvement in condition and a change in 14 cases to a white or green rating, while 11 had ratings that remained red or yellow. It is important to note that of the remaining 11 with red and yellow ratings, 2 changed from red to yellow, and 9 remained the same. In addition, 5 of the 9 that remained red or yellow had some asset condition improvement but not sufficient improvement to change the rating.

  Full Report

The Non-Nuclear Employee Concerns Program (ECP) is important to the Tennessee Valley Authority's current culture and environment. The OIG conducted a review to determine whether the program was addressing employee concerns in a timely and effective manner.

We found improvements in the Non-Nuclear ECP have been made in addressing concerns in a timely manner, but the effectiveness of the program could be improved. We found (1) instances where the Non-Nuclear ECP was not adequately addressing employee concerns, and (2) some employees felt concerns were not being adequately addressed and reported experiencing pressure and repercussions from management and team members.

We recommended TVA management (1) identify an individual to perform audits and assessments of closed concerns, (2) coach individuals addressing concerns on what constitutes a sufficient investigation, and (3) develop an instrument to send to complainants to indicate instances of retaliation and investigate as necessary. TVA management agreed with our findings and recommendations.

(Summary Only)

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by AMEC Environment and Infrastructure, Inc., for a broad range of geotechnical services to support engineering design for structures, earthwork, and environmental projects under Contract No. 21705. Our audit included $5.33 million in costs billed between June 1, 2009, and October 23, 2012. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions.

In summary, we determined AMEC overbilled TVA an estimated $100,441. The overbilling included an estimated (1) $63,196 in labor costs, (2) $14,693 in transportation and subsistence costs, (3) $13,243 in unit rate costs, (4) $8,709 in miscellaneous costs, and (5) $600 in unclassified costs.

(Summary Only)

Due to the importance of reliable nuclear production at TVA, the OIG audited the risk of long term equipment reliability in the Nuclear Power Group (NPG). Our objectives were to assess whether risk mitigation plans and actions were established and properly designed to achieve the desired results and operating as intended, as well as identify opportunities to improve mitigation strategies for reducing long term equipment reliability risk in NPG. Our audit determined the mitigation plans identified were adequately designed to address this risk. However, the extent to which the mitigating actions were effectively reducing the risk could not be determined because of how the actions were prioritized. The audit also identified opportunities to enhance risk mitigation strategy and documentation, but we were unable to determine whether NPG had established an upper limit for the long term equipment reliability risk NPG was willing to accept. In response to our draft report, NPG management believed they had demonstrated appropriate action to address the findings and three recommendations in the report. NPG management agreed to review the long term equipment reliability risk map during upcoming quarterly reviews to determine if the associated enterprise risk could be further reduced or it should be removed from the risk map altogether. The OIG agreed with plans to reassess this risk.

(Summary Only)

The Tennessee Valley Authority (TVA) contracted with the independent public accounting firm of Ernst & Young LLP (EY) to audit the balance sheet as of September 30, 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in proprietary capital, and cash flows for the year then ended. In addition, the contract called for the review of TVA's fiscal year 2013 interim financial information filed on Form 10-Q with the Securities and Exchange Commission. The contract required the work be performed in accordance with generally accepted government auditing standards. The objective of our review was not intended to enable us to express, and we do not express, an opinion on the TVA's financial statements or on management's conclusions about the effectiveness of its system of internal control. EY is responsible for the auditor's reports dated November 15, 2013, and the conclusions expressed in those reports. However, our review disclosed no instances where EY did not comply, in all material respects, with generally accepted government auditing standards.

  Full Report

The OIG audited the subcontracting process used by URS Energy & Construction, Inc. (URS), under contract numbers 66777 and 72142. Under the contracts, URS was to provide design, engineering, procurement, delivery, installation, and construction management services for TVA's (1) combined cycle combustion turbine or simple cycle combustion turbine projects and (2) various equipment for selective catalytic reduction and dry flue gas desulfurization precipitators. Our audit included subcontracts and related change orders for $256.3 million in subcontractor costs URS billed to TVA from December 14, 2007, to June 27, 2012.

In summary, we determined URS (1) did not obtain TVA approval for some subcontracts and circumvented requirements for TVA approval, and (2) overbilled TVA $168,623 in the markup costs applied to costs for services and equipment provided by TVA under subcontracting agreements.

(Summary Only)

The OIG evaluated the adequacy of actions taken to mitigate combustible coal dust at TVA coal plants. Despite some improvements in combustible dust management, we determined actions taken to date were inadequate in improving deteriorating equipment conditions, addressing housekeeping challenges, and providing appropriate monitoring of combustible dust conditions at the coal plants.

Although the probability of occurrence for coal dust explosions was rated by TVA in the Enterprise Risk Management risk map as unlikely, the potential consequences of an explosion could be severe and result in disruption of generating capacity, costly clean up and repairs, and even loss of life.

We found coal plant and coal handling conditions exceeded acceptable dust level limits specified in TVA Safety Procedure (TSP) 816. Specifically, we observed coal dust accumulations that exceeded the 1/32 inch standard in many of the coal handling areas during walkdowns at the Bull Run, Cumberland, and Paradise fossil plants. Additionally, TVA self-identified coal dust accumulations that were above the allowable standard in many areas throughout the coal fleet. We also found monitoring tools required by the program were not being used consistently to improve plant conditions.

Site assessment reports performed by yard systems engineers indicated some conditions improved between 2010 and 2012. Some equipment deficiencies were being addressed, and there were several programmatic practices in progress that were expected to improve conditions over time. However, equipment has deteriorated faster than funding has been available for repairs or replacements. Deficiencies resulting from inadequate equipment maintenance contribute to the increased presence of combustible coal dust and coal accumulations within the coal handling system. With deteriorating equipment and recent staff reductions for housekeeping, TVA faces significant challenges in keeping coal dust accumulations within the limits specified in TSP 816. More focus is needed on the program in order to better contain coal dust and reduce the necessity for extensive and repeated housekeeping activities to achieve dust accumulations below the 1/32 inch standard.

TVA management generally agreed with our recommendations and has taken or is taking actions to address the findings.

  Full Report

The OIG performed four agreed-upon procedures which were requested solely to assist management in determining the validity of the TVA Winning Performance payout awards for the fiscal year (FY) ended September 30, 2013. In summary, we found:

1. The FY 2013 Winning Performance goals were properly approved. One change form for FY 2013 was approved on March 3, 2013; two change forms were approved on June 7, 2013; one change form was approved September 16, 2013: and one was signed but not dated. The change forms affected five scorecards and resulted in no change to the payout.
2. The comparison of actual year to date figures for September 2013 for all the measures on the strategic business unit and business unit scorecards noted one exception related to the Nuclear Power Group's Equipment Reliability measure and did not result in a change to the payout. The measures on the strategic business unit and business unit scorecards agreed with the respective supporting documentation provided.
3. A comparison of the actual year to date figures for the incentivized TVA Corporate balanced scorecard measures to the definition sheets noted one exception related to the Total Corporate Spend measure and did not result in a change to the payout. The incentivized TVA Corporate balanced scorecard measures agreed with the underlying support. Subsequent changes to the Total Financing Obligations over Productive Assets actual year to date measure were received on November 4, and 7, 2013, and were compared to the supporting documentation. We determined there would be no impact to the payout percentage.
4. The FY 2013 Winning Performance payout percentages were provided by the Metrics and Performance Analysis organization on October 21, 2013. Subsequent changes to the actual year to date figure for the Total Financing Obligations over Productive Assets measure were received November 4, and 7, 2013. These changes did not impact any payout percentages.

(Summary Only)

At the request of Tennessee Valley Authority's (TVA) Supply Chain and TVA's Senior Vice President, Generation Construction, we audited $66.4 million in costs billed to TVA by Phillips and Jordan, Inc. (P&J;), under an Advance Authorization (AA) agreement and Contract No. 78268. The AA agreement and contract provided for P&J; to unload and dispose of at least four million tons of coal combustion by-products from the coal combustion by-products spill at TVA's Kingston Fossil Plant in December 2008. Our objective was to determine if the costs billed from June 2, 2009, through September 4, 2011, were in compliance with the terms of the AA agreement and the contract.

In summary, we determined P&J; overbilled TVA $366,401 which included (1) $225,832 in overbilled tonnage costs, (2) $122,921 in overbilled leachate costs, (3) an estimated $11,206 in overbilled standby costs, and (4) $6,442 in overbilled structural adequacy costs

(Summary Only)

The Tennessee Valley Authority (TVA) identified asset performance and operations as a major risk for the agency. Without effective management of critical spare parts, TVA could face equipment failure which could result in safety and generating failures. This review was initiated to determine if the Nuclear Power Group (NPG) and Coal & Gas Operations (C&GO;) were effectively managing critical spare parts.

We found critical spare parts could be managed more effectively. We found there were inconsistencies in TVA's management of its critical spare parts. Specifically, we found (1) C&GO; does not have written policies to govern its critical spare parts program; (2) preventive maintenance is not being performed on critical spare parts at certain plants; and (3) information maintained in TVA's system for asset and location information, Maximo, regarding critical spare parts, is unreliable. We also found the lack of critical spare parts has negatively affected system and component health. We noted TVA has taken steps to improve identification and procuring of critical spare parts but has not followed through with implementing steps recommended by a management consulting firm. Additionally, our physical inventory counts at the plants were consistent with the information contained in Maximo.

We recommended the Executive Vice President and Chief Generation Officer, Generation, (1) develop C&GO; procedures to govern the identification and procurement of critical spare parts; (2) ensure proper maintenance is performed on spare parts; (3) take steps to follow-up on actions recommended by a management consulting firm, (4) work with Engineering Environmental & Support Services to implement controls over the information maintained in Maximo, including who can identify what are critical spare parts; and (5) work with Supply Chain to accurately update Maximo to reflect what items should be listed as critical spare parts. TVA management agreed with our recommendations.

  Full Report

This review was initiated in follow up to a recent OIG review of TVA's project management software, PowerPlant. During that review, we identified several areas for further analysis related to timely project approvals, delegated approvals, and project charges allocated incorrectly. The objective of this review was to determine if the TVA capital project approval process was (1) efficient and timely, (2) performed in accordance with TVA policies, and (3) aligned with industry best practices.

We found the capital projects approval process was generally performed timely, as well as in accordance with TVA policies. We also found TVA had incorporated best practices in the approval process. However, we found areas for improvement related to the timeliness of Nuclear Power Group (NPG) project approvals and the forecasting of project schedules.

We found that although the overall TVA project approval process was completed in a reasonable time frame, the NPG approval process took 25 days longer than the TVA average. This indicated there were opportunities for improvement in the timeliness of NPG approvals.

We found 31 percent of NPG projects reviewed came in more than 25 percent behind the forecasted schedule. While there were also projects that came in ahead of schedule, the degree to which the schedules were being missed indicated there was potential for more accurate planning related to forecasted schedules.

We recommended management (1) evaluate the approval process for NPG capital projects to identify opportunities to improve the timeliness of project approvals, and (2) evaluate the planning and forecasting process to identify other areas for improvement.

  Full Report

Preventive maintenance (PM) is important to the reliable operation of assets. As a result of recent issues with nuclear performance, the OIG conducted a review of Nuclear Power Group's (NPG) PM program. The objective of this review was to determine if nuclear plant PM had been performed in accordance with established schedules, and if not, what effect the deviations were having.

We found that reported PM metrics may not be accurate. During our review, we identified several concerns that raised questions about the validity of reported PM metrics. For calendar year 2012, auditors were provided two sets of PM metrics for each site. There were differences in the data sets and some of the differences were significant. Additionally, the three plants were not consistently using the "Counts as Deferral" flag in Maximo, thus preventing certain deferrals from being identified and considered for the deferral count. Also, we found there was inconsistency in how the late PM metric was reported. These issues will impact the value of the NPG Equipment Reliability Index (ERI), which is part of NPG's winning performance scorecard for fiscal year (FY) 2013. We also found that deviations from the PM schedules were negatively affecting system and component health. While PM program health has historically been rated poorly, there has been recent improvement. TVA started a PM optimization (PMO) program to bring its PM program in line with industry standards. Due to slow progress at all three plants, escalations were filed to raise this concern to a higher level.

We recommended the Executive Vice President and Chief Generation Officer, Generation, take steps to (1) define methods for consistent and accurate reporting of PM metrics across the nuclear fleet, including a step for verification and retention of documentation for items manually excluded; (2) address the issue with the "Counts as Deferral" flag used in PM tracking; (3) perform an analysis to determine what impact inaccurate PM data could have on the Equipment Reliability Index calculation for fiscal year 2013 winning performance measures; (4) reduce deviations from the PM schedules; (5) take necessary actions to prevent recurring PMO implementation problems resulting from lack of site support; and (6) expedite PMO efforts. TVA management agreed our recommendations.

  Full Report

The TVA has stated its future depends on effective succession planning and faces a potential workforce challenge due to retirement within the next five years. Also, TVA has identified a risk of senior leadership attrition that could leave a gap in key positions. This review was conducted as a follow-up to a previous OIG review of TVA's succession planning. The objective of this review was to assess TVA's succession planning.

This review found TVA has made improvements to succession planning; however, areas for improvement still exist. Improvements include the use of a talent grid, implementation of succession planning metrics, and a more accurate attrition prediction model. In addition, we found TVA could strengthen some best practices.

While TVA has made progress in its succession planning process, we found, through interviews and review of documentation, areas for improvement still exist. Specifically, areas of improvement include: (1) follow-up on action items identified in talent reviews including the development of organizational action plans; (2) cross-pollination of talent; (3) reduction in talent review preparation time; and (4) frequent revisions of the talent review and succession planning process, which have caused frustration among TVA management. Additionally, TVA is working to address areas of concern regarding populating succession plans with realistic candidates.

As part of this review, we identified succession planning best practices and compared them to processes TVA had in place. Of the ten best practices identified, we found TVA could strengthen executive ownership, onboarding of succession candidates, and transparency of the succession planning process. In addition to these findings, all TVA managers who were interviewed expressed concern with the use of forced distribution for the talent grid.

We made recommendations to management to address the findings in the report.

  Full Report

TVA introduced the Valley Investment Initiative (VII) program as a means to incentivize customers to invest in the economic development of its geographic area. The OIG included a review of the VII program in its annual audit plan as the budget for this program has significantly increased since its inception in 2009. Our audit objective was to determine if TVA was exercising adequate oversight over the VII program. In summary, we found Economic Development personnel complied with TVA policies and procedures for oversight of program operations; however, TVA oversight of the VII program as a whole could be improved. For example, TVA had not established performance measures specific to the VII program nor performed an evaluation study to determine the effectiveness of the program. We also noted customer compliance audits could be improved by adding independent verification of customer reported information.

We made four recommendations that pertain to improving TVA's oversight of the VII program. TVA management generally agreed with our recommendations and plans to take action to address them.

(Summary Only)

At the request of the Tennessee Valley Authority's (TVA) Supply Chain and Senior Vice President, Generation Construction, the OIG audited the costs billed to TVA by AMEC Environment and Infrastructure, Inc., (AMEC) for loading coal combustion by-products from the spill at TVA's Kingston Fossil Plant onto rail cars and/or trucks for off-site disposal under an advance authorization agreement (AA) and AMEC's contract with TVA. The audit included $19.3 million in costs billed to TVA from June 2, 2009, through January 13, 2011. The objective was to determine if AMEC billed TVA in accordance with the terms and conditions of the AA agreement and contract. We determined AMEC overbilled TVA $2,187,410, which included $2,123,694 in overbilled and unsupported standby costs and $63,716 in overbilled tonnage costs.

(Summary Only)

The OIG audited the distributor compliance assessments completed through December 31, 2012, to determine if (1) the assessments were adequately planned and performed to verify distributors' compliance with key provisions of the wholesale power contract, (2) the assessments were performed in accordance with the Distributor Compliance Charter and applicable policies, and (3) there was adequate segregation between the group charged with developing, interpreting, and implementing TVA's retail regulatory policy, Retail Regulatory Affairs, and the group responsible for assessing distributors' compliance with TVA's regulatory policies and procedures, Distributor Compliance.

We found several positive attributes in Distributor Compliance's planning and performance of the assessments; however, we noted areas where changes were needed to improve (1) assessment planning and performance and (2) compliance with the Distributor Compliance charter and applicable professional standards and policies regarding the assessment reports. Specifically, we noted:

• Scope statements in the reports did not always reflect the actual information that was reviewed.
• Documentation of sampling methodologies was inadequate and the methodologies could be modified to provide more assurance that assessment objectives are met.
• Recommendations did not always help detect issues and/or prevent identified issues from recurring.
• Testing for misclassified residential accounts was not being performed.
• Distributors were not made aware of all issues identified during the assessments and the unreported issues.

We determined there was adequate segregation between Retail Regulatory Affairs and Distributor Compliance. However, certain work being performed by both groups was duplicative.

We made the following recommendations: (1) include testing for the number of days provisions in the contract, (2) include testing to identify penalty exempt accounts in all assessments, (3) when possible, select a sample containing items from across the population instead of from a subset of the population, (4) fully document sampling methodology in working papers and the report, including details for replacing and/or expanding the sample, (5) review and update processes for ensuring all applicable issues are included in report, (6) include recommendations that help improve distributors' compliance with the wholesale power contract by detecting issues and/or preventing identified issues or errors from recurring, (7) include in assessments the testing for potentially misclassified residential customers, and (8) inform distributors of all issues identified during the assessments.

  Full Report

Because of the importance of a reliable transmission system, the OIG audited the risk of significant equipment failure in the Energy Delivery (ED) organization. ED identified four specific actions in its enterprise risk management documentation to mitigate the risk of significant equipment failure. We found the identified mitigation strategy and supporting actions were appropriately designed; however, a lack of funding to the asset preservation program contributed to ED's inability to effectively reduce the risk as planned. While the risk was not being reduced as planned, ED was managing the risk by performing preventive maintenance and replacing assets as funding permitted. In addition, we found improvements were needed in ED's risk documentation. Specifically, we found certain actions included in ED's risk documentation did not directly affect the risk rating or mitigate risk. Conversely, the risk documentation lacked the preventive maintenance program and planned actions for implementing a critical spares program designed to further manage risk.

(Summary Only)

The OIG audited $4.8 million in costs billed to the Tennessee Valley Authority (TVA) by Nol-Tec Systems, Inc., to design, furnish, and install hydrated lime injection systems for SO3 mitigation at various TVA fossil plants. Our objective was to determine if the costs billed to TVA for the period January 1, 2011, through September 19, 2012, were in compliance with the terms and conditions of the contract.

We found Nol-Tec overbilled TVA $292,678, including (1) $150,147 of ineligible sales commissions, (2) $89,155 of ineligible labor costs, (3) $39,878 for a duplicate payment made by TVA, and (4) $13,498 of ineligible subcontractor markup costs.

(Summary Only)

The OIG investigated allegations that TVA Board Chairman William "Bill" Sansom's personal financial interests and position at TVA constituted a conflict of interest and that he had a relative who worked at TVA in violation of TVA's nepotism policy. Federal conflict of interest law prohibits federal officials and employees from acting on a particular matter in their official capacity which affects personal financial interests. There was no evidence Mr. Sansom participated in any particular matter as part of his TVA duties which was related to his personal financial interests. In addition to the conflict of interest law, TVA has a policy which prohibits Board members from owning investments in distributors, entities in the electricity business and companies adversely affected by TVA's success. None of Mr. Sansom's financial interests fell into these categories. The nepotism claim was unfounded. The TVA employee in question had the same name as Mr. Sansom's son-in-law but was unrelated.

  Full Report

The OIG completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with the annual reporting requirements of the CRS Green Pricing Accreditation Program for the year ended December 31, 2012. The results of the procedures performed, which were related to TVA's renewable energy initiative, "Green Power Switch," were provided to the CRS.

(Summary Only)

We audited the risk program at Bellefonte Nuclear Plant (BLN) to determine the adequacy of TVA's consideration of risks associated with the construction of BLN Unit 1. The scope included BLN construction risk management program activities beginning August 2009 through November 2011 and subsequent changes to the risk management program. We determined that while a renewed emphasis has been placed on BLN's risk management program, previous program failures indicated significant improvements to the program were needed. Specifically, we identified a lack of a strong continuity in the risk management process, which affected program effectiveness. This lack of continuity included ineffective guidance and oversight of BLN's risk program by former TVA management and a lack of documentation for key risk information allowing for facilitation of the risk program. A new risk manager has been assigned to pilot and implement a new risk management process. As part of these renewed efforts, the new Risk Manager has taken steps to address these actions. We commend current BLN project management for taking steps to address guidance, oversight, and documentation. Current BLN project management recognized the failures of the initial attempts to develop and implement the risk management program, and the new processes being implemented are steps in the right direction. We verbally communicated an additional action that can be taken to ensure history does not repeat itself as the project moves forward. This action included the clarification and clear communication of (1) whether risk mitigation activities are to be included in the contingency estimate controlled at the project level and the management reserve amount controlled at the corporate level and (2) what that means in terms of the project's estimated cost.

(Summary Only)

As a result of delays and overruns on the Tennessee Valley Authority (TVA) Watts Bar Nuclear Unit 2 (WBN U2) construction project, questions have been raised about the quality of the work performed. Nuclear Construction (NC) Quality Assurance (QA) plays a key role in ensuring that work completed meets high-quality standards. The objective of our review was to determine if the NC QA program was effective in its oversight of the WBN U2 construction project. We found NC QA has generally been effective in its oversight of the construction project; however, a breakdown in the QA program resulted in a lack of oversight in one area. With the exception of the breakdown in QA discussed below, no significant issues were identified. In addition, we reviewed documentation that showed NC QA conducted oversight activities and Bechtel performed QA activities. As issues were identified, Problem Evaluation Reports (PERs) were generated to address those issues. A breakdown in the QA program related to the commercial-grade dedication program was identified by the Nuclear Regulatory Commission (NRC). Specifically, there was no oversight of the commercial-grade dedication program by QA since 2008. In response, TVA conducted an evaluation to see if problems existed in other areas. TVA's evaluation found a few areas that required minor adjustments, and those adjustments were made. Furthermore, TVA assembled an independent, technical team to review commercial-grade dedication packages, and as of May 2013, no significant issues had been identified. We also found, that while the turnover of one system has occurred, a process for transitioning the authority for the execution of the QA program from Bechtel QA to NC QA has not been implemented, which could limit the effectiveness of the NC QA's oversight efforts. The process for transition of authority from Bechtel QA to NC QA will provide evidence that the construction phase QA requirements in the Nuclear Quality Assurance Plan have been met and also help to prevent any steps or reviews from being missed. We made recommendations to management to address the findings in the report.

  Full Report

The OIG audited the costs billed to the Tennessee Valley Authority (TVA) by MPW Industrial Services, Inc. (MPW) for providing hydroblasting services at TVA locations under Contract No. 38764. Our scope included $2.33 million in costs paid by TVA from January 7, 2009, to December 27, 2011. This amount included $1.88 million paid under Contract No. 38764 and $0.45 million paid under stand-alone purchase orders which incorporated the pricing terms of Contract No. 38764. Our objective was to determine if MPW billed TVA in accordance with the contract terms and conditions.

In summary, we determined MPW overbilled TVA $397,519 as follows:

• $323,654 was overbilled for equipment and labor costs, including (1) $212,443 for ineligible equipment and labor costs; (2) $96,975 for excessive crew costs; and (3) $14,236 in fuel surcharges, per diem, and labor escalation associated with the ineligible equipment and labor costs that were billed.
• $73,865 of ineligible mobilization/demobilization costs were overbilled, including (1) $64,307 in setup and breakdown costs not provided for by the contract and (2) $9,558 in mobilization/demobilization costs billed for ineligible equipment.

Additionally, MPW was overpaid $38,066 because certain invoices were paid twice by TVA.

(Summary Only)

The Office of the Inspector General audited the savings guaranteed to the Tennessee Valley Authority (TVA) by DeWolff, Boberg & Associates, Inc., (DBA) for work management improvement services. DBA guaranteed efficiency and productivity gains would result in minimum total cost savings to TVA of $17,971,760. Our objective was to determine if DBA complied with the terms of the contract and achieved the guaranteed cost savings. Although we did not find evidence of noncompliance with the contract, we could not determine if DBA achieved the guaranteed cost savings. We could not determine if the metrics used to measure improvements were valid, because TVA did not have management controls in place to ensure consistency. Accordingly, we could not determine the value TVA received from the $16.17 million it paid to DBA.

(Summary Only)

There have been a number of recent incidents requiring emergency response at TVA fossil plants, including the ash spill at Kingston Fossil Plant and fires at multiple plants. This review was initiated to assess TVA coal and gas fleet emergency preparedness.

The objective of this review was to determine if Coal Operations and Gas Operations have made progress in their emergency preparedness and response program since the ash spill at Kingston Fossil Plant. This review looked at the current status of emergency preparedness with respect to both Coal Operations and Gas Operations.

Our review found that although progress had been made in emergency preparedness and response, improvements could have been implemented more effectively. In addition, opportunities to improve the program still exist in the areas of site consistency and training. Through interviews and review of documentation, we found a lack of consistency in how emergency preparedness is handled between the sites. Also, training more personnel in National Incident Management System and adding training opportunities could build a more in-depth emergency preparedness program. An additional concern was raised during interviews concerning the responsibilities of the shift operations supervisors. The roles specified for incident commanders are generally in addition to their jobs as shift operations supervisors, and there were concerns that the training was a significant commitment in addition to the daily work load. We made recommendations to management to address the findings in the report.

  Full Report

Tennessee Valley Authority (TVA) Watts Bar Nuclear Plant Unit 2 (WBN2) management requested the Office of the Inspector General to perform a review of the commodity tracking process being implemented for the WBN2 construction project. This review was intended to help TVA gain confidence in their commodity tracking process, which is used in conjunction with other tools and metrics to gauge the project's progress.

We identified minor vulnerabilities in the commodity tracking process for the WBN2 construction project related to potential duplication of data entry and review. We made recommendations to eliminate the duplication. TVA agreed with our findings and the OIG concurs with WBN2 management's planned action.

(Summary Only)

TVA provides biweekly vehicle allowances to eligible officers and key managers in accordance with Vehicle Allowance Guidelines that were put into effect April 1, 2006. Additionally, TVA maintains a light fleet of about 2,900 vehicles, which are available for assignment to any TVA employee with a business need. Business units with an assigned vehicle pay a monthly fee to TVA Fleet Services for use of the vehicle. In fiscal year 2011, TVA paid $648,050 in vehicle allowances to 65 employees. Also, business units paid approximately $9.66 million in monthly fees during fiscal year 2011 to Fleet Services for use of assigned vehicles.

The Office of the Inspector General audited TVA's vehicle allowance and assigned vehicle programs to determine the cost effectiveness of the programs and if proper controls were in place to ensure program eligibility guidelines were being met. Our specific audit objectives were to determine if (1) TVA employees receiving vehicle allowances met established eligibility requirements and if proper controls were in place to determine eligibility criteria were met, (2) TVA employees with assigned vehicles met established criteria for having an assigned vehicle and if proper controls were in place to determine eligibility criteria were met, and (3) the cost effectiveness of both the vehicle allowance and assigned vehicle programs.

Our audit found TVA does not document how officers and key managers who are paid vehicle allowances meet the "business need" eligibility criteria specified in TVA's Vehicle Allowance Program Guidelines. Based on the available data, it appears a large percentage of the personnel who receive vehicle allowances may not meet TVA's stated criteria of significant business related travel. We also noted several administrative matters within the guidance that were not followed.

TVA's Fleet Service management did not maintain adequate documentation to validate the adequacy of TVA's controls over vehicle assignments. Additionally, we were unable to determine which program is more cost effective because data obtained during the audit indicated the cost differential between the two programs was small. However, overall cost savings may be available, because there are individuals who either receive a vehicle allowance or have an assigned vehicle who do not appear to have a business need for the allowance or vehicle.

We made five recommendations that pertained to (1) documentation of vehicle allowances, (2) periodic review of those receiving an allowance, (3) maintenance of the Vehicle Allowance Guidelines, (4) coordination between those with vehicle allowances and those with assigned vehicles, and (5) review of all employees currently receiving an allowance. We made three additional recommendations that pertained to (1) maintenance of TVA Form 9314A, (2) documentation of vehicle replacements, and (3) review of all employees currently assigned a vehicle.

  Full Report

This investigation was initiated after the Tennessee Valley Authority (TVA) Office of the Inspector General (OIG) received a complaint alleging the TVA Board of Directors (Board) failed to give proper notice as required by the Government in the Sunshine Act (Sunshine Act) when the Board selected William D. (Bill) Johnson as TVA's President and Chief Executive Officer (CEO).

Our investigation found the following:

• The Sunshine Act requires public meetings by an executive agency be open to the public. However, as a legal matter, the prevailing view as indicated by the District of Columbia, U.S. Appellate Court, is that notational voting does not constitute a meeting, and it does not constitute a violation of the Sunshine Act. Furthermore, because notational voting does not constitute a meeting as described in the Sunshine Act, notice is not required.
• In selecting a CEO, the Board decided to use the notational process to protect the privacy of applicants and to address the difficulties of obtaining a quorum at that time.
• The evidence developed by our investigation shows the Board followed notational procedure by not discussing the candidates' qualifications or otherwise deliberating with one another about the selection. Board members voted separately.
• Because the Sunshine Act does not prohibit the notational procedure and the evidence demonstrates that the Board properly used that procedure, the Board did not violate the Sunshine Act.

  Full Report

TVA's meter testing was identified as a key internal control in the revenue recognition process after TVA moved from end-use to wholesale billing. The OIG audited the adequacy of TVA's process for testing meters owned and read by TVA. The audit included (1) evaluating whether TVA meter testing policies and procedures met or exceeded identified industry standards, (2) verifying TVA tested the meters within the applicable time limits, in compliance with TVA meter testing policies and procedures, and (3) determining if TVA had procedures in place to identify all meters used to capture data for wholesale billing.

In summary, we determined TVA meter testing complied with TVA policies and procedures regarding timeliness and met identified industry standards. However, we noted areas for improvement in TVA's meter testing processes, including (1) verification of meter constants, (2) reconciliation of meter information in TVA systems, and (3) consistency among testing documentation.

We recommended TVA (1) formalize its policy for testing and/or documenting meter constants as part of preventative maintenance; (2) develop a procedure for reconciling meter information included in the Maximo, Itron Enterprise Edition, and Lodestar systems; and (3) develop guidelines for acceptable documentation of meter tests, including information, review, and maintenance requirements. TVA management concurred with our recommendations and is taking or has taken action to address these issues.

  Full Report

The OIG audited TVA's fiscal year 2012 compliance with the Improper Payment Information Act of 2002, as amended. In summary, we found TVA was in compliance with applicable IPIA requirements.

  Full Report

In May 2004, the Nuclear Regulatory Commission (NRC) incorporated the National Fire Protection Association's (NFPA) Standard 805 as a voluntary alternative to the existing fire protection standards as published in Section 50.48, "Fire Protection," and Appendix R of the 10 Code of Federal Regulations (10 CFR 50). On March 4, 2009, the Tennessee Valley Authority (TVA) committed to the NRC to transition Browns Ferry Nuclear Plant (BFN) to NFPA 805 by a license amendment date of March 4, 2012.

TVA has included the BFN NFPA 805 transition project as part of fire protection risk in its Enterprise Risk Management process. We reviewed the BFN transition to the NFPA 805 program. Our audit objective was to evaluate BFN's performance in transitioning to the NFPA 805 program requirements by the license amendment date.

TVA did not meet the NFPA 805 transition date for the License Amendment Request submittal of March 2012 and has revised its commitment date to March 2013. We determined the Nuclear Power Group's delays in transitioning to NFPA 805 adversely impacted BFN's ability to meet the 2012 commitment date. Specifically, historical indecisiveness coupled with a lack of due diligence and inadequate attention to emerging industry fire protection regulations contributed to revising the commitment date. In addition, the Nuclear Power Group's mitigation strategy as provided in Enterprise Risk Management documentation did not include consideration of the consequences of not meeting the revised March 2013 deadline, which would include NRC-assessed penalties.

  Full Report

At the request of Tennessee Valley Authority's (TVA) Supply Chain, we audited AREVA NP, Inc.'s calendar year 2011 rate adjustments required under the terms in its contract. The contract provided for AREVA to complete engineering, licensing, construction, and startup operations of a single Bellefonte Nuclear Plant unit by the end of 2017. The objective of our audit was to determine if AREVA's rate adjustments were in accordance with the contract terms.

In summary, we determined AREVA's net credit adjustment of $134,544 due to TVA was understated. Based on the methodology included in the contract, we determined the adjustment should be a credit to TVA of $564,765. AREVA officials agreed with our findings. AREVA issued TVA a credit of $375,875 and plans to issue TVA a credit for the remaining $188,890.

(Summary Only)

Tennessee Valley Authority's (TVA) Facilities Management (FM) business unit is responsible for managing TVA's facilities portfolio and providing services across TVA, such as building maintenance and grounds and property management. Within FM, Facilities Programs and Projects manages efforts for facility renovations, upgrades, major repairs, energy efficiency, sustainability, and other facilities' needs. These efforts include TVA's Facilities Asset Preservation (FAP) Program, which was designed "to ensure core facility related assets are maintained in a condition to satisfy their intended operational capabilities." The FAP team is responsible for gathering asset information, identifying deficiencies, recommending corrective actions, and implementation planning for approved projects.

TVA's facilities asset portfolio includes over 34 million square feet of gross space in about 3,446 structures, and a small number of these properties are not in use. From 2009 to 2011, FM identified 19 underutilized properties. Two of these properties, former coal plants, were decommissioned in 2011. A third property, part of TVA's Muscle Shoals reservation, is being mitigated under an extensive redevelopment project, which includes the November 2012 TVA Board of Directors approval of the possible sale of 1,000 acres of the Muscle Shoals property. In addition, TVA established the Challenged Properties Program (CPP) in March 2012 to develop strategies for proper handling of underutilized or vacant properties.

Because of the importance of proper maintenance to the safe, efficient, and effective operation of assets, we initiated this audit to evaluate TVA's efforts to identify and mitigate risks associated with its buildings and infrastructure. As of July 2011, TVA's Enterprise Risk Management identified the risk of building and infrastructure failures among other safety risks and the FAP Program as the primary strategy to mitigate these risks.

In summary, our audit disclosed FM's FAP Program was adequately designed to identify and mitigate the risks of building and infrastructure failures, and FM's processes for remediating identified risks are reasonably effective. However, we found TVA's risk exposure from building failures is elevated because the identified risks exclude underutilized properties, and FAP funding has not been adequate to address the risks in the long term. We also identified opportunities to improve some FAP Program and related FM processes.

  Full Report

As part of a series of reviews to evaluate the Tennessee Valley Authority's (TVA) actions to address key risks, we evaluated TVA's outage scheduling risk. The objective of this review was to evaluate TVA's outage scheduling risk to identify opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk. Outage Scheduling was identified as a top five strategic business unit risk in the Internal Process and Procedures Risk category in FY 2011. The risk refers to failure in coordination of the outage schedule for TVA. Adherence to Standard Programs and Processes (SPP) 33.4, Outage and Derate Concurrence Process (Outage Concurrence Process), will ensure a formal outage change request process is followed by asset organizations requesting outage changes, and concurrence with outage schedules is given by all impacted organizations. This mitigation is currently ongoing.

While mitigation strategy for addressing TVA's outage scheduling risk is designed appropriately and has reduced risk, opportunities exist to improve the outage scheduling process. We found (1) the control overseeing the Outage Concurrence Process is manual and time consuming; (2) the control in place over quality checks is not being completed; and (3) the Outage Concurrence Process does not align with SPP-30.004, TVA Chief Operating Officer Approved Method to Optimize TVA Asset Availability (Asset Availability Optimization Process), in regard to the use of Asset Availability in entering outages.

We recommended the Vice President, System Planning, (1) work in conjunction with the Asset Availability owners to determine if a control can be added to Asset Availability to prevent outages from being entered without first completing the Outage Concurrence Process; (2) take steps to make sure that quality checks are performed as prescribed in the Outage Concurrence Process; and (3) work in collaboration with the owner for the Asset Availability Optimization Process to address conflict between the Outage Concurrence Process and the Asset Availability Optimization Process to align the process for entering outages into Asset Availability. TVA management agreed with the recommendations.

  Full Report

The OIG audited $2.5 million in costs billed to the Tennessee Valley Authority (TVA) by G&A; Environmental Contractors, Inc., for vacuuming services. Our objective was to determine if the costs billed to TVA for the period January 1, 2010, through September 30, 2011, were in compliance with the terms and conditions of the contract. In summary, we determined G&A; overbilled TVA $254,060 including:

• $153,619 due to the use of ineligible firm price billings.
• $60,991 for hydro-blasting work which was not included in the contract's scope.
• $20,229 of ineligible billings for materials and miscellaneous costs.
• $19,221 of labor billings that were overstated because G&A; did not use the billing rates in the contract.

(Summary Only)

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by Day & Zimmermann NPS, Inc. (DZNPS) for the Watts Bar Nuclear Plant's Unit 1 refueling outage during 2011. Under the contract, DZNPS was to provide the services of qualified personnel to perform modification, outage and supplemental maintenance services, and technical support services at TVA generating plants. Our audit included $27.7 million in costs billed by DZNPS from January 24, 2011, through June 19, 2011. Our objective was to determine if the costs billed were in compliance with the terms and conditions of the contract.

In summary, we determined DZNPS overbilled TVA an estimated $215,042, which included $186,798 in nonmanual labor costs and $28,244 in craft labor costs. In addition, DZNPS did not use the Hourly Craft Superintendent (HCS) classification in TVA's labor agreements and instead, classified all superintendents as nonmanual employees, including six employees promoted from craft general foreman. Because a 15-percent general and administrative cost markup is applied to nonmanual labor, TVA paid an additional $35,867 for these six employees, which would not have been incurred if they had been classified as HCS.

(Summary Only)

The OIG audited costs billed to the Tennessee Valley Authority (TVA) by Day & Zimmermann NPS, Inc. (DZNPS) for the Watts Bar Nuclear Plant's Unit 1 refueling outage during 2011. Under the contract, DZNPS was to provide the services of qualified personnel to perform modification, outage and supplemental maintenance services, and technical support services at TVA generating plants. Our audit included $27.7 million in costs billed by DZNPS from January 24, 2011, through June 19, 2011. Our objective was to determine if the costs billed were in compliance with the terms and conditions of the contract.

In summary, we determined DZNPS overbilled TVA an estimated $215,042, which included $186,798 in nonmanual labor costs and $28,244 in craft labor costs. In addition, DZNPS did not use the Hourly Craft Superintendent (HCS) classification in TVA's labor agreements and instead, classified all superintendents as nonmanual employees, including six employees promoted from craft general foreman. Because a 15-percent general and administrative cost markup is applied to nonmanual labor, TVA paid an additional $35,867 for these six employees, which would not have been incurred if they had been classified as HCS.

(Summary Only)

As part of a series of reviews to evaluate the Tennessee Valley Authority's (TVA) actions to address key risks, the OIG evaluated TVA's load forecast risk. Load forecast was identified as a top five strategic business unit risk in the Long Range Planning Process Risk Category in fiscal year (FY) 2011. The objective of this review was to evaluate TVA's load forecast risk to identify opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk.

While EL&RF; is taking actions to mitigate risk associated with load forecasting, we found opportunities exist to improve the mitigation strategy documentation. The documented mitigation strategy does not reflect planned actions to improve data integrity or the regular updates to the forecast models and economic drivers. Additionally, we found mitigations are generally designed appropriately. However, we noted EL&RF; does not have any compensating controls to prevent inadvertent modifications to data until the Demand & Data Consolidation Process is completed.

We recommended the Senior Vice President, Strategy, Financial Planning & Business Development, (1) enhance the load forecast documented mitigation strategy to include the mitigations planned, or already occurring but not listed, as part of the strategy and (2) implement measures to reduce the likelihood of inadvertent modifications to data until the Demand & Data Consolidation Process is completed. TVA management agreed with our findings and recommendations and has taken actions to address them.

  Full Report

We performed an audit of costs billed to the Tennessee Valley Authority (TVA) by Jacobs Engineering Group, Inc. for providing project planning, management, oversight, and environmental services to assist TVA in the recovery and remediation associated with the Kingston Fossil Plant Dredge Cell Incident. Our audit included about $37 million in costs billed to TVA from February 6, 2009, to December 31, 2011. Our audit objective was to determine if Jacobs billed TVA in accordance with the contract terms and conditions.

We determined Jacobs overbilled TVA an estimated $15,667 including $9,285 in ineligible overtime labor costs and $6,382 in excessive and ineligible travel and miscellaneous costs. In addition, at the start of our audit, TVA was performing an assessment of temporary living allowance (TLA) costs billed and identified $84,628 in overbilled TLA costs. Jacobs disputed TVA's assessment and stated the overbilled costs were $64,785. We determined TVA's calculation of overbilled TLA costs was correct, and Jacobs subsequently agreed to refund $84,628 and issued a credit to TVA in its September 2012 invoice.

We also found several instances of inadequate contract administration including (1) $266,788 paid by TVA for a labor classification, which was not included in the contract's "Schedule of Prices;" (2) $21,717 in additional travel costs paid by TVA because TLA compensation terms were not made part of the contract until January 1, 2010; and (3) failure by the contractor to obtain advance written approval from TVA prior to billing subcontractor TLA and relocation costs.

(Summary Only)

As part of a series of reviews to evaluate Tennessee Valley Authority's (TVA) actions to address key risks, the OIG evaluated TVA's physical assaults risk. Physical assaults risk was identified in the 2011 Enterprise Risk Management Program. The objective of our review was to evaluate TVA employee, contractor, and visitor physical assaults risk, identifying opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk. TVA developed a mitigation strategy to reduce risk that included (1) creating a comprehensive physical security plan, (2) expanding employee education, (3) replacing communication infrastructure and equipment, and (4) implementing a guard program.

Our review found TVA has implemented or was implementing actions to reduce the risk of physical assaults on TVA employees, contractors, and visitors. The mitigations were generally designed appropriately to address the risk. However, TVA identified that workplace-violence incidents were not always reported to TVA Security and Emergency Management. This prevented TVA from recognizing emerging patterns and identifying possible training that could lower the risk of similar future incidents.

We recommended a procedure be created for individuals who receive workplace-violence incident reports detailing which workplace-violence incidents should be reported to TVA Security and Emergency Management along with a uniform way of submitting that information. TVA management generally agreed with our findings and recommendations and plans to take measures to address them.

  Full Report

As part of a series of reviews to evaluate Tennessee Valley Authority's (TVA) actions to address key risks, the OIG evaluated TVA's physical assaults risk. Physical assaults risk was identified in the 2011 Enterprise Risk Management Program. The objective of our review was to evaluate TVA employee, contractor, and visitor physical assaults risk, identifying opportunities to improve mitigation strategies and assess whether mitigation strategies were designed appropriately to address the identified risk. TVA developed a mitigation strategy to reduce risk that included (1) creating a comprehensive physical security plan, (2) expanding employee education, (3) replacing communication infrastructure and equipment, and (4) implementing a guard program.

Our review found TVA has implemented or was implementing actions to reduce the risk of physical assaults on TVA employees, contractors, and visitors. The mitigations were generally designed appropriately to address the risk. However, TVA identified that workplace-violence incidents were not always reported to TVA Security and Emergency Management. This prevented TVA from recognizing emerging patterns and identifying possible training that could lower the risk of similar future incidents.

We recommended a procedure be created for individuals who receive workplace-violence incident reports detailing which workplace-violence incidents should be reported to TVA Security and Emergency Management along with a uniform way of submitting that information. TVA management generally agreed with our findings and recommendations and plans to take measures to address them.

  Full Report

The OIG performed four agreed-upon procedures, which were requested solely to assist TVA management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2012. In summary, we found:

1. The fiscal year (FY) 2012 Winning Performance goals were properly approved.
2. The actual year to date measures for the September 2012 Strategic Business Unit and Business Unit scorecards agreed with the respective supporting documentation provided.
3. The three actual year to date incentivized measures on the TVA Corporate balanced scorecard were compared to the respective measures on the definition sheets and one exception was found; however, this did not impact the payout. The measures agreed with the respective supporting documentation provided.
4. The FY 2012 Winning Performance payout percentages were provided to the OIG by the Metrics and Performance Analysis organization on October 21, 2012. The OIG was notified on October 30, 2012 of a subsequent change to the actual year to date net cash flow; however, the change did not impact the payout.

(Summary Only)

TVA's Board of Directors approved a Financial Trading Pilot Program in September 2003 to hedge or otherwise limit the economic risks associated with the price of commodities covered by TVA's Fuel Cost Adjustment (FCA). At that time, the maximum Value at Risk (VaR) was not to exceed $5 million on an annual basis without the approval of the TVA Board. In May 2005 the TVA Board approved the request to expand and fully implement the Financial Trading Program (FTP). The FTP currently has an aggregate transaction limit of $130 million (based on one-day VaR) of which $90 million is allocated to natural gas hedging.

TVA's hedge strategy requires a minimum of 50 percent to a maximum of 75 percent of the forecasted natural gas volume for the fiscal year be hedged. From FY 2006 through the first quarter of FY 2012, TVA's natural gas-related costs have been $3.14 billion; the FTP hedging program contributed another $840 million for total costs of $3.98 billion. This contribution reflects the difference between the locked-in price of natural gas and the market price of natural gas at the time of delivery. TVA management stated the $840 million is a result of the dramatic drop in the price of natural gas over the period. In addition, TVA, as of December 31, 2011, expects the hedging program to add $421 million to natural gas costs of $3.7 billion for the period January 2012 to December 2017 for total natural gas costs of $4.1 billion. Although this situation could reverse in an environment with rising gas prices, it illustrates the significant potential impact, positive and negative, the FTP can have on TVA's FCA. As a result of the growth in FTP financial positions and the inherent risk with the program, we audited the program to evaluate (1) management oversight and the design of controls in place to mitigate operational risk exposure, (2) the program objectives and related performance measures, (3) whether TVA was meeting defined performance objectives, and (4) how the FTP impacts TVA's overall risk tolerance.

In summary, we determined the design of TVA's FTP control structure was appropriate. However, we identified several areas where improvement is needed to validate the usefulness and effectiveness of the program as well as to ensure TVA's stakeholders' understanding of the program. Specifically,

1. TVA has not conducted a comprehensive cost benefit analysis to determine whether the benefits derived from the FTP are greater than the inherent risks of the program.
2. TVA does not currently measure the performance of the FTP against defined program objectives.
3. aR back-testing was not performed on a routine basis.
4. TVA's communications with its customers did not sufficiently convey the FTP's impact on rates.

TVA Management generally agreed and plans to take appropriate action.

  Full Report

Because of the importance of successful capital project management, and in light of recent capital project cost overruns and schedule delays, we initiated a review of Tennessee Valley Authority's (TVA's) capital project management. The objective of our work was to determine whether the Project/Portfolio Management (PPM) function of PowerPlant meets the needs of the strategic business units (SBU).

PowerPlant replaced TVA's Project Justification System on March 7, 2011, at a cost of about $7 million. PowerPlant was implemented to replace the assets module within the Enterprise Financial Management System, while also providing the functionality to centralize project and portfolio management. TVA achieved some project and portfolio management capability with the new system, but considerable opportunity for improvement exists. Specifically, as a result of our review, we identified (1) the PowerPlant PPM tools do not currently meet all needs identified by the SBUs, (2) users feel they have not been adequately trained on some functions of the system, and (3) communication of defects that have been resolved would benefit users.

We recommended management consider (1) implementing additional project management functionality available in the PowerPlant system or purchasing another system to provide a PPM tool to more efficiently and effectively manage TVA's capital projects, (2) completing additional PowerPlant training as planned, and (3) developing a strategy for communicating system changes, upgrades, and modifications.

  Full Report

TVA established the Direct Load Control (DLC) program in the 1970s as a means to shift load from on-peak/high-priced periods to off-peak/low-priced periods. At the time of our audit, there were 12 distributors participating in the DLC program. Credits provided to these distributors during 2011 ranged from $5,909 to more than $1 million for a total cost to TVA of $2,365,819. The OIG audited TVA's DLC program to address concerns received regarding the benefits of the program. Our specific audit objectives were to assess the effectiveness of the program and TVA's oversight of the program. In summary, we determined the DLC program was not operating effectively, and TVA was not employing two key oversight mechanisms afforded by the DLC contract.

• The program was not operating effectively because much of the DLC program equipment was outdated and in disrepair, and the program cost was substantially higher than the savings TVA achieved.
• TVA was not using two key contractual oversight mechanisms for verifying the program was operating as intended and distributor reports to TVA were accurate.

We made three recommendations that pertained to determining whether the DLC program was cost-beneficial and TVA used contractual oversight mechanisms available. TVA management generally agreed with our recommendations and findings.

  Full Report

We audited $10.4 million in costs billed to the Tennessee Valley Authority (TVA) by Hartford Steam Boiler Inspection and Insurance Company of Connecticut for nuclear Authorized Inspection Agency service under several contracts. The $10.4 million billed included (1) $4.8 million billed between October 1, 2001 and December 31, 2008 under one contract; (2) $4.1 million billed between December 1, 2007 and August 19, 2011, under second contract; and (3) $1.5 million billed between January 1, 2009, and July 22, 2011, under a third contract. Our objective was to determine if the costs billed were in compliance with the terms of the contracts. In summary, we determined Hartford had overbilled TVA an estimated $679,370, including:

• $524,623 of ineligible labor costs, including $517,358 in excessive labor costs because Hartford did not bill actual employee wages, associated labor burden, and fees as specified by the contracts and $7,265 of ineligible labor costs billed for corporate personnel.
• $147,358 in temporary living allowance costs for which Hartford could not provide the contracts' required eligibility certifications and other related documentation.
• An estimated $7,389 in unsupported or ineligible travel and miscellaneous costs.

(Summary Only)

Because of the potential usefulness of a sound lessons-learned process in completing generation construction projects effectively and efficiently, we reviewed the lessons learned process used during the construction of the Lagoon Creek Combined-Cycle Combustion Turbine. We determined Generation Construction (GC) has a process in place for lessons learned management, but we identified some potential areas of improvement in the GC process. Specifically, we determined (1) there are no documented criteria or review processes for determining what is or is not a lesson learned, (2) the process for documenting lessons learned could be improved, and (3) there were no mechanisms to reasonably assure project teams were reviewing lessons learned from previous projects or relevant lessons learned were incorporated into the project's scope. We also determined improvements can be made in sharing lessons learned across TVA organizations. TVA management generally agreed with our recommendations; however, further action is not planned for two of our six recommendations.

  Full Report

With the age of TVA generating assets, the need to understand the condition of these assets and use this information to effectively plan is critical. As a result, the OIG initiated a review to determine how TVA assesses the condition of electric assets and uses this information in planning. This review did not include assessing the condition of TVA assets. The organizations reviewed included Nuclear Power Group (NPG), Fossil Power Group (FPG), Energy Delivery, and River Operations (RO).

We found the condition of assets is identified through system, program, and component health assessments; however, the process varies among the organizations. According to process descriptions and interviews, all organizations we reviewed use asset condition information to identify corrective actions when necessary. RO personnel stated they take actions to address any system with poor ratings even though the RO process does not specifically require this as the other organizations' do.

We also found the condition of assets information is used by TVA for planning purposes, and by the organizations to develop and prioritize projects for business planning purposes and system planning for future costs. In addition, TVA has instituted a capital productivity initiative to improve management of capital and operations and maintenance (O&M;) projects to capture savings. As part of the new initiative, projects will be reviewed by a project review board, and the condition of assets information could be a factor for consideration in its project reviews.

We made two recommendations that pertained to requiring defined actions where assessments resulted in poor ratings in the RO organization, and including the condition of assets information as an evaluation factor for proposed capital or O&M; projects where the condition is relevant. TVA management generally agreed with our findings and recommendations.

  Full Report

The OIG audited Tennessee Valley Authority's (TVA) craft labor staffing, which was identified by TVA as one of its top five risks in two risk categories, talent management and capacity expansion and construction. Our objectives were to assess TVA's mitigation of craft labor risks associated with competition from other companies and a shrinking labor pool and its process for identifying craft labor risks. We focused on TVA's plans with regard to contractor craft workforce. Our audit included mitigation plans as defined in TVA's Enterprise Risk Management document dated July 13, 2011 and additional mitigations for contractor craft labor within the Generation Construction, Coal Operations, Gas Operations, Nuclear Construction, and Nuclear Power Group organizations.

Based on our review of TVA's plans and actions to mitigate the risk and potential effects of craft labor shortages, we determined plans and actions were inadequate to aid in the achievement of future goals as identified in TVA's Integrated Resource Plan (IRP). Specifically, we determined risk mitigation actions related to competition needs improvement, and deficiencies existed in risk planning and mitigation related to the shrinking labor pool. In addition, we noted improvements could be made to the process for assessing and monitoring risk related to craft labor.

TVA has passed the management of craft labor risk to contractors, unions, and other organizations. In our opinion, TVA, as part of its economic development mission, has an obligation to participate in efforts to replenish shrinking craft labor pools. In addition, to achieve long-term future goals as identified in TVA's IRP, it is necessary to develop actions for attracting and retaining craft labor and/or look for alternative solutions to achieve these goals.

Based on the above, we recommended nine actions related to the process for monitoring craft labor staffing risk, as well as plans and actions for reducing craft labor staffing risk. TVA management agreed with the findings and recommendations.

  Full Report

The OIG performed an interim audit of costs billed to the Tennessee Valley Authority (TVA) by Bechtel Power Corporation for providing engineering, procurement, and construction services in support of the completion of TVA's Watts Bar Nuclear Plant Unit 2. Our audit included about $397 million in costs billed to TVA from October 1, 2007 to December 31, 2009. Our objective was to determine if Bechtel billed TVA in accordance with the contract terms and conditions. We determined Bechtel overbilled TVA an estimated $1,449,752 including:

• $903,698 in labor and related costs, which included (1) $778,617 in ineligible home office labor costs, (2) $75,309 in excess payroll additive costs, (3) $34,098 in excessive labor costs, and (4) $15,674 in fees for manual personnel seconded services. In addition, we found Bechtel did not invoice costs for seconded services separately as required by the contract, and seconded service costs were improperly included in Bechtel's annual performance fee base.
• $546,054 in other ineligible or unsupported direct costs, which included (1) $534,835 for relocation, temporary assignment, and travel costs; (2) $5,795 for other nonlabor direct costs; and (3) $5,424 for fees on subcontractor costs.

We recommend TVA management (1) recover $1,449,752 in overbilled costs from Bechtel, (2) ensure Bechtel separately invoices all seconded service costs, and (3) ensure seconded service costs are excluded from Bechtel's annual performance fee base.

(Summary Only)

The OIG completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with annual reporting requirements of the CRS Green Pricing Accreditation Program for the year ended December 31, 2011. The results of procedures applied to TVA's renewable energy initiative, "Green Power Switch," were provided to the Center for Resource Solutions.

(Summary Only)

The OIG audited $35.7 million in costs billed to the Tennessee Valley Authority (TVA) by Trans-Ash, Inc. The contracts provided for Trans-Ash to perform

(a) assistance in the off-site fly ash utilization project at Johnsonville Fossil Plant,

(b) ash pond management services at Johnsonville Fossil Plant, and (c) additional work described in separate Task Agreements (TAO) executed by TVA and Trans-Ash. In summary, we determined Trans-Ash billed TVA (1) $1,479,630 for work that was not authorized under the contracts, and (2) $186,955 in excessive and unsupported costs. Specifically,

(1) $1,479,630 was billed for work not included in the contracts' scopes and not authorized by separate TAOs. Additionally, the cost was billed using rates that were (a) not provided for by the contracts and (b) higher than rates included in another contract TVA had with Trans-Ash. As a result, the unauthorized cost was inflated by $81,434.

(2) $186,955 was overbilled due to:

- $170,993 in excessive costs that were billed on three TAOs;

- $13,866 in unsupported costs; and

- $2,096 in excessive costs billed due to an inflated tonnage rate.

We recommended TVA management:

1. Determine if $1,479,630 of unauthorized work should be recovered from Trans-Ash. If TVA management decides to pay for the unauthorized work, it should take action to recover $81,434 of inflated billings from Trans-Ash. Additionally, management needs to implement controls to ensure future work with Trans-Ash is properly authorized and billed using established contractual provisions.

2. Take action to recover $186,955 in overbilled costs from Trans-Ash.

(Summary Only)

The OIG assessed whether TVA performed adequate analysis in its decision to implement a new expense management application. Auditors reviewed the analysis performed to make the decision to implement the application as of May 31, 2011, as well as other documentation supporting that decision. Auditors were unable to verify TVA systems development processes were followed and system and business protocols were considered during the implementation of the application, because the project was merged with the upgrade to another system.

The OIG concluded, based on the review of project documentation and discussions with project management, adequate analysis was not performed to support the decision to implement the expense management application. Specifically, we found management circumvented controls and the decision was made without adherence to TVA project management policies. This resulted in time delays within the project, inadequate budget planning, duplication of efforts including possible waste of resources, and project management inefficiencies. Even though steps were taken to (1) define a business need, (2) derive estimates for cost and time implementation and identify ownership, (3) evaluate alternative system solutions, (4) obtain approvals and define a budget, and (5) assess the current and future business conditions, these efforts were made after the application was chosen as the system solution. Without understanding the reasons and parameters for implementing a new expense management system, the project team's efforts to follow the process as outlined in the project management policies were ineffective and resulted in schedule delays as well as project management team frustrations. We recommended the Vice President and Controller ensure project management policies are followed with TVA's mission in mind by communicating those policies to individuals within the organization and stressing the importance of (1) adequately defining the business need for a project prior to selecting the solution, (2) validating assumptions used in decision-making, evaluating business conditions and alternative solutions, and (3) determining project budget limits and obtaining project approval. TVA management agreed with the recommendations.

  Full Report

The OIG audited the electric system of Memphis Light, Gas, and Water Division (Memphis), a distributor based in Memphis, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and Memphis during the period January 2009 through December 2010. For the twelve-months ended June 30, 2010, Memphis reported it provided power to approximately 406,000 customers and earned electric sales revenue of approximately $1.2 billion.

The OIG's audit of Memphis found (1) an erroneous adjustment made to a customer account resulted in a $3.6 million underpayment to TVA in January 2010, and (2) other isolated instances of noncompliance related to the proper reporting of electric sales, including customer misclassifications and a metering issue. Additionally, Memphis could improve compliance with other contract provisions and/or Memphis' policy by (1) obtaining and maintaining required documentation and (2) increasing accuracy of contract demand in the billing system.

The OIG also identified two areas where TVA's oversight of distributors should be enhanced. The two issues, (1) the lack of guidance related to permitted expenditures and (2) the lack of a joint cost study, were included in previous OIG distributor audit reports, and TVA has agreed to take corrective action to address these issues.

The OIG made 10 specific recommendations that require action by Memphis, and recommended TVA's Senior Vice President, Policy and Oversight, work with Memphis to resolve the findings. These recommendations generally related to (1) complying with power contract provisions and (2) remediating classification and metering issues. Memphis and TVA management generally agreed with our recommendations and are taking action to address the findings.

  Full Report

The OIG audited $15.4 million in costs billed to TVA by Pressure's On, Inc. (POI), for providing hydro blasting services at the Tennessee Valley Authority (TVA) locations, including $14.82 million in costs paid by TVA to POI as of January 16, 2009. In addition, the OIG reviewed $596,789 in costs for hydro blasting services incorrectly billed under a separate contract that TVA had with POI for vacuuming services only. In summary, it was determined POI had overbilled TVA $4,145,909 including:

• $2,482,444 in unsupported costs related to (1) missing cost details, (2) unclassified costs, (3) subcontractor costs, (4) labor costs, and (5) equipment and materials.
• $1,113,702 in costs for hydro blasting services because POI billed (1) excessive hours for equipment operating time and (2) hourly rates for equipment and employees not provided for in the contract.
• $393,848 of ineligible costs for (1) equipment and materials, (2) labor costs, (3) mobilization / demobilization, (4) travel, meals, and per diem, and (5) fuel surcharges.
• $135,941 due to the use of incorrect billing rates.
• $41,837 in duplicate billings.
• Credit for $21,863 in discounts that had been provided by POI.

The OIG also noted numerous instances where POI did not pay its employees in accordance with the Project Maintenance and Modification Agreement (PMMA) labor provisions in the contract. In addition, POI did not submit "Weekly Statement of Payroll Compliance" reports to TVA's Contract Officer as required by the PMMA.

We recommended TVA management recover the $4,145,909 in net overbilled costs from POI and ensure POI complies with the PMMA requirements.

(Summary Only)

The OIG audited the electric system of Knoxville Utilities Board (KUB), a distributor based in Knoxville, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and KUB for the audit period July 2008 through June 2010. For fiscal year (FY) 2010, KUB provided power to approximately 197,000 customers resulting in electric sales revenue of approximately $455 million to KUB.

Our audit found KUB generally complied with key contract provisions for (1) proper reporting of electric sales and (2) nondiscrimination in providing power, but we noted noncompliance related to (3) approved use of electric revenues. Additionally, we noted a few other minor issues regarding required documentation and information in the billing system.

We also identified two areas where TVA's oversight of distributors should be enhanced. The two issues, addressing (1) distributors using electric funds for economic development and (2) the lack of a joint-cost study, have been reported in previous OIG distributor audit reports, and TVA has agreed to take corrective action on these issues.

We make six specific recommendations in this report that require KUB action and recommend TVA's Senior Vice President, Policy and Oversight, work with KUB to resolve them. These recommendations generally relate to (1) complying with Power Contract provisions and (2) remediating classification issues.

KUB and TVA management disagreed with our finding regarding the noncompliant use of electric system funds for economic development purposes. KUB stated it intends to continue the practice of using modest amounts of electric system funds for economic development purposes. TVA stated it does not plan to take any action prior to completion of its currently ongoing review of TVA regulatory policy and the TVA Board's action on that review.

KUB and TVA management generally agreed with our other recommendations, and KUB stated it has taken action on the majority of the recommendations prior to issuance of this report.

  Full Report

The WBN Unit 2 construction project has experienced significant schedule and cost overruns. The project was originally expected to be completed in October 2012 at a cost of just under $2.5 billion. However, TVA will not meet these targets. On April 5, 2012, TVA announced an additional $1.5 billion to $2 billion would be required to complete the project with an estimated time of completion between September and December 2015. TVA's Board of Directors approved the revised schedule and budget on April 26, 2012.

Since TVA began construction on Watts Bar Nuclear Plant (WBN) Unit 2 in October 2007, the OIG has had staff assigned to attend meetings at the project site in order to keep abreast of management challenges as the OIG conducts its various reviews. During meetings attended by the OIG at the WBN Unit 2 project site, construction issues discussed were characterized by management as recoverable or normal construction problems. Each project schedule, based on its associated assumptions, showed how everything was on track for meeting the early target finish date. Additionally, pertinent information critical of the project's performance was not provided to the OIG by former TVA management when requested by our office. These actions made it harder to identify the extent and potential consequences of the problems on the project. However, in 2010, it became evident many of the issues raised in meetings were symptomatic of much broader problems that increased the risk of exceeding the project's schedule and budget. As a result, we began this review. In mid-2011, we met with TVA executives to brief them on our concerns surrounding the project. In August 2011, we briefed the Audit, Risk, and Regulation Committee on our concerns and the preliminary findings of this report.

We conducted this review to (1) assess TVA's schedule and cost performance on this project and (2) identify any weaknesses in the project's set-up and management and recommend actions to improve schedule and cost performance on this and future projects. We found two primary reasons for the schedule and cost overruns. Based on our assessment of the individual issues raised in various meetings, discussions with WBN Unit 2 and TVA personnel, and reviews of project documentation, we determined that the poor performance experienced at WBN Unit 2 was attributable primarily to (1) deficiencies in project set-up and (2) ineffective management oversight as discussed below.

• Problems with the original project set-up included the following: (1) the detailed scoping, estimating, and planning study was not as in-depth as it should have been; (2) inability to implement prime subcontractors' agreements contributed to project delays; (3) Bechtel was the American Society of Mechanical Engineers (ASME) certification holder, limiting TVA's ability to remove them from the project if problems occurred; and (4) construction began before adequate engineering had been completed.
• Project management in key areas was also ineffective. Specifically, TVA management did not: (1) perform effective oversight of the engineering, procurement, and construction contractor; (2) address certain warning signs that the project was in trouble; and (3) adequately mitigate known problems related to staffing, work order packages, timeliness and quality of information provided to the Nuclear Regulatory Commission, and the procurement of materials that require a long lead time to obtain.

TVA recognizes the problems associated with the construction of WBN Unit 2 and has publicly acknowledged them. In addition, TVA has taken several actions to address the problems identified at WBN Unit 2 and offer an accurate reflection of the progress of the project, engage and improve the relationship with the project workers, and promote transparency. Further, Nuclear Construction and TVA Corporate's planned actions include a review of the accuracy of the Bellefonte estimate, restructuring the independent Project Assurance Organization, and developing a contracting strategy for various project classifications. TVA's actions are positive and should help to improve the process for WBN Unit 2 and future projects.

TVA management agreed with our recommendations to: (1) develop a consistent and thorough approach for planning and estimating nuclear construction projects including, but not limited to, a range of estimates with probabilities, key risk assumptions, and contingency amounts; (2) develop contingencies for supplementing contractors' expertise in case they are unable to provide qualified resources; (3) develop contingencies for obtaining the American Society of Mechanical Engineers certifications for future projects as applicable; (4) require design engineering to be substantially complete before starting construction on nuclear projects; (5) establish controls over the development and reporting of project performance data and provide for independent verification of the data; (6) assess the cultural climate to determine if the actions of certain former key management have affected the organizational culture and provide a venue for WBN unit 2 personnel to voice their concerns; (7) evaluate project incentives to ensure they will deliver the desired results; (8) address aging nuclear workforce issues by developing a program for transferring knowledge; and (9) work collaboratively with TVA's Board of Directors to evaluate the benefits of retaining the services of nuclear construction experts to monitor large nuclear construction projects' progress and report results directly to the Board.

  Full Report

In light of recent gas-related explosions in the utility industry, we conducted a review of Tennessee Valley Authority's (TVA) safety of gas line and gas plant operations. The objective of our review was to determine if TVA has taken appropriate steps to identify and mitigate risk associated with the operation of gas plants and gas lines. We found that the vast majority of gas-related explosions were gas line related. According to TVA personnel, TVA is not responsible for gas until it reaches the reducing stations on TVA property. This significantly decreases TVA's risk of a gas-related incident. We did identify explosions in Middletown, Connecticut and Garner, North Carolina that occurred at gas plants due to improper commissioning. In both instances, fuel gas was used to clean or purge gas pipes of debris, air, or other substances. TVA has taken steps to mitigate this risk by using compressed air instead of gas to clean or purge gas pipes.

As part of TVA's Risk Management program, the organization has identified asset performance vulnerability. Asset performance vulnerability impacts TVA's ability to provide power when there is a demand. The risk for asset performance vulnerability is driven by equipment-failure-related incidents that cause forced-outage events and planned-outage extensions of significant duration. According to TVA's Risk Management program, the severity for asset performance vulnerability is moderate. TVA has mitigated these risks. In addition, TVA has completed the draft of a Natural Gas Piping System Management manual. This manual provides the primary standards and methodology required for the commissioning, maintenance, and integrity management of natural gas piping systems found at TVA fossil power group properties.

  Full Report

On Monday December 22, 2008, the ash containment area at the Kingston Fossil Plant failed. Approximately 5.4 million cubic yards of fly ash and bottom ash were released onto land and adjacent waterways. As part of the OIG's ongoing commitment to provide oversight of the Kingston ash spill cleanup, we reviewed TVA's non-time-critical Kingston Ash Recovery Project activities.

The objectives of this review were to determine (1) the overall status of the non-time-critical phase of the Kingston Ash Recovery Project and (2) if TVA is meeting the schedule for non-time-critical activities. During our review, we found that TVA has made significant progress in the non-time-critical phase of the Kingston Ash Recovery Project. Specifically, TVA has recently completed the following activities: (1) removing ash from the North Embayment, (2) buttressing of Dike C, (3) transferring a portion of a nearby ball field to the Kingston Fossil Plant, and (4) replacing the skimmer wall in the intake channel. In addition, TVA has ongoing non-time-critical activities that include: excavating ash from the Middle Embayment, constructing the Perimeter Wall Stabilization around the on-site disposal areas, disposing of ash on-site, studying the effects of residual ash on the river system, and creating a master plan for park and recreation areas. While TVA is making progress in the completion of non-time-critical activities, we found that five of nine activities reviewed did not meet the scheduled completion date. If the project continues late completion of activities, there is an increased risk that the overall project completion date of 2015, disclosed in the company's financial statements, could be delayed.

We recommend TVA's Senior Vice President, Generation Construction, evaluate the current schedule to determine if the identified delays have caused overall schedule slippage. If it is determined that the overall schedule will be delayed beyond the date disclosed in the footnotes to TVA's financial statements, then the disclosure should be updated. TVA management agreed with our recommendation and has taken actions to address it.

  Full Report

At the request of the Tennessee Valley Authority's (TVA) Supply Chain, we audited Westinghouse Electric Company LLC's billed and estimated remaining material escalation costs under Contract No. 65717. In summary, we determined Westinghouse overbilled a net $26,917 in escalation costs and overestimated the remaining material escalation costs by $137,408. In addition, we identified compensation terms in the contract that need to be clarified to reduce the potential for billing discrepancies.

Westinghouse agreed with our findings that escalation costs were overbilled and overestimated. Accordingly, TVA management should ensure (1) TVA recovers $26,917 in overbilled escalation, and (2) the remaining escalation costs are billed in accordance with the contract. TVA and Westinghouse agreed the compensation terms need to be clarified, and the contract is being revised.

(Summary Only)

We initiated a review of the effectiveness of Tennessee Valley Authority's (TVA) Energy Efficiency and Demand Response (EEDR) organization. We conducted this review because energy efficiency and demand reduction initiatives are important components of TVA's plan to meet future power needs in its service territory. The objectives of this review were to determine (1) how TVA measures the effectiveness of its energy efficiency and demand response programs and (2) if its goals in these areas are being met. We found EEDR (1) has contracted with an independent consultant to provide evaluation, measurement, and verification services and (2) achieved its planned energy efficiency and demand reduction for 2011 and only missed its planned demand reduction in 2009 and 2010 by 2 MW and 16 MW, respectively. The Green Power Switch program came close to achieving its goals for 2009 and 2010; however, it fell significantly short of its goal in 2011. This report was issued for informational purposes only.

  Full Report

The Office of the Inspector General performed an audit of the TVA's compliance with the Improper Payment Information Act (IPIA) for FY 2011. In summary, we found TVA was in compliance with IPIA requirements that were applicable to TVA. In our opinion, TVA was only required to comply with the IPIA requirement to conduct a program specific risk assessment. We reviewed the process used by TVA to identify programs susceptible to improper payments and noted it is in compliance with IPIA guidance. TVA performed a risk assessment for FY 2011, and its primary programs susceptible to improper payments are its supply chain programs. IPIA defines an improper payment as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.

While we found TVA was in compliance with IPIA requirements that were applicable to TVA, we noted areas where TVA can improve its process for IPIA reporting and better ensure that it meets IPIA requirements with a more formal process. Specifically, we recommended TVA (1) document all processes related to complying with IPIA (these processes may include, but are not limited to, the identification, calculation, and recapture of improper payments), (2) maintain documentation of all reports used to identify potential improper payments as well as documentation related to actual improper payments, (3) consider posting TVA's Improper Payments Information Report - FY 2011 on the agency Website to increase transparency and better align its policy with that of other agencies, and (4) document a formal review process to help ensure TVA accurately reports improper payments. TVA management generally agreed with our recommendations and has taken or is taking corrective actions.

  Full Report

The OIG audited the electric system of Meriwether Lewis Electric Cooperative (MLEC), a distributor based in Centerville, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and MLEC for the audit period July 2008 through June 2010. For fiscal year (FY) 2010, MLEC provided power to approximately 35,000 customers and reported electric sales revenue of approximately $69 million.

Our audit found MLEC generally complied with the contract provisions for proper reporting of electric sales and nondiscrimination in providing power, but we noted noncompliance related to approved use of electric revenues. We also noted a few other less significant issues regarding MLEC's customer contract documentation and internal controls. Additionally, we identified two areas where TVA's oversight of distributors could be enhanced. These areas were (1) discontinuing the practice of allowing distributors to pledge electric system funds as guarantees for customer economic development loans with Rural Development and communicating this to all affected distributors and (2) the lack of guidance related to permitted expenditures. These findings were reported in previous OIG distributor audit reports, and TVA agreed to take corrective action.

MLEC did not provide comments to address the six findings and recommendations in the report. Except for the recommendation regarding the proper accounting for economic development expenditures, TVA management generally agreed with our recommendations. Also, in response to a recommendation made regarding the formal documentation of decisions and approvals by the MLEC Board related to resale rate components and amounts, TVA management stated except with respect to enforcing the nondiscrimination requirement, it currently has no contract mechanism to mandate the recommended requirements related to MLEC's resale rates.

  Full Report

Two significant conditions impacted the OIG's determination of TVA compliance for fiscal year (FY) 2011 with the Improper Payments Information Act of 2002, as amended (IPIA).

• First, as a government corporation, TVA is required to issue an Annual Management Report rather than a Performance Accountability Report (PAR) or Annual Financial Report (AFR), and most IPIA requirements apply to the PAR and AFR.
• Second, TVA's improper payments fell below the IPIA threshold in FY 2011, defined as $10 million of all program activity payments and 2.5 percent of program outlays (TVA's improper payments totaled $7,446,226 million and comprised 0.074 percent of program outlays).

Under the IPIA, TVA was required to conduct a program specific risk assessment for FY 2011. TVA determined its primary programs susceptible to improper payments were its supply chain programs. TVA determined its total amount of payments subject to review under IPIA was $10,098,354,626. The OIG reviewed TVA's process for identifying programs susceptible to improper payments and noted it is in compliance with the IPIA.

  Full Report

As part of the annual audit plan, the OIG audited Coal Quality Adjustment Reports (CQARs). Our objective was to determine if the CQARs were calculated in accordance with contract terms.

During fiscal years 2008 through May 2010, Tennessee Valley Authority (TVA) processed 642 CQARs with net adjustments totaling about $110 million. We assessed the accuracy and compliance with contract terms of 18 CQARs, representing about $24.6 million, or all adjustments over $1 million. In addition, we tested the accuracy and compliance with contract terms of 35 CQARs where adjustments were less than $1 million, totaling $16,285,302. In summary, we found the CQARs were calculated accurately and in accordance with contract terms.

(Summary Only)

We audited $67.9 million in costs billed to TVA between November 2006 and December 2009 for modification, supplemental maintenance, and technical support services provided at TVA nuclear plants by Williams Plant Services, LLC (Williams). Our objective was to determine if the costs billed by Williams were in accordance with the terms of the contract. In summary, we found TVA had been overbilled $1,229,401 as follows:

• $714,288 was overbilled for subcontractor costs for Williams' sister company, Williams Specialty Services. The overbilling included (a) $631,131 in unallowable craft labor costs and associated fees, (b) $99,448 in costs not provided for in Williams' subcontract with Williams Specialty Services, (c) $7,489 in unsupported costs, and (d) a credit of $23,780 for an invoice that was underpaid by TVA.
• $279,288 was overbilled for payroll tax costs on non-manual employees.
• $225,463 was overbilled for labor costs, including (a) $190,804 in fringe benefit costs for non-manual employees who did not receive fringe benefits, (b) $26,349 in unsupported and duplicate labor billings, and (c) $8,310 for non-manual labor costs billed at incorrect markup rates.
• $10,362 was billed for ineligible fees applied to fitness for duty/badging costs.

(Summary Only)

As a result of issues discussed during meetings at Watts Bar Nuclear Plant (WBN), an audit was initiated to (1) assess the process for remediating Problem Evaluation Reports (PER) for the WBN Unit 2 project, and (2) determine the effectiveness of remediation stemming from the PER process.

We identified improvements needed in the effectiveness and efficiency of the PER process. Specifically, we determined the process could be improved to assure Corrective Action Plans (CAP) were closed out timely by tracking Corrective Action Plans (CAP) that were not approved within 30 calendar days of Project Review Committee (PRC) review. Prior to the issuance of our report, WBN U2 issued a PER to address all CAP timeliness issues from a project-wide standpoint. We also identified an opportunity to improve the trending of PERs and recommended the WBN U2 Quality Assurance Manager expand the trending analysis guidelines to include categorizing of PERs by level of importance and analyzing PER trends according to importance as well as quantity.

(Summary Only)

OIG reviewed demurrage costs incurred from October 1, 2004, through June 13, 2011, totaling $14 million to assess why demurrage costs were incurred and what actions, if any, TVA could take to minimize these costs.

We determined (1) $1,036,100 in origin demurrage costs had not been billed back to a contractor as provided for in the contract; (2) TVA had not fulfilled its contractual obligation to provide a contractor with applicable portions of barging agreements, resulting in $537,440 in unrecoverable demurrage costs; (3) $376, 667 in demurrage costs were incurred and billed back to the contractor but had not been paid; (4) TVA's agreement with a contractor lacked the necessary language to hold the contractor accountable for origin demurrage costs until January 1, 2011, when a new contract was put in place, resulting in unrecoverable demurrage costs of $784,000; (5) due to inconsistencies in demurrage contract terms for coal delivered to Cumberland Fossil Plant (CUF), TVA incurred approximately $764,400 in unrecoverable costs; changes to the unload time under this same contract could save TVA about $327,600 annually; (6) a clause in TVA's contract for delivery to Allen Fossil Plant (ALF) was not aligned with the operating conditions at the plant which prevented TVA from using a provision to mitigate demurrage costs; (7) origin and destination demurrage costs were not tracked separately, which prevented TVA from transferring origin demurrage costs to the supplier; (8) eliminating barge damage charges at ALF could reduce costs by at least $145,000 per year; and (9) addressing operational challenges at ALF and CUF could reduce demurrage costs at these plants. As a result of the operational challenge at ALF, we also noted that when the focus of a business unit is on their individual goals rather than TVA goals, the overall strategic business unit's budget and ultimately TVA's expenses can be impacted. This was previously identified in OIG audit, 2002-911E, Review of the Coal Procurement Process.

In addition, we determined that more effective knowledge of the contract demurrage terms, monitoring of the contracts, and communication among terminal, barge, and rail contract administrators, the Coal and Gas Services specialist responsible for demurrage payments, and Yard Operations personnel are needed.

We made recommendations accordingly to the Senior Vice President, Fossil Power Group.

(Summary Only)

We audited $314.9 million of costs billed to TVA by G-UB-MK Constructors for modifications and supplemental maintenance work at TVA fossil and hydro plants and other TVA-controlled facilities. In summary, we determined G-UB-MK's billings to TVA complied with the terms of the contract except for $3,783 in net overbillings for craft labor. The contractor agreed with our findings and plans to issue TVA a credit for the overbilled costs.

(Summary Only)

This review included identifying (1) performance trends based on Institute of Nuclear Power Operations (INPO) reports, (2) major contributing factors affecting performance trends, and (3) patterns of behavior that impact culture. Our review found Nuclear Power Group's (NPG) performance with respect to the INPO index, an industry standard in trending nuclear performance, safety, and reliability, declined through 2007 and then improved through 2010. We found outages, both planned and forced, were a major contributor to changes in performance. The majority of the unplanned outages appeared to be the result of equipment reliability issues. Factors contributing to performance improvement included a gap-based business plan and other new initiatives within the organization, including a focus on equipment reliability. As part of this project, we reviewed the following elements of NPG culture: (1) alignment, (2) progress, (3) standards, (4) accountability, and (5) attitude. We found management had taken actions that enhanced culture through alignment and progress. However, in the areas of standards, accountability, and attitude, we noted that while management had taken some corrective actions, culture could be further enhanced by addressing certain issues. We made recommendations, accordingly, to management.

  Full Report

The OIG audited the handling and processing of personally identifiable information (PII) provided to Cartus Corporation, a contractor for TVA. Our audit evaluated the (1) processes used to safeguard data transmitted from TVA to Cartus (2) handling, processing, and security of the data at Cartus, and (3) compliance with security-related contract terms. Generally, we found TVA controls for transmission of data to Cartus and its security controls for TVA data stored on its systems were effective in protecting the data. However, we identified control improvements that, if implemented, would strengthen Cartus' controls over data protection.

(Summary Only)

We reviewed the TVA compliance with the Federal Information Security Management Act (FISMA) of 2002. In summary, we determined that while TVA has made some progress in implementing information technology controls required by FISMA and work on some previously recommended actions continues, additional efforts were needed to strengthen compliance of TVA's security program with existing controls and address additional concerns. We identified opportunities to improve all control areas that we reviewed, except for TVA programs for incident response and reporting and remote access management. In addition, we identified an opportunity for TVA to improve agency-wide security oversight. TVA management agreed with our recommendations.

(Summary Only)

The OIG audited the electric system of Volunteer Energy Cooperative (Volunteer), a distributor based in Decatur, Tennessee. The objective of the audit was to determine compliance with provisions of the power contract between TVA and Volunteer for the period July 2008 through June 2010. For fiscal year (FY) 2010, Volunteer provided power to approximately 110,000 customers resulting in electric sales revenue of approximately $200 million. During the period audited, Volunteer also operated a natural gas division and a wholly owned propane subsidiary.

Our audit found Volunteer generally complied with the contract provisions for (1) proper reporting of electric sales and (2) nondiscrimination in providing power. However, we noted instances of noncompliance with other provisions of the power contract. The most important instances were related to the use of electric system revenues and customer classification. We also identified three areas where TVA oversight of distributors could be enhanced. Two areas identified were new oversight issues addressing the lack of (1) guidance related to the due diligence process for cooperatives providing loans to customers from funds provided by Rural Development and (2) review of cooperative distributors' capital credit allocations in the retail rate setting process. The remaining issue, regarding the lack of a current joint cost study, was reported in previous OIG distributor audit reports, and TVA agreed to take corrective action on this issue.

With regard to the 18 recommendations related to Volunteer, Volunteer disagreed with three recommendations, but TVA management agreed with all of the recommendations, stating it planned to investigate one finding further. In regards to the recommendations which were specific to TVA, TVA management stated (1) it planned to recommend formal approval by the TVA Board of Directors of a use of revenues policy which expressly approved distributor participation in the United States Department of Agriculture Rural Economic Development and Grant Program, and (2) consideration of Volunteer's capital credit allocations was inherent in TVA's revised retail ratemaking and approval process.

  Full Report

We reviewed the effectiveness of TVA's budget process. Our objective was to review the adequacy of the processes used in preparing, reviewing, and adopting the fiscal year 2011 budget. In general, we determined the overall design of the budget process was sufficient to achieve the desired results. We found nothing to indicate the benchmarking process was not sufficient to allow TVA to benchmark itself against its peers. We also found nothing to indicate the budget review and approval process was insufficient. However, we did identify opportunities where the process could be strengthened and improved. Specifically, we determined:

• A formal written procedure directing the budget process did not exist.
• Operating and maintenance (O&M;) targets were set using historical data rather than tied to fundamental business drivers.
• A control to ensure each submitted business plan aligns resources with strategic goals was not operating as intended.
• The budget process addressed risk management initiatives at the organization level; however, entity-wide risk management was not directly addressed.
• The process for prioritizing capital and O&M; projects among organizations could be improved.
• The budget process relied heavily on compiling data from multiple spreadsheets which was manually intensive, time consuming, and error-proned.

(Summary Only)

We performed four agreed-upon procedures that were requested solely to assist management in determining the validity of the Winning Performance payout awards for the year ended September 30, 2011.

Results of the procedures applied follow. In summary,

1. The fiscal year (FY) 2011 WP goals were properly approved, including two changes approved on August 15, 2011 and August 24, 2011. These two changes affected 16 scorecards and resulted in increases to the payout.
2. The actual year to date FY 2011 measures for the Strategic Business Unit and Business Unit scorecards agreed with the respective supporting documentation provided.
3. The two actual year to date incentivized TVA Corporate balanced scorecard measures agreed with the underlying support provided.
4. The mathematical accuracy of the payout percentages and subsequent changes were verified by the OIG through recalculation.

(Summary Only)

The OIG evaluated the (1) security controls for protecting TVA data transmitted to and handled by ActiveHealth and (2) adequacy of and compliance with TVA contract terms for security and data protection. In summary, we determined, (1) appropriate controls were in place to effectively protect personally identifiable information and protected health information transmitted to and handled by ActiveHealth, and (2) ActiveHealth complied with the security terms included in the TVA contract. However, we identified opportunities to improve (1) the ActiveHealth control environment, (2) TVA's contract terms for health services, and (3) TVA's communication of ActiveHealth's role in the health benefits package.

(Summary Only)

TVA's challenges are great with the need for financial flexibility to ensure the TVA mission of delivering low cost power is achieved. The current debt ceiling could limit TVA's financial flexibility and require TVA to seek higher cost financing options or require significant rate increases that could adversely affect the economic development of the Tennessee Valley region. Although TVA is in the process of evaluating options, TVA's position is that a financial metric (e.g., something similar to the debt service coverage ratio), rather than a debt ceiling stated in terms of an arbitrary dollar amount, would provide control of TVA's borrowing authority that is tied to TVA's ability to pay outstanding debt, similar to investor owned utilities, while still providing Congress with oversight and control.

The Inspector General agrees with TVA management in their efforts to maintain maximum financial flexibility, including (1) the adoption of sound financial principles, (2) ensuring multiple options and strategies are pursued to achieve the most economical approach, and (3) seeking to ensure that debt remains a viable option in future financing decisions.

TVA should be able to support additional debt to help meet energy demands as long as the TVA Board maintains its ratemaking authority, TVA maintains its service territory and customer base, and TVA uses the debt proceeds to successfully build generating capacity.

  Full Report

The objective of this review was to determine if the fire protection systems were adequately maintained and mitigating actions are taken to minimize the impacts of fires at TVA fossil plants. During our review, we identified a number of issues related to fire protection at TVA fossil plants. We found numerous impairments exist with fire protection systems at a number of sites, and most systems are not returned to service in a timely manner. During calendar year 2010, there were 30 impairments at Cumberland, 10 at Gallatin, 6 at John Sevier, 20 at Paradise, and 49 at Shawnee. The impairments in 2010 that have since been closed lasted between 40 and 158 days, depending on the site. We also found some fire brigade members have concerns about fire response preparedness. These concerns included poor fitting equipment, the condition of fire trucks, an inadequate staging area, bad communication equipment, not enough training, and insufficient staffing. Additionally, we found that lessons learned from fire events were not being consistently communicated across the fleet. Lessons learned were shared in different ways and were not always shared with fire brigade members. We also identified opportunities for improvement with fire prevention. During our review, we observed areas of significant coal dust accumulation and evidence of smoking at several sites. Lastly, we found instances of noncompliance with TVA policy regarding testing, inspection, and maintenance of fire protection equipment, pre-fire plans, and use of fire equipment. We identified some systems that were not inspected and tested as required, pre-fire plans were in need of updating, and fire equipment was being misused.

We recommended the Senior Vice President, Fossil Generation 1) take immediate steps to restore all impaired fire protection systems to service and determine if additional personnel or resources are needed to expedite repairs of fire protection systems in the future; 2) determine (a) the equipment needs of fire brigade members, including protective equipment and emergency communication devices, and take steps to provide that equipment, (b) what additional training is needed for fire brigade members and take steps to provide that training, and (c) if increased staffing is warranted for fire brigades; (3) create and implement a formal process for capturing and sharing lessons learned from fire events across the fleet, and capture all fire incidents and report them in a consistent manner in the OIC; (4) perform regular coal washdowns at all plants to minimize coal dust accumulations, and strictly enforce TVA's "No Smoking" policy; and (5) evaluate whether additional personnel are needed to properly inspect, test, and maintain fire protection equipment, update pre-fire plans to reflect current conditions, and reinforce that fire equipment is only to be used by fire brigade personnel. TVA management agreed with the recommendations.

  Full Report

The objective of this review was to determine whether TVA was meeting all requirements and planned actions for the removal of equipment containing polychlorinated biphenyls (PCBs). We found there were currently no requirements for the removal of PCB equipment, and previous planned actions for PCB equipment removal were not always completed. We believe continued use of PCB-containing equipment poses significant risk to TVA, as (1) TVA maintains one of the largest inventories of PCB equipment in the electric utility industry; (2) the condition of some PCB equipment at TVA increases the risk of an incident; and (3) TVA does not have an accurate inventory of its PCB-contaminated equipment.

We recommended the Chief Operating Officer (1) expedite removal of PCB equipment by (a) providing dedicated funding and (b) developing a standard methodology for assessing risk of PCB contaminated equipment to prioritize its removal; and (2) provide dedicated funding to expedite efforts to determine PCB-contaminated equipment inventory to prioritize and allocate funding, accordingly, for the removal of this equipment. Until the PCB-contaminated equipment inventory is completed, TVA should treat all fires involving electrical equipment as if it contained PCBs until determined otherwise.

  Full Report

The OIG audited the electric system of BVU Authority (BVU), a distributor of TVA power based in Bristol, Virginia. The objective of the audit was to determine compliance with key provisions of the power contract between TVA and BVU for the period July 2008 through June 2010. For fiscal year 2010, BVU provided power to approximately 16,500 customers resulting in electric sales revenue of approximately $49 million. During the period, BVU also operated a water division, wastewater division, and telecommunications division that included broadband, telephone, cable television, and managerial and consulting services. In addition, BVU provided billing services for the garbage collection division of the city of Bristol, Virginia.

Our audit found BVU generally complied with the contract provisions for (1) proper reporting of electric sales, (2) nondiscrimination in providing power, and (3) use of electric revenue for approved purposes. We also found BVU's multiple lines of business were adequately segregated, and the cost allocation methodology was reasonable and consistently applied. However, we found improvements were needed in (1) classifying customers, (2) obtaining manufacturing certifications from customers, (3) entering contract demand in the billing system, and (4) documenting rationale for adjustments.

BVU and TVA management agreed with our recommendations and have taken corrective actions.

  Full Report

We audited $9.58 million of costs billed to Bechtel Power Corporation (Bechtel) and subsequently to TVA by Williams Specialty Services, LLC (WSS) for asbestos abatement and valve refurbishment services at Watts Bar Nuclear Plant Unit 2 (WBN U2) under a subcontract agreement. We found the costs billed to Bechtel were inflated by at least $624,800 because the hourly rates WSS billed for craft and non-manual labor included overstated cost allowances. The inflated costs included:

(1) $274,800 of craft labor billings that resulted because WSS' craft billing rates included overstated allowances for payroll tax costs, and

(2) $350,000 for non-manual labor because the non-manual billing rates included excessive wage and burden rates.

Additionally, since Bechtel added a 2.5 percent markup when it billed TVA, the actual costs paid by TVA were inflated by $640,420. Accordingly, we recommended TVA management take action to recover $640,420 in inflated craft and non-manual labor costs.

(Summary Only)

The OIG evaluated key aspects of TVA's Section 26a process for effectiveness and efficiency. We determined (1) costs may not be fairly and consistently applied and opportunities exist to improve the cost-recovery process, (2) processes could be improved in the examination and use of customer satisfaction survey results, and (3) fee waivers were not properly documented. We also identified two other issues related to the segregation of duties for receiving and refunding application fees. Additionally, we determined that while Land & Shoreline Management has a defined list of estimated ranges for how much an applicant may pay, a listing of predetermined standard fees to be charged, methods for tracking application costs and cycle time and means for assessing customer satisfaction, use of these tools could be improved.

We made recommendations for the above to which TVA management agreed.

  Full Report

As part of our annual audit plan, the OIG (Office of the Inspector General) audited the Oak Ridge, Tennessee, electric system for compliance with the power contract with the Tennessee Valley Authority (TVA) for the period July 2007 through June 2009. Key contract provisions included (1) proper reporting of electric sales, (2) nondiscrimination in providing power, and (3) use of electric revenue for approved purposes. For fiscal year (FY) 2009, Oak Ridge provided power to approximately 16,000 customers that resulted in electric sales revenue of approximately $52 million. The Oak Ridge electric system is operated as part of the city municipal government rather than as a separate entity.

Oak Ridge and TVA management agreed with recommendations to (1) revise the account structure to comply with the Federal Energy Regulatory Commission (FERC) Uniform System of Accounts or prepare and maintain a reconciliation of the current account structure and the prescribed FERC account structure, (2) prepare the distributor annual report using (a) line item reporting guidance contained in the Accountants' Reference Manual and (b) amounts supported by the trial balance, (3) correct the general ledger to properly record the amounts due to the general fund as a payable, (4) correct billing system programming to use entire contract demand amount when classifying General Services Administration (GSA) customers, (5) correct customer misclassifications identified and implement procedures to assist in identifying residential accounts that need to be reclassified as commercial, (6) obtain TVA approval of allocation of joint costs currently being used, (7) obtain and maintain properly executed customer contracts for all GSA Part 3 and higher customers, (8) obtain appropriate approval for customer contracts on file without signatures, (9) obtain certification from customers under manufacturing schedules that meet the requirements of the schedule, and (10) implement a process to ensure all customers with contracts have the appropriate contract demand entered into the billing system and the contract demand values in the system agree with the customer's contract. TVA also agreed to implement process(es) for verifying the accuracy of distributors' annual report information to adequately identify and address reporting errors.

Oak Ridge and/or TVA management generally disagreed with recommendations to (1) review retail rates and/or operating costs and revise retail rates and/or operating costs as appropriate, (2) review and revise annual payment in lieu of tax amounts, (3) maintain a reasonable reserve before making payments in lieu of taxes, (4) revise billing system programming to use fractional data obtained from meter readings to classify customers, calculate bills, and report wholesale information to TVA, and (5) review TVA comprehensive services meter accuracy testing standards for tests performed on behalf of the distributor to ensure they comply with the standards stated in the power contract. Although Oak Ridge and TVA management interpreted the facts on which these recommendations were based differently than the OIG, we concur with actions taken and/or planned by Oak Ridge and/or TVA to correct the identified issues. Oak Ridge and TVA management disagreed with the recommendation to replace meters that do not meet accuracy standards. However, TVA management offers a new determination for accuracy of meters tested in the field versus meters tested under more accurate laboratory conditions in their comments to another recommendation in the report. The OIG suggests TVA communicate this new determination to all distributors.

  Full Report

As part of our annual audit plan, we reviewed the inspection and maintenance programs for TVA's transmission lines and structures. Specifically, we identified (1) instances in which transmission lines were not assigned a preventive maintenance inspection interval, (2) improvements that could be made to the manual and system documentation to allow recording of inspection results and additional trending of recurring maintenance issues, and (3) improvements that could be made in scheduling preventive maintenance inspections of tower lighting.

TVA management stated they agree with the facts found during the audit and with all of the recommendations. TVA management also provided clarifications related to the OIG's use of the word "assets" versus "locations" when referring to transmission line facilities and how trending of recurring maintenance issues is currently being performed. We revised the report, as necessary, to address these comments.

  Full Report

The OIG audited Sevier County Electric System's compliance with the power contract between the TVA and Sevier, a power distributor based in Sevierville, Tennessee, for the period July 2008 through June 2010. For fiscal year 2010, Sevier provided power to approximately 54,000 customers that resulted in revenues of approximately $134 million.

Our audit found Sevier generally complied with the contract provisions for (1) proper reporting of electric sales, (2) nondiscrimination in providing power, and (3) use of electric revenue for approved purposes. However, areas for improvement in contract compliance were noted relating to customer classification and customer contract maintenance. Sevier and TVA management agreed with our recommendations and have taken or are taking corrective actions. The target completion date for all corrective actions is June 2012.

  Full Report

The OIG audited Warren Rural Electric Cooperative Corporation's (WRECC) compliance with its power contract with TVA. WRECC is a power distributor based in Bowling Green, Kentucky. For fiscal year 2010, WRECC provided power to approximately 60,000 customers that resulted in revenues of approximately $157 million. WRECC also owns and/or operates nonelectric businesses including a security system and monitoring service division, a propane sales subsidiary, and a natural gas distribution subsidiary, and partially owns a nonelectric bill processing company. In addition, WRECC provides billing services for a water utility.

Our audit found WRECC was generally in compliance with the contract provisions for proper reporting of electric sales and nondiscrimination in providing power. However, we noted instances of noncompliance with other provisions of the power contract. The most important instances were related to use of electric revenues. Other areas for improvement in contract compliance were noted regarding co-mingling of electric and nonelectric funds, customer classification, and metering. We also identified one area where TVA's oversight of the distributor should be enhanced. This issue, regarding the lack of a current joint cost study, has been reported in previous OIG distributor audit reports.

WRECC and TVA management generally agreed with our recommendations and have taken or are taking corrective actions, except for our recommendation to create an independent general ledger and corresponding accounts for the security system and monitoring service division. The target completion date for all corrective actions is May 2012.

  Full Report

Marshall Miller & Associates, Inc. (Marshall Miller) was hired by the Office of Inspector General (OIG) to review the sampling and monitoring plans prepared by the Tennessee Valley Authority (TVA) for its Kingston Fossil Plant located in Harriman, Tennessee, following an ash release that occurred on December 22, 2008. Marshall Miller evaluated the adequacy and completeness of TVA's environmental recovery plans to determine whether these plans provide comprehensive and effective measures to adequately monitor the potential short- and long-term impacts to human and ecological receptors. The scope of the review included TVA's environmental recovery plans available through June 2010. In summary, Marshall Miller found no significant deficiencies in the plans or procedures used by TVA or its contractors in characterizing impacts resulting from the ash release or recovery efforts. It should be noted that the assessment of long-term impacts will be an ongoing process during and after the recovery effort.

While Marshall Miller did not find any significant deficiencies, early in the recovery process some of the analytical results did not pass prescribed quality assurance/quality control standards, and the data were invalidated. When the deficiency was noted, TVA took appropriate steps to correct the situation, and it does not appear that any decisions regarding the clean-up efforts were affected by the data quality.

Marshall Miller noted the following:

• Bureau Veritas Laboratories used an incorrect analytical method for particulate monitoring from September 2009 to January 2010. This resulted in the Environmental Protection Agency invalidating the Particulate Matter data.
• There has been limited research on how the ash and the metals associated with ash will affect the various organisms in the river system. Additional investigations by a variety of research organizations are underway, primarily in support of the River System Engineering Evaluation/Cost Assessment.
• Data from air testing for metals and groundwater testing are not readily available to the public.
• Due to "legacy" contaminants in the sediment in the lower 1.8 miles of the Emory River (associated with activities at the Oak Ridge National Laboratory) and the difficulty in removing the ash without distributing existing "legacy" and native river sediments, some ash will remain in the river after dredging is complete.

TVA management provided additional information on the findings and recommendations in this report. Marshall Miller incorporated TVA management's comments into the report as appropriate and provided additional comments where needed. TVA agreed with Marshall Miller's recommendations and has taken or plans to take action based on the recommendations.

  Full Report

TVA OIG retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the Stantec Consulting Services, Inc. (Stantec) report on geotechnical exploration and slope stability for the Ash Disposal Areas 2 and 3 at the Johnsonville Fossil Plant. Marshall Miller believes that Stantec's evaluations provide a reasonable assessment of the margin of safety associated with the evaluated conditions, which indicates that the facility is not in danger of imminent failure.

In Marshall Miller's opinion, Stantec followed generally accepted practices and arrived at reasonable predictions of exit gradients. With regard to Stantec's development of material shear strengths, Marshall Miller found Stantec arrived at reasonable shear strength properties for the generalized material layers and zones. However, Marshall Miller believes the calculated factors of safety against piping in the heterogeneous fill are overstated because Stantec used high values of critical gradient for the fill relative to its measured in-situ densities. Based on review of Stantec's slope stability analyses, it is Marshall Miller's opinion that Stantec performed stability analyses for static, long-term load conditions using appropriate methodologies and reasonable material properties.

  Full Report

TVA OIG retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the Stantec Consulting Services, Inc. (Stantec) report on geotechnical exploration and slope stability for the gypsum stack at the Widows Creek Fossil Plant. Marshall Miller believes that Stantec's evaluations of the Widows Creek gypsum stack provide a reasonable assessment of the margin of safety associated with the evaluated conditions, which indicates that the facility is not in danger of imminent failure.

Marshall Miller did find that additional analyses and corresponding documentation was needed in order to assess the overall factor of safety of the stack in the midterm and longterm. Marshall Miller also found that Stantec used a model that was 20 feet lower than the final height of the stack which does not reflect the final conditions of the pile. Additionally, Marshall Miller found that Stantec did not (1) perform adequate testing to support reliance on historical data and shear strength characterization of some materials, (2) calculate and document the exit gradient and factors of safety against piping for the 5-year build-out configuration, and (3) perform sufficient investigation of the clay foundation soils.

To address this report, TVA management had Stantec review and respond to the findings of this report. Marshall Miller reviewed Stantec's response and concluded that the additional information provided adequately addressed the concerns and recommendations identified in the report.

  Full Report

TVA OIG retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the Stantec Consulting Services, Inc. (Stantec) documents for proposed improvements to the stability of the Northeast Dike of the Ash Disposal Area No. 2 of the Johnsonville Fossil Plant. Based on Marshall Miller's technical review, Stantec used generally accepted methods and practices to design the stability improvements. Based on the Stantec Calculation Package, Stantec also designed a slope configuration that provides acceptable factors of safety for slope stability under long-term, steady-state seepage conditions.

Marshall Miller found the plans for construction prepared by Stantec provide suitable guidance for construction, however, they found the details of the graded filter portion of the stabilization berm do not conform closely with current standards of practice and present constructability issues at locations where the installation condition are more challenging.

To address this report, TVA management had Stantec review and respond to the findings of this report. Marshall Miller reviewed Stantec's response and concluded that the additional information provided adequately addressed the concerns and recommendations identified in the report.

  Full Report

This review was initiated because of questions raised during congressional testimony following the Kingston Ash Spill in December 2008. The objectives of this review were to determine whether the Tennessee Valley Authority (TVA) has (1) performed groundwater monitoring as prescribed by the permits and (2) found levels of constituents monitored that exceeded regulatory limits and, if so, implemented any required corrective actions.

During our review, we found that in some instances TVA was not performing monitoring as prescribed by the permits. For calendar years 2008 and 2009, TVA was monitoring for the required constituents and testing within the required time frames at ten coal combustion product (CCP) areas at seven fossil plants. However, TVA was not monitoring for all permit-required constituents at Cumberland and Johnsonville Fossil Plants. TVA has submitted letters to the Tennessee Department of Environment and Conservation (TDEC) requesting removal of all constituents that were not being tested from the permit and TDEC stated this would be approved.

Additionally, exceedances were found at eight of the nine fossil plants where monitoring is being conducted. TVA has two plants in Tennessee, Cumberland and Gallatin Fossil Plants, that have constituents that exceeded health-based limits and are working through the corrective action process described in Tennessee Rule 1200-1-7. Finally, TVA installed 29 monitoring wells at nine sites in 2010 and has committed to conducting at least one sampling event at each site by the end of fiscal year 2011.

We recommended the Senior Vice President, Environment & Technology, continue (1) plans to implement monitoring at all active CCP disposal areas, and (2) with the assessment plans and initiate corrective actions for Cumberland and Gallatin Fossil Plants. TVA management agreed with the recommendations.

  Full Report

The Office of the Inspector General reviewed the IT controls for granting and monitoring non-nuclear contractor access to TVA Assets, including general network access. The OIG found TVA's controls over processes for managing and tracking non-Nuclear contractor logical and physical access need to be strengthened to reduce the risk of loss or compromise of sensitive TVA data and physical assets. Specifically, the OIG found:

Three enterprise risks identified by TVA's Enterprise Risk Council could be impacted by weak controls over contractor access identified in this report.
The current maturity of TVA's contractor management process is relatively low.
Certain contractors had access to sensitive TVA assets without proper background investigation and clearance.
TVA's system for assigning physical access to TVA facilities does not clearly identify facilities for which special clearance is needed.
TVA does not have a process to require complete and accurate entry for all non-nuclear contractors into the Human Resource Information System.
The IT Customer Center does not ensure Virtual Private Network tokens used by contractors are returned when the contractor leaves TVA employment.

(Summary Only)

We audited $2.2 million in costs billed to TVA by Pressure's On, Inc. (POI), for providing vacuuming services at TVA's fossil and nuclear plants. Our objective was to determine if POI had billed TVA in accordance with the contract terms and conditions. In summary, we determined POI had overbilled TVA $686,466 including:

1. $257,807 in unsupported costs related to (1) missing cost details and (2) labor.
2. $6,789 in duplicate billings.
3. $41,123 due to the use of incorrect billing rates.
4. $386,176 of ineligible costs for (1) mobilization/demobilization, (2) per diem, (3) labor escalation, (4) equipment and materials, and (5) fuel surcharges.
5. Credit for $5,429 in discounts that had been provided by POI.

We recommend TVA management recover $686,466 in overbilled costs from POI.

(Summary Only)

We completed agreed-upon procedures to assist the Center for Resource Solutions in determining TVA's compliance with the annual reporting requirements of CRS' Green Pricing Accreditation Program for the year ended December 31, 2010. The results of the procedures applied were provided to the Center for Resource Solutions.

(Summary Only)

In 2007, TVA issued a procedure to ensure consistancy in the tracking and handling of contract documents and associated files across TVA. The procedure established a standard method to be used by all TVA organizations for the storage and retrieval of contract documentation in Contracts Central, TVA's repository for contract records.

We conducted an audit of Supply Chain's centralized handling of contract documents to assess and determine compliance with the policy, We found Supply Chain was not in compliance with TVA' s policies regarding the use of Contracts Central. Specifically, our review of 225 contracts found only 120 contracts (53.3 percent) were available in Contracts Central. Although we identified several technical reasons for Supply Chain's noncompliance with TVA's policy, overall, it appeared many Contract Managers and Procurement Agents did not understand the importance of having contract documents located in a centralized location. Additionally, we found TVA's original Contracts Central policy had been superseded and much of the pertinent guidance and specific policy information had been ommitted.

TVA management agreed with our findings and plans to (1) reinforce the importance and benefits of Supply Chain's use of Contracts Central, (2) correct various technical deficiencies identified, and (3) provide training and enhanced guidance on the handling of contract documents.

(Summary Only)

We reviewed TVA cost recovery for tritium production under Interagency Agreement DE-A102-00DP00315 with the Department of Energy (DOE). The audit covered the period from January 2000 through December 2009 with some scope restrictions due to incomplete accounting data. We were unable to determine if tritium production costs were accurately identified and invoiced or if any negative impacts on plant operation from tritium production were reimbursed by DOE due to inadequate documentation. Specifically, Nuclear Power Group (NPG) management: (1) had incomplete accounting data, (2) negotiated rates that did not accurately reflect NPG's anticipated costs, (3) did not address $9 million in under-recovered overhead identified in the previous Office of the Inspector General audit on the tritium agreement, (4) did not invoice standby payments and overhead in compliance with agreement terms, (5) did not identify all additional operating costs caused by tritium production, (6) did not have support for $22.9 million in expenses and an unknown amount of revenues, and (7) misclassified revenue. Possible consequences of the audit findings include noncompliance with the Economy Act, noncompliance with the TVA Act resulting in rate-payer subsidy of tritium production, and unreliable NPG financial/performance data.

(Summary Only)

Tennessee Valley Authority's (TVA) fossil fleet consists of 56 operating units at 11 fossil plants in the Tennessee Valley. Through the third quarter of fiscal year (FY) 2010, TVA purchased 25.2 million tons of coal totaling $1.36 billion and burned 25.7 million tons totaling $1.50 billion. TVA's fuel inventory as of June 30, 2010, was $518,658,383. We assessed the operating effectiveness of the controls over the receipt and burning of coal at the fossil plants, including inventory adjustments. Specifically, we determined:

1. The variance reports are generated using information in the Daily Coal Report (DCR). However, the vendor name listed in the DCR does not consistently represent the respective coal company, coal mine, or loading point, which could prevent the identification of significant issues.
2. Variance investigations are not always coordinated between Coal and Gas Services (CGS) and plant personnel, which could impact the efficiency of the investigations.
3. Material tests, which ensure the accuracy of the TVA scales, are not being conducted on all receipt and burn scales on an annual basis at the 11 TVA fossil plants. According to TVA personnel, Problem Evaluation Reports (PERs) have been written at Allen and Gallatin fossil plants for infrastructure deficiencies preventing material testing.
4. Documentation is not consistently maintained for the daily belt scale checks, weekly belt scale calibrations, and material flow checks. Therefore, we were unable to determine whether these checks were consistently conducted.
5. No formal process exists for conducting investigations on inventory adjustments that exceed the tolerable limit. According to TVA management, the Fossil Power Group (FPG) began utilizing Maximo to document and track PERs for inventory adjustment investigations in FY 2011.

(Summary Only)

The OIG performed an audit of Florence Electricity Department (Florence), a distributor of Tennessee Valley Authority (TVA) power based in Florence, Alabama. Florence also operates water, waste water, and gas departments, and provides billing services for these utilities and other municipalities. Annual revenues from electric sales were approximately $116 million in fiscal year (FY) 2009. The objective of our audit was to determine compliance with key provisions of the power contract between TVA and Florence.

Our audit of Florence found improvements were needed in the areas of (1) customer classification, (2) metering, (3) contract compliance, and (4) distributor internal controls.

In addition, we found Florence had enough cash on hand at June 30, 2009, to cover actual FY 2010 capital expenditures and provide a cash reserve equivalent to a cash ratio of about 8 percent, which is within TVA's established guidelines for an adequate cash ratio of 5 to 8 percent.

Finally, we found two opportunities to enhance TVA's oversight of the distributors that was also reported in previous Office of the Inspector General distributor audits. TVA is in the process of addressing these findings, which include (1) providing definitive guidance for distributors on what constitutes prudent expenditures and (2) updating joint cost allocations in the time period recommended by the TVA Accountants' Reference Manual.

Florence and TVA management agreed with our recommendations and have taken or are taking actions to address the recommendations. The target completion date for all corrective actions is September 2012.

  Full Report

As part of our annual inspection plan, we initiated a review of the fire protection systems at the Raccoon Mountain Pumped-Storage Plant. In meeting with plant personnel, we were informed that in July 2010, Marsh Risk Consulting issued a report which included a number of recommendations for the plant to improve fire protection at the site. Based upon this, we decided to perform a walkdown of the site and a limited review of testing/inspection documentation for a sample of the fixed fire protection systems at the site.

We noted no issues during our walkdown of the facility. However, we did note one deficiency with the testing/inspection of one of the fixed fire protection systems at the site, which was communicated to plant management. Despite the one identified deficiency, we determined that no further work in this area is warranted by our office at this time.

  Full Report

TVA entered into contract No. 65419 with Bechtel Power Corporation on October 19, 2007, to provide engineering, construction, and procurement work related to the restart of Unit 2 at Watts Bar Nuclear Plant (WBN U2). Section II-13 - Correction of the Work Prior to Commencement of Warranty Period of the contract stipulates the guidelines related to what does and does not constitute rework as it relates to determining Bechtel's performance fee. In addition, Bechtel receives an annual performance fee that is calculated as a percentage of the total amount billed during the fiscal year (FY). However, any amount of direct labor that has been associated with rework during the FY will be deducted from the total costs billed during the FY prior to the final calculation of Bechtel's performance fee for the FY.

Since inception of the contract, there have been three projects classified as rework projects-two in FY 2008 and one in FY 2009-that have resulted in a reduction of the total costs prior to calculation of the final performance fee. The rework projects in FY 2008 totaled $40,000, and the FY 2009 rework project totaled $124,000. As of September 30, 2010, there were 13 issues classified by TVA as rework that were still outstanding or being reviewed by TVA and six rework issues that had been closed with Bechtel agreeing to two of the issues

As part of our annual audit plan, we reviewed the rework projects identified at WBN U2 to determine if WBN U2 rework has been correctly identified, tracked, and billed in accordance with the contract terms. As a result of our review, we identified one area for improvement. Specifically, we determined some rework project costs are being settled based upon an estimated amount. However, the actual costs are not being tracked by the contractor in accordance with the contract terms.

We recommended the Vice President, WBN U2, if they continue to accept the cost of rework based upon an estimated amount and not the actual amount as stipulated in the contract, amend the terms of the contract to allow for an estimated amount for rework and determine what documentation should be maintained by the contractor supporting the estimated rework amount and the amount used in the calculation of the performance fee. In TVA management's response, they stated that the contract language is adequate to address the issue. TVA management stated that it is more of an issue of TVA notification to Bechtel that soft costs should be tracked for recovery. In addition, Article II-24 of the contract, even though not formally documented as a dispute, allows both parties the latitude to interpret and resolve such issues. We agree with their response.

(Summary Only)

The OIG performed an audit of Newport Utilities, a distributor for Tennessee Valley Authority (TVA) power based in Newport, Tennessee. Newport Utilities also operates nonelectric businesses, which are water and sewer utilities. Annual revenues from electric sales were approximately $50 million in fiscal year 2009. The objective of the audit was to determine compliance with key provisions of the power contract between TVA and Newport.

Our audit identified customer classification issues that could impact the proper reporting of electric sales to TVA and/or nondiscrimination in providing power to members of the same rate class. We were unable to estimate the monetary effect of the classification issues because, in some instances, information was not available; however, for those where information was available, the monetary effect on the distributor and TVA would not be significant.

We also found improvements were needed to (1) comply with other contract provisions regarding maintenance of customer contracts and (2) improve the distributor's internal controls related to the implementation of a corrected program code. In addition, we found the distributor had enough cash on hand to provide a cash reserve equivalent to a cash ratio of about 8 percent, which is within TVA's established guidelines for an adequate cash ratio of 5 to 8 percent.

TVA and the distributor generally agreed with the OIG's recommendations and have taken or are taking actions to correct the identified issues.

  Full Report

The OIG reviewed North Georgia Electric Membership Corporation (NGEMC), a distributor for Tennessee Valley Authority (TVA) power based in Dalton, Georgia. The objective of the review was to determine compliance with key provisions of the power contract between TVA and NGEMC. Our review found 34 misclassified customer accounts. While we estimated the monetary effect of the misclassifications were not significant, there were qualitative issues that were significant due to their systemic nature.

Some of the misclassifications identified resulted from an ongoing NGEMC policy to classify separately metered well pumps serving residences as residential rather than commercial and a discontinued policy to classify any facility that had living quarters, including group homes and cabins owned by individuals and/or organizations, as residential. We also identified certain opportunities to enhance TVA oversight of distributors which were also reported in previous distributor audits. TVA and NGEMC agreed with the OIG's recommendations and have taken or planned to take actions to correct the identified issues.

  Full Report

The OIG performed a follow up audit of Inspection No. 2005 522I, where we recommended TVA execute contract modifications with distributors who wish to pursue nonelectric business ventures, and TVA management agreed to do so. In addition, TVA management asserted they would formalize procedures to ensure consistent review of (1) distributor financial information and (2) business plans that propose the use of electric system revenues for nonelectric system purposes.

Our review found TVA management later decided on an alternative approach to protect its interests and those of all parties. Instead of formal contract modifications, TVA's approach now is to require written agreements with terms to protect the distributors, ratepayers, and TVA when approving the distributor to invest "reserves for renewals, replacements, contingencies, and working capital" in nonelectric business ventures. TVA management believes this approach and the resulting agreements provide greater protections for the involved parties.

TVA has designated the request evaluation and subsequent agreements for one distributor in 2008 as the "model" for handling future requests. While the new approach and "model" may prove effective for controlling risks, we noted areas where protection for the distributors, ratepayers, and TVA could be strengthened. Specifically, we found TVA has:

1. Not documented guidelines for the review of business plans that propose the use of electric system revenues for nonelectric system purposes and the terms to be included in subsequent formal agreements.
2. Not established guidelines to indicate when the amount of a distributor's reserves becomes excess revenues that should be returned to the ratepayer through rate reductions as required by the power contract.
3. Not reviewed distributors previously approved to use electric system revenues for nonelectric system purposes or those using funds without approval to determine if appropriate protections (e.g., formal agreements) are in place.

We recommended the Group President, Strategy and External Relations (1) formally document procedures and guidelines for evaluating distributor requests to use electric system revenues for nonelectric system purposes, including acceptable limits for certain elements, (2) determine when distributor reserves are excessive and should be returned to the ratepayers in the form of rate reductions, and (3) review and ensure all distributors using electric system revenues for nonelectric system purposes have appropriate protections in place.

TVA management stated (1) they plan to have base line criteria/steps for evaluating distributor business plans developed by February 28, 2011; (2) they will present additional metrics to the TVA Board in the coming year for review and approval, and the target date for completing discussions with distributors and submitting revised policies for Board approval is November 2011; and (3) TVA staff will look for electric system use of revenue for nonelectric system purposes when they perform the annual review of distributor financial information. As part of this review, any unapproved use of electric system revenues for nonelectric system purposes will be evaluated for further action. Target completion date for this action is September 2011.

  Full Report

The OIG reviewed the Pulaski Electric System, a distributor for TVA power based in Pulaski, Tennessee. Pulaski also provides billing services for other city utilities and operates a broadband department that offers cable and Internet services. The OIG's review identified (1) customer classification issues that could impact the proper reporting of electric sales and/or nondiscrimination in providing power to members of the same rate class, (2) an overpayment to TVA as a result of an error in a spreadsheet formula used to calculate demand for one GSA classification reported on the Schedule 1, and (3) contract compliance issues regarding allocation of costs between service departments, customer applications for credits, calculation of credits, and maintenance of customer credit documentation. The OIG also identified certain opportunities to enhance TVA oversight of distributors reported in previous distributor audits.

TVA and Pulaski agreed with OIG recommendations and have taken or are taking actions to correct the identified issues.

  Full Report

The OIG reviewed the TVA's compliance with the Federal Information Security Management Act (FISMA) of 2002. Our review determined TVA made significant improvement in two FISMA control areas in the past year. However, overall progress in implementing information technology controls required by FISMA has slowed, while TVA continues work on previously recommended actions and redesigns some processes. Additional efforts are needed to improve compliance with existing controls and address concerns identified by the OIG in six control areas: (1) the certification and accreditation process, (2) security configuration management, (3) incident response and reporting, (4) security training, (5) remote access, and (6) contingency planning. We provided our results to TVA management for review.

(Summary Only)

The objectives of this review were to determine what actions TVA has taken since the Kingston Fossil Plant ash spill to address (1) deficiencies in ash management governance, (2) cultural issues identified, (3) stability of the other coal ash impoundments, and (4) deficiencies in the coal ash management program. The scope of this review included coal ash management and related risks. In summary, we found that since the Kingston Fossil Plant ash spill, TVA is taking appropriate actions to (1) improve ash management governance, (2) drive culture change, (3) evaluate the stability and corresponding safety factors pertaining to ash impoundments, (4) remediate risks, and (5) identify and address ash management deficiencies. Specifically, TVA has:

1. Decided to include coal ash impoundments under the Dam Safety Program to increase governance and use the expertise of TVA's independent Hydro Review Board in assessing the safety and stability of coal ash impoundments.
2. Taken action to drive organizational culture change, including (1) hiring an independent cadre of professionals to assess the TVA culture, (2) instituting an organizational effectiveness initiative, and (3) reorganizing to improve accountability.
3. Hired Stantec, Inc., to evaluate the stability of facility ash impoundments and established an appropriate evaluation and remediation process.
4. Taken immediate action to improve stability and mitigate risks pertaining to many TVA coal ash impoundments.
5. Compiled a gap analysis of recommendations to TVA from the relevant review sources to ensure ash management problem areas are addressed. Development and implementation of quality assurance/control processes and the development of ash management policies and procedures are examples of key actions taken.

While TVA has made significant progress to date, it is important to note this is a long-term project that TVA must continue to make a priority.

  Full Report

The OIG performed four agreed-upon procedures, which were requested solely to assist management in determining the validity of the Winning Performance (WP) payout awards for the year ended September 30, 2010. Following are the results of the procedures applied:

1. The fiscal year (FY) 2010 WP goals were properly approved. Nine change forms affecting 16 measures and/or payout percentages were also properly approved which resulted in nine increases and three decreases to the payout.
2. Actual year-to-date data for September 2010 for all the measures on the strategic business unit and business unit scorecards agreed with respective supporting documentation provided. Subsequent changes to actual data were received through October 28, 2010, and traced to supporting documentation without exception.
3. Actual year-to-date data for the two incentivized TVA corporate balanced scorecard measures agreed with underlying support. Subsequent changes to the net cash flow actual year-to-date data as of November 10, 2010, were received and compared to the supporting Statement of Cash Flows. These changes did not impact the payout percentage.
4. The FY 2010 WP payout percentages provided by the Performance Analysis & Productivity organization on October 25, 2010, were recalculated and compared without exception. Subsequent changes to actual data and goals were received through October 28, 2010, and November 5, 2010, respectively. The payout percentages based on these changes were recalculated without exception. A subsequent change to the actual year-to-date data for the net cash flow measure through November 9, 2010 was received; however, this change did not impact the payout percentages.

(Summary Only)

We audited $51.2 million in costs billed to TVA by a contractor for financial management and consulting services under two contracts. Our objective was to determine if the costs billed from July 2003 through December 2008 were in compliance with the provisions of the contracts. In summary, we found $4.8 million of costs billed by the contractor were unsupported or not in accordance with the terms of the contracts as follows.

1. $3,328,704 was overbilled because the contractor did not limit its overtime billings as it represented it would in its proposals and in the final terms of one of the contracts. (The overbilling included about $890,000 that occurred from the end of our audit period through March 31, 2010.)
2. $514,669 in labor costs were overbilled due to unapproved job categories or incorrect billing rates, timesheet discrepancies, and unallowable administrative labor.
3. An estimated $51,233 was billed for unallowable or unsupported travel expenses and travel agency fees.
4. $1,020,454 in overbillings occurred because costs had been performed prior to the issuance of a contract work authorization, exceeded the CWA funding limits, or was not authorized under the terms of a CWA.

The overbillings itemized above included $108,877 that was included in more than one finding. Accordingly, the net overbilling after removing this duplication was $4,806,183.

(Summary Only)

We audited $24.9 million in payments made by TVA from 2007 through 2009 to a contractor for providing engineering, design, and construction support. In summary, we found the contractor overbilled TVA an estimated $39,915, including (1) $26,182 in overbilled labor and fee costs and (2) $13,733 in overbilled direct costs. We recommended TVA management take action to recover the overbilled costs. The contractor agreed with our findings and recommendations.and stated it would issue a credit invoice to TVA.

(Summary Only)

We audited $6.9 million in payments TVA made to a contractor for providing labor, material, and equipment to reclear or provide maintenance for existing transmission line right-of-way areas under two contracts from January 5, 2004, through April 19, 2010. In summary, we found the contractor had overbilled TVA about $1,400 due to miscellaneous billing errors. However, TVA's invoice approvers had found and adjusted most of the errors prior to paying the contractor.

(Summary Only)

This review was the result of broad interest surrounding the safety and condition of TVA dams after the ash spill at the Kingston Fossil Plant. The objectives of this review were to determine if TVA's Dam Safety Program identified and adequately addressed significant risks, was in compliance with TVA policies and procedures as well as applicable laws and regulations, and encompassed all the aspects of a comprehensive dam safety program. This review found TVA was taking steps to identify and mitigate its risks; adhering to the federal guidelines for dam safety with a few exceptions; and had a comprehensive dam safety program, but opportunities existed to strengthen the program. Specifically, we found:

1. TVA was moving from being reactive to proactive by mitigating and anticipating risks. However, based on interviews with TVA plant personnel, we identified improvement opportunities that would further enhance the identification and mitigation of dam safety risks.
2. TVA's policy was to follow the federal guidelines for dam safety, although not required under federal law. TVA is adhering to the federal guidelines with the exception of certain aspects of the operations and maintenance (O&M;) manuals, training and awareness program, and emergency action plans (EAPs).

TVA management agreed with our findings and recommendations and has taken or plans to take corrective actions.

  Full Report

The OIG reviewed TVA's storage and handling of anhydrous ammonia to determine whether (1) TVA's policies and procedures complied with relevant ammonia-related Occupational Safety and Health Administration (OSHA) and other federal regulations, and (2) TVA fossil plants were in compliance with TVA's policies and procedures covering ammonia storage and management. In addition, we assessed the general physical security surrounding TVA's ammonia storage tanks and related appurtenances.

In summary, we found TVA has two procedures, TVA Safety Procedures 219 and 901, which are intended to implement the requirements of OSHA 29 CFR 1910.119. However, our audit disclosed (1) TVA does not have a formal policy addressing the requirements of American Natonal Standards Institute (ANSI) Standard K61.1 (CGA Standard G-2.1) - Storage and Handling of Anhydrous Ammonia or OSHA 1910.111, "Storage and Handling of Anhydrous Ammonia;" (2) TVA's Procedure 219, "Process Safety Management," does not address all of the requirements included in OSHA 1910.119, "Process Safety Management of Highly Hazardous Chemicals;" and (3) certain sites did not (a) complete all of the process hazard analysis requirements included in Procedure 219, (b) certify their operating procedures on an annual basis, (c) follow ammonia training requirements for its employees or have a mechanism for ensuring the required training of its employees who handle ammonia or perform maintenance on ammonia systems was timely, and (d) satisfy the nameplate and/or marking requirements for its ammonia storage tanks as required by ANSI Standard K61.1.

We also found there was no "trigger" to inform visitors or nonplant TVA personnel that ammonia training may be required prior to entering the plants other than (1) Procedure 901, which requires that "Ammonia Awareness trainin shall be required for all employees or visitors to plants with SCR or any employee who may have exposure to ammonia," or (2) reliance upon the visitor's or nonplant employee's site contact for such information.

(Summary Only)

OIG reviewed the Dickson Electric System (Dickson), a distributor for TVA power based in Dickson, Tennessee. The OIG's review found (1) customer classification issues that could impact the proper reporting of electric sales and/or nondiscrimination in providing power to members of the same rate class; (2) noncompliance with certain power contract provisions in following the Federal Energy Regulatory Commission chart of accounts; and (3) internal controls could be strengthened related to certification documentation for manufacturing customers, accuracy of contract demand entered in the billing system, and executed contracts for accounts with a contract demand value in the billing system. We also found TVA could enhance oversight of the distributors by clarifying that the Standard Industrial Classification (SIC) code to be used to determine eligibility for the manufacturing schedules should be the SIC code for the customer's facility that's located in the distributor's service area.

TVA and Dickson agreed with the OIG's recommendations and have or are taking actions to correct the identified issues.

  Full Report

As part of our annual audit plan, we reviewed the process for ensuring that counterparty credit analysis is performed and monitored. We identified issues related to the cultural factors affecting the credit risk monitoring process, performance of initial credit analysis, and monitoring of counterparty creditworthiness. Specifically, we determined that Corporate Credit has historically lacked authority to determine which counterparties require a credit analysis and when performance assurance is required. Because of the lack of a central, governing body, the process has become siloed with business units establishing their own criteria for requiring a credit analysis and deciding whether to implement Corporate Credit's recommendations. As a result, we identified counterparties that met the business unit's (BU) guidelines or Corporate Credit's expectations of requiring a credit review, but a request for credit analysis was not made by the business unit. We also identified issues related to lack of documentation supporting the credit analysis and the counterparty creditworthiness monitoring processes. In addition, we determined that Corporate Credit relies heavily on commercial credit ratings in both initially determining and monitoring a counterparty's creditworthiness.

The credit analysis, performance assurance, and monitoring processes were not always performed timely. Specifically, we identified (1) BU requests for credit analysis made either less than one week prior to or after the contract start date; (2) credit memos dated after the contract date; (3) financial analyses conducted with outdated financial statements; (4) contracts executed with outdated credit memos; and (5) contract-required performance assurance not obtained in a timely manner. In addition, we determined that active counterparties were not being consistently monitored. Treasury agreed with all of the recommendations, with the exception of one related to the monitoring of the BU activity by Corporate Credit to ensure compliance with the Credit Standard Program and Processes and specific BU policies related to counterparty credit risk management. The OIG revised the report and recommendations, as necessary, to address the disagreement.

(Summary Only)

TVA OIG retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the Stantec Consulting Services, Inc. (Stantec) stability calculations and construction documents for the Dike C Buttress at the Kingston Fossil Plant (Kingston). Dike C refers to the remaining section of the Kingston coal ash containment that did not fail in the December 22, 2008, spill. It is Marshall Miller's opinion that the planned Dike C Buttress produces stability enhancements that are sufficient based on Stantec's drained slope stability analyses. Marshall Miller also believes that the construction improvements will satisfactorily address issues of "piping"/internal erosion, surface erosion, and scour over those Dike C areas that will be covered with an aggregate filter and be buttressed. However, Marshall Miller found that the specific design bases/criteria, relative improvement in stability, and reasoning for certain variations in the buttress configuration were not well documented within the materials that were supplied for review. The significance of the Marshall Miller observations and recommendations are dependent on the approach and conservatism that are applied in the design of the final closure plan. To address this report, TVA management had Stantec review and respond to the findings of Marshal Miller's report. TVA management and Stantec provided additional information on the findings and recommendations in Marshal Miller's report. Marshall Miller concluded that the additional information provided adequately addressed the concerns and recommendations identified in its report.

  Full Report

As part of the Office of the Inspector General's (OIG) ongoing commitment to provide oversight in this area, we assessed Tennessee Valley Authority's (TVA) Kingston ash spill clean-up and recovery efforts. We assessed TVA's progress in two areas: (1) the clean-up of the ash and returning the area to its previous condition and (2) reparations to victims and restoration of the community.

We found comprehensive efforts have been completed and are still ongoing pertaining to the clean-up of the spill. TVA is making significant progress in the clean-up and continues to consider human health and the environment in the recovery. Specifically, TVA (1) met its goal of removing the time critical ash necessary to reopen the Emory River by the end of May 2010, (2) implemented a removal plan for non-time critical ash in spring 2010 to facilitate a smooth transition between clean-up phases, (3) developed a good working relationship with the Environmental Protection Agency (EPA) and the Tennessee Department of Environment and Conservation (TDEC) to manage and facilitate the clean-up, and (4) coordinated with EPA and TDEC to provide continuous environmental monitoring.

We found TVA made a concerted effort to address restoration and regain public trust. Specifically, TVA immediately established a process to handle real and personal property, loss of business, and mileage claims. In addition, TVA's adjudication of the claims was consistent and in accordance with approved processes and guidelines. Other TVA actions to restore the community and regain public trust included, (1) committing $43 million to economic development in Roane County, (2) initiating projects to improve community infrastructure, lessen the impact of recovery operations on the public, and promote Roane County, (3) promoting the sharing of information and coal ash research, (4) implementing various mechanisms to improve communications, address inquiries, and provide information to the Kingston residents and media, and (5) providing independent health screenings.

  Full Report

Marshall Miller & Associates, Inc. (Marshall Miller) was engaged by the Tennessee Valley Authority (TVA) Office of Inspector General to review the Transportation and Disposal Plans prepared by the Tennessee Valley Authority (TVA) in response to the ash release that occurred on December 22, 2008 at its Kingston Fossil Plant (KIF). Specifically, Marshall Miller was asked to determine if appropriate steps are being taken to minimize the environmental impacts and if regulatory requirements are being met. In summary, Marshall Miller found that TVA is taking appropriate steps to minimize the environmental impacts of transporting ash from KIF to the Arrowhead Landfill in Perry County, Alabama. Furthermore, no significant deficiencies in documents reviewed, regulatory requirements, or in the landfill operations were found. Marshall Miller found at the Arrowhead Landfill that the (1) ash removal and rail car wash systems and procedures appear to be adequate for minimizing the potential for residual ash to enter the nearby surface water, (2) storm water management practices appear to be effective for segregating and managing storm water runoff, (3) roads, work, and vegetated areas appear to be maintained such that sediment runoff is minimized, (4) surface water features in the immediate vicinity did not exhibit signs of excess sedimentation, debris build-up, or other potential adverse impacts that could be associated with a landfill, and (5) leachate management and disposal practices appear to minimize, to the extent practicable, the potential for off-site exposure from ash constituents.

While Marshall Miller did not find significant deficiencies in the operation of the landfill, several areas were noted where improvements could be made. The Rail Yard and Landfill Best Management Practice Plans do not effectively describe and document the actual activities, procedures, equipment and operations that were observed during Marshall Miller's site visit on April 21, 2010. The Spill Prevention Control and Countermeasures Plans appear to provide adequate protection; however, the Plans do not include spill volume estimates for certain spill scenarios, discussion of secondary containment for mobile tankers, and locations for spill kits and equipment. Lastly, Marshall Miller noted one of the National Pollutant Discharge Elimination System discharge points is located at a point that could be affected by runoff from land that is not part of the landfill. This issue had already been identified and is currently being addressed by the landfill owner.

TVA management agreed with the recommendations and we concur with their planned and completed actions.

  Full Report

Marshall Miller & Associates, Inc. (Marshall Miller) was engaged by the Tennessee Valley Authority (TVA) Office of Inspector General to review the adequacy and completeness of environmental recovery plans prepared by TVA in response to the ash spill that occurred on December 22, 2008, at the Kingston Fossil Plant (KIF). Generally, Marshall Miller found no significant deficiencies in any of the proposed alternatives for the restoration of the Swan Pond Embayment, including the selected alternative. The documents prepared by TVA appear to be substantially in compliance with applicable regulatory requirements stated in the Administrative Order and Agreement on Consent between TVA and the United States Environmental Protection Agency (EPA) and meet the removal action objectives outlined in the Non-Time Critical Removal Action Embayment/Dredge Cell Engineering Evaluation/Cost Analysis or as is more commonly known the EE/CA. There were some discrepancies noted in the Human Health Risk Assessment, with regard to certain selected input parameters, such as toxicity and exposure factors. However, since the selected alternative includes the removal of all ash, any risk associated with leaving the ash in place is reduced, and revisions to the risk assessment are not necessary. TVA has committed to incorporating the findings in future Human Health Risk Assessments. While Marshall Miller found no significant deficiencies in any of the proposed alternatives, the following observations were noted:

1. Both the EE/CA and Non-Time Critical Removal Action Embayment/Dredge Cell Action Memorandum (Action Memorandum) are intended to provide only a conceptual design of each of the three alternatives. Since an alternative has been selected, a more detailed design will be needed, along with revised sampling plans for monitoring potential environmental impacts during excavation of the ash and closure of the Dredge Cell. Additionally, the EE/CA provides limited detail on the long-term monitoring of various media for potential environmental impacts.
2. A more detailed understanding of groundwater flow and associated contaminant migration from the Dredge Cell to adjacent surface water is required in order to properly establish locations for long-term monitoring of wells.

TVA management agreed with our findings and recommendations and plans to take or has taken corrective actions.

  Full Report

The Inspector General (IG) Criminal Investigator Academy (IG Academy) was officially established in February 1994 by a Memorandum of Understanding between the Federal Law Enforcement Training Center (FLETC) and the President's Council on Integrity and Efficiency (PCIE). The training academy is located at FLETC in Glynco, Georgia. The PCIE was superseded by the Council of the Inspectors General on Integrity and Efficiency (CIGIE) under the Inspector General Reform Act of 2008. Therefore, CIGIE assumed accountability for the IG Academy. In this review which was performed as a service for CIGIE, we found a definite lack of resources for the IG Academy, which impacts the learning methodologies utilized and the overall quality of the programs being delivered. If the IG Academy is to exhibit the attributes of an effective training program, CIGIE must provide it with human capital and infrastructure resources, including instructional, information technology, curriculum, and administrative support.

We recommended CIGIE consider the following resource needs, among others, for the IG Academy:

1. Staffing or access to staffing to conduct timely updates of curricula and lesson plans, assist in instructional systems design, and teach courses
2. Information technology support
3. The implementation of an electronic learning management system-a software application that provides, among other assets, administration, documentation, tracking, and reporting of training programs, classroom and online events, e-learning programs, and training content
4. Administrative support
5. The means to address a legal support deficiency

Remarkably, the IG Academy has been able to provide training to investigators who consistently give very positive feedback despite the lack of resources identified in this report. Our review revealed a small but dedicated staff achieving far more than the bare statistics suggest should be possible. The Director and her staff are to be congratulated for holding together a program that enjoys the support of the majority of the IG community and continues to provide a valuable service.

  Full Report

Since 1933, Tennessee Valley Authority's (TVA) dam and reservoir construction program has acquired approximately 1.3 million acres of land for the creation of 34 reservoirs in five of the seven states in the Tennessee Valley region. Water flooded approximately 470,000 acres as part of the construction and operation of the reservoir system. Approximately 508,000 acres have been transferred or sold primarily to other federal and state agencies for public uses, leaving approximately 293,000 acres currently owned by TVA and managed to meet development needs and improve the quality of life in the Tennessee Valley. These reservoir properties, together with adjoining private lands, have been used for public parks, industrial development, commercial recreation, residential development, and a variety of other needs associated with local communities and government. Section 4(k)(a) of the TVA Act gives TVA the power "to convey by deed, lease, or otherwise, any real property in the possession of or under the control of the Corporation to any person or persons, for the purpose of recreation or use as a summer residence, or for the operation on such premises of pleasure resorts for boating, fishing, bathing, or any similar purpose."

As part of our annual audit plan, we reviewed recreational land transactions. Our audit objectives were to assess the (1) process for entering into recreational land transactions and (2) monitoring and enforcement of those transactions as of August 26, 2009. In addition, our review included information related to the valuation of campgrounds and marinas. As a result of our review, we identified several areas for improvement. Specifically, we determined (1) Stewardship Guidelines do not include adequate criteria to provide for consistency in awarding recreational land agreements; (2) licenses have been used for long-term encumbrances of recreational lands; (3) no formal process is in place to track changes in campground or marina ownership which could affect fees charged; (4) reevaluations of annual fees have not been consistently performed; (5) reviews of monthly invoicing for campground and marina operators may not be adequate; (6) TVA does not have an accurate listing of recreational properties that hinders adequate monitoring; (7) no process is in place for identifying data errors or noncompliance issues related to agreement terms, other than "visual" violations on the properties; (8) TVA does not exercise its right of reentry for properties sold under Section 4(k)(a) when the properties are used in violation of the deed; (9) structures have been built on TVA properties without TVA approval; (10) sporadic usage of "approvable actions" (i.e., permits issued after construction or changes have been made to the property without TVA approval); and (11) TVA faces reputational risk due to external and internal cultural factors, primarily related to the monitoring and enforcement of violations and encroachments.

TVA management agreed with our recommendations and is taking corrective action to address these issues.

(Summary Only)

OIG reviewed the Lenoir City Utilities Board (LCUB), a distributor for TVA power based in Lenoir City, Tennessee. LCUB also operates nonelectric businesses that include gas, water, and sewer utilities. The OIG's review found multiple concerns, including (1) customer classification and metering issues that could impact the proper reporting of electric sales and/or nondiscrimination in providing power to members of the same rate class; (2) noncompliance with certain power contract provisions on executing customer contracts and allocating joint costs between service departments; and (3) weak internal controls related to accuracy of contract demand entered in the billing system and policies over charitable contributions. We also found TVA could enhance oversight of the distributors by developing guidance regarding verification of Standard Industrial Classification (SIC) codes to ensure a company qualifies to receive certain credits.

TVA and LCUB agreed with the OIG's recommendations and are taking actions to correct the identified issues.

(Summary Only)

We reviewed the design of a TVA contractor's process for administering subcontracted work for the Watts Bar Nuclear Plant Unit 2 construction project. Specifically, we reviewed the contractor's (1) invoice review process, (2) process for scheduling work, and (3) process for ensuring subcontractor work meets the contractor's specifications. In addition, we made inquiries regarding concerns raised about the management of measuring and testing equipment (M&TE;). Although we performed interviews and reviewed documentation to determine how the contractor schedules subcontracted work, we did not test the effectiveness of this scheduling. Our audit determined the design of the invoice review process was sufficient to achieve the desired results, and we found nothing to indicate the contractor's process for ensuring subcontractor compliance with contractor specifications was ineffective. However, we determined (1) invoices were not being approved by the engineering or construction manager as required by the subcontract administration procedure; (2) verification of the qualifications of certain key subcontractor personnel was not performed; (3) subcontractor invoices were not compared to the contractor's invoice concurrence forms to ensure TVA reimbursed the contractor accurately; and (4) shortages of measuring and testing equipment caused work inefficiencies and were identified as a potential cause of future work inefficiencies and/or delays. In addition, we identified one instance where travel time and mileage for a subcontract employee to travel to the job site to prevent their badge from expiring was billed to TVA. TVA management agreed with our recommendations and will ensure the contractor (1) amends the Subcontract Administration Procedure to provide review and approval authority to the Project Director or his designee for subcontractor invoices, (2) reinforces their process related to delegation for subcontract invoice approvals by reviewing subcontract invoice approval authorization letters to verify they are current, and (3) transfers the responsibility for M&TE; from Unit 2 to Unit 1. In addition, TVA management agreed to evaluate the conditions surrounding termination of badges for subcontractors on a case-by-case basis to determine the most cost-efficient arrangement and will begin adding subcontractor invoices to the list of randomly reviewed billing data. TVA management agreed with our recommendations and will ensure the contractor (1) amends the Subcontract Administration Procedure to provide review and approval authority to the project director or designees for subcontractor invoices received, (2) reinforces its process related to delegation for subcontract invoice approvals by reviewing subcontract invoice approval authorization letters to verify these are current, and (3) transfers the responsibility for M&TE; from Unit 2 to Unit 1. In addition, TVA management agreed to evaluate the conditions surrounding termination of badges for subcontractors on a case-by-case basis to determine the most cost-efficient arrangement and will begin adding subcontractor invoices to the list of randomly reviewed billing data.

(Summary Only)

The OIG performed a review of the City of Scottsboro Electric Power Board (Scottsboro) which is a distributor for TVA power based in Scottsboro, Alabama. Scottsboro also operates a telecommunications department that offers cable, internet, and telephone services. Also, Scottsboro is one of four distributors to which TVA granted retail rate setting authority. In 2002, TVA Board of Directors approved and made available to distributors six wholesale power contract flexibility options. One of these available options terminated TVA's contract authority and obligations regarding retail rates. Four distributors (Scottsboro, Knoxville Utilities Board, Memphis Light, Gas and Water, and Meriwether Lewis Electric Cooperative) were granted this authority. As a result, these distributors have the authority to determine the retail rates charged to its customers with no or limited oversight by TVA. The TVA Board, however, did not relinquish the responsibility to ensure the power purchased is sold and distributed to the ultimate consumer without discrimination among consumers of the same class, and no discriminatory rate, rebate, or other special concession will be made or given to any consumer. According to agreements with three distributors, the options were provided (1) because the electric utility industry was undergoing changes and restructuring, and (2) to prepare for the prospect of legislation further altering the industry and the relationship between TVA and its distributors. The decision previously made by the TVA Board of Directors to allow the four distributors to regulate their own retail rates significantly increases the reputational risk to TVA surrounding their role as a regulator. The Office of the Inspector General (OIG) will address this issue separately after additional reviews are undertaken.

Our review of Scottsboro found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and/or (2) nondiscrimination in providing power to members of the same rate class. We also identified two other potential power discrimination issues related to Scottsboro (1) providing a specialized industrial rate to only one customer and (2) not passing wholesale fuel cost adjustments and wholesale rate increases/decreases to all customers. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for the one instance where information was available, we estimated Scottsboro owed TVA approximately $88,000 in wholesale demand charges.

In addition, we found Scottsboro (1) had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 2 percent; however, this is less than TVA's established guidelines for adequate cash reserves of 5 to 8 percent and (2) used electric system funds to pay for expenses of the telecommunications department without loan documents in place showing principal and interest payments and recourse protections. We also found improvements were needed to comply with contract provisions regarding (1) the comingling of electric department funds and general ledger accounts with the telecommunications department and (2) costs not being allocated according to the most recent joint cost study. Finally, we noted Scottsboro's internal controls could be improved related to the (1) approval of retail rates, (2) documentation of retail rate schedules, (3) billing practices, and (4) customer contracts, monitoring of data changes.

In this review, we identified three opportunities to enhance TVA's oversight of the distributors, two, prudent expenditure guidance and performance of a current joint cost study, of which were also identified in previous distributor audits. As mentioned earlier, Scottsboro is one of four distributors to which TVA granted retail rate setting authority. For the four distributors with this authority, we found TVA had not developed guidance regarding necessary controls to ensure retail rates are properly designed, approved, and implemented to prevent discrimination or the perception of discrimination in providing power to customers.

We recommended the Group President, Strategy and External Relations, work with Scottsboro to (1) remediate classification, metering and other potential discrimination issues, (2) execute loan documents for internal loans between the electric department and telecommunications department (3) comply with contract provisions and (4) improve internal controls. In addition, the Group President, Strategy and External Relations, should (1) develop and provide guidance on controls over designing, approving and implementing retail rates for distributors who have authority to set their own retail rates and (2) review and recover amounts due to TVA for one customer without a demand meter. Scottsboro and TVA management agreed to take corrective action for some recommendations in this report. For the recommendations where Scottsboro did not agree or did not respond, the OIG maintains the recommendations would be beneficial to Scottsboro. TVA management stated they could not implement several recommendations because TVA does not regulate Scottsboro's resale rates. The OIG, in regards to TVA's contention that because they do not regulate Scottsboro's resale rates they cannot implement the recommendation regarding providing guidance on controls over designing, approving, and implementing retail rates for distributors who have authority to set their own retail rates, the OIG maintains that TVA should provide such guidance as part of its responsibility to ensure nondiscrimination. Also, the OIG concurs with TVA and Scottsboro's planned actions to evaluate the reinstatement of the retail rate regulation provisions in the power contract.

  Full Report

As part of our annual audit plan, we audited $35.07 million in costs billed to TVA by a contractor for providing quality control inspections and nondestructive examinations under two contracts. In summary, we found TVA had been overbilled $159,662 under one of the contracts, including (1) $136,030 in overstated payroll taxes, insurance, and related performance fees, (2) $18,228 in ineligible labor costs, and (3) $5,404 in duplicate fees. The contractor agreed with our findings and plans to reimburse TVA for the overbilled costs.

(Summary Only)

This review was the fourth in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regard to environmental performance." In conducting this review we: (1) assessed environmental performance, including key performance measures and, (2) evaluated TVA's performance relative to available benchmark information, and (3) identified key management challenges that could affect how successful TVA is in achieving these strategic objectives. Our report found that overall TVA's results in the area of environmental performance are mixed. In summary:

The ash spill at the Kingston Fossil Plant represented one of the largest environmental disasters in U.S history and demonstrated TVA's poor performance in managing coal ash. The ash spill released 5.4 million cubic yards of coal ash containing a number of toxic substances into the environment. As we reported previously, the culture surrounding the management of coal ash at TVA reflected a culture that coal ash was unimportant and relegated to the status of garbage at a landfill. There was very little recognition of the potential hazard to the public and the environment. TVA is now taking steps to clean up the spill, assess the stability of other ash ponds, and improve ash management practices. More importantly, TVA has taken effective steps to address the cultural problems that led to the spill.

TVA recently changed its approach to measuring its environmental performance. It now measures twelve industry-accepted metrics identified by the Global Reporting Initiative and six (6) measures for which there are not good industry benchmarks.

Through the production of energy by its coal-fired plants, TVA produces a large amount of air pollutants. While it has made advances in the reduction of air emissions over the last several decades, TVA, along with other utilities, is still a polluter based on the nature of its business. TVA has incurred high capital investments to comply with evolving environmental requirements, and the future costs of compliance and pending legislation addressing air pollution and climate change will continue to put upward pressure on power rates.

We assigned TVA a rating of "fair" for measures related to clean energy generation and renewable generation. This rating was achieved in large part due to TVA's hydro production efforts. However, pending standards may eliminate the use of hydro production as a renewable generation source. Additionally, hydro production is not a consistent source of generation due to fluctuating precipitation.

TVA performs in the middle of the pack compared to its peers with respect to measures such as number of "Reportable Environmental Events," amount of environmental fines, generation of low-level radioactive waste, and office materials recycled. However, TVA lags other utilities in the removal of polychlorinated biphenyl equipment. In two other categories, the amount of coal combustion products recycled and the Certified Clean Marinas, TVA performs comparatively well.

It is important to note that TVA faces many significant management challenges in incorporating effective environmental amelioration measures into its operations. Our report discusses the top five challenges that affect environmental performance, including: (1) increased environmental regulations related to sulfur dioxide (SO2), nitrogen oxide (NOx), mercury, carbon dioxide (CO2), and coal combustion waste disposal; (2) cleanup of the Kingston Fossil Plant ash spill; (3) remediation or improving stability of the ash and gypsum impoundments at TVA fossil plants; (4) mandated renewable portfolio standards; and (5) ability to maintain TVA's current low-cost of power while meeting environmental regulations.

  Full Report

We performed an audit $3.3 million in payments made by TVA to a contractor for geotechnical services between January 2003 and July 15, 2009. In summary, we determined the contractor overbilled TVA $395,479 as follows:

1. $216,865 in labor costs, including (1) $110,016 due to the use of hourly billing rates instead of actual wages and markup as specified by the contract's compensation section, (2) $98,681 for overtime costs the company did not incur, and (3) $8,168 for miscellaneous duplicate and unsupported charges.
2. $66,071 in estimated travel costs, because the contractor did not bill actual expenses as required by the contract.
3. $55,524 in estimated drilling, sampling, and equipment costs, due to incorrect billing rates and unsupported costs.
4. $51,224 in vehicle charges, because the contractor (1) billed both daily rates and mileage rates for certain vehicles and (2) could not document the accuracy of the billing rates it used for mileage.
5. $5,795 in subcontractor costs, because the contractor billed more than its actual costs for the subcontracts.

The contractor agreed it should reimburse TVA at least $173,162 ($98,681 in labor costs, $66,071 in travel costs, $2,615 in vehicle charges, and $5,795 in subcontractor costs). The contractor also provided additional explanations and documentation for certain costs and requested TVA take into consideration certain extenuating circumstances in determining the total amount that should be reimbursed to TVA.

(Summary Only)

TVA Office of the Inspector General retained Marshall Miller & Associates, Inc. (Marshall Miller) to conduct a peer review of the report entitled "Report of Geotechnical Exploration and Slope Stability for Dike C," prepared by Stantec Consulting Services, Inc. (Stantec) of Lexington, Kentucky. In summary, it is Marshall Miller's opinion that Stantec generally performed a reasonable scope of investigation for the portion of Dike C covered in its report and applied appropriate investigative methods and evaluation techniques. However, according to Marshall Miller, Stantec applied site-wide characterization and application of shear strength parameters even though areas of significantly weaker material were identified. In addition, there was a lack of information on seepage and material conditions nearer the downstream toe of Dike C, which caused additional uncertainty about the Stantec study and its associated conclusions and opinions about the Dike C conditions. To address Marshall Miller's report, TVA management had Stantec and AECOM review and respond to the findings in this report. TVA management and its contractors disagreed with many of the findings and recommendations. Marshall Miller provided additional comments in response to AECOM and Stantec responses. In summary, Marshall Miller stands by the findings in the report and disagrees with some of the methodologies used by Stantec to evaluate Dike C. However, Marshall Miller feels that the Dike C improvement planned actions, referenced in the Stantec and AECOM responses, address or will address most of its findings and recommendations. The remaining findings and recommendations not fully addressed were not considered substantial.

  Full Report

We reviewed a contractor's tool program for the Watts Bar Nuclear plant (WBN) Unit 2 construction project. Our objective was to assess the procedures and key control activities used to track and account for tools used in the Watts Bar Nuclear (WBN) Unit 2 construction project. Our review of the WBN Unit 2 tool program determined the contractor's inventory controls were not functioning as intended. Currently, there are significant weaknesses related to tools inventory, checked-out tools, and tools received but not entered into the system processes. Specifically, for the items sampled and reviewed from the contractor's tool inventory system, we could not locate 55 percent of the tools valued at $210,352. In addition, no controls existed to ensure (1) the tools taken from the tool room after hours were properly checked out and (2) random inventories were performed as required by the contractor's procedure. We also identified individuals with tools checked out in their name who (1) had 100 or more tools checked out, (2) had been terminated, or (3) could not locate the tools. Further, we determined 10,948 items totaling $328,137 were paid for but were not received into the contractor's inventory system and we also identified inaccurate information in the inventory system due to keying errors. In addition, we found many issues described above had been cited in previous audit work. We made recommendations to contractor management and TVA. TVA management agreed with most of our recommendations and plans to (1) conduct an inventory count of the tool room and sea land containers, (2) conduct routine cycle counts of large dollar items, (3) implement an exception report to identify inventory with negative quantities or costs in the tool inventory system, (4) properly account for tools removed from the tool room after hours, (5) timely update the tool inventory system for any items issued on paper, damaged, lost, or written off, (6) utilize the tool inventory system's capabilities to identify low inventory items for reorder, (7) perform a periodic review of the Tools Out reports, especially for those individuals with 100 or more tools checked out for large dollar tools, (8) transition the responsibility for managing Measuring & Testing Equipment (M&TE;) to Watts Bar Unit 1 personnel and use the Watts Bar Unit 1 program for tracking, (9) create a tool room within the Radiologically Controlled Area (RCA) to track and issue tools, (10) monitor the Tool Crib Clearance process by creating an exception report for identifying all individuals who have been terminated but still have tools checked out in their name, (11) communicate and enforce the use of a lost tool form and update the tool inventory system for damaged, lost, or stolen items timely for large dollar items, and (12) implement a process to ensure all tools on all purchase orders (PO) are processed and received in both the warehouse and the tool inventory system, except consumables. TVA management did not agree with our recommendations to (1) create a formal review process by a second person to verify data entered in the tool inventory system or (2) properly account for all tools from historical POs. In addtion, TVA management did not agree with our recommendation to hold (1) TVA employees and contractors signing out tools accountable for tool loss/theft and/or (2) supervisors with approval authority accountable when the tools were not returned. According to WBN Unit 2 management, the Project Maintenance and Modifications Agreement does not allow employees to be charged for tools used while performing their respective duties. TVA management did not address our recommendation to review the inventories performed by the contractor and any corresponding write-offs.

(Summary Only)

The OIG performed a review of the City of Chattanooga Electric Power Board (Chattanooga) which is based in Chattanooga, Tennessee and a distributor of TVA power. Our review of Chattanooga found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing power to members of the same rate class. In addition, we found Chattanooga had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 13 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. We also found improvements were needed to (1) comply with contract provisions regarding the establishment of written contracts with customers and (2) improve Chattanooga's internal controls related to monitoring of data changes. Finally, we identified certain opportunities to enhance TVA oversight of the distributors. TVA is in the process of addressing these findings which include the lack of (1) guidance on what constitutes prudent expenditures, (2) a joint cost study addressing allocation of costs between the electric department and other municipal lines of business, and (3) criteria for evaluating when a distributor's cash reserves are excessive. We recommended the Group President, Strategy and External Relations, work with Chattanooga to (1) remediate classification and metering issues, (2) better comply with identified contract provisions related to customer contracts, and (3) add additional controls related to certain billing system data. TVA and Chattanooga management generally agreed with and are taking actions to address recommendations (1) and (2). Chattanooga plans to implement an additional quarterly test for misclassifications and quarterly review of customers with demand of 1 MW or more to determine if a contract is on file. The first tests are to be completed by September 30, 2010. Chattanooga believes billing system controls are in place to minimize the risk of a material misstatement in the data.

  Full Report

We audited $9.5 million of costs billed to TVA by a contractor for providing assistance in implementing a Power System Optimization Project. In summary, we found the contractor had overbilled TVA $234,406 including (1) $227,763 in overstated subcontractor costs and (2) $6,643 in unsupported subcontractor costs. The contractor acknowledged it had not billed in accordance with the contract provisions for subcontractors but stated the rates it had billed were (1) the same as those being charged to TVA by a previous supplier or (2) reasonable because the individuals were acting as employees of the contractor.

(Summary Only)

We performed an audit of $19.1 million in costs billed to TVA by a contractor for diving services between November 2003 and September 2009. In summary, we determined TVA paid $643,700 in inflated labor costs as follows:

(Summary Only)

We audited $59.5 million of costs billed to TVA by a contractor for the supply of ammonia and urea for TVA's Selective Catalytic Reduction systems. In summary, we found TVA (1) overpaid the contractor $188,231 due to invoice payment errors and the contractor's use of incorrect unit prices, (2) paid $12.4 million for certain charges that could not be validated because of inadequate or missing compensation provisions, and (3) site personnel at a certain fossil plant processed payments for ammonia before the ammonia had been received. Additionally, the quantities of ammonia billed to TVA at this fossil plant were not independently verified. We recommended TVA management recover the overbilled and overpaid costs. Additionally, TVA management should (1) provide training to site personnel on material payment procedures and institute a process for reconciling payments to material receipts, (2) ensure the contract is revised to provide compensation provisions for all costs that are payable by TVA, and (3) revise the receiving procedures at fossil plants to ensure that payments for ammonia are processed after the ammonia has been received and verified.

(Summary Only)

At the request of the Chief Executive Officer, we initiated a review of records retention policies and practices at TVA. The objectives of our review were to determine (1) whether records are being maintained in accordance with TVA policies and procedures and (2) if opportunities exist to improve records retention and disposal activities in light of office space consolidation initiatives. Our review found TVA complied with TVA records management policies, practices, and procedures, and records identified in sampling were generally maintained in accordance with the National Archives and Records Administration-approved record schedules. We did note some areas where compliance could be strengthened.In addition, while we found that TVA plans to replace its current electronic management system which should increase the efficiency and effectiveness of records management, areas for improvement exist in the Chattanooga Office Complex pertaining to (1) records management, (2) records retention, (3) disposal of records and material, (4) the maintenance and upkeep of office space, and (5) the identification of records.

(Summary Only)

We completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with the annual reporting requirements of CRS' Green Pricing Accreditation Program for the year ended December 31, 2009. The required information on TVA's renewable energy initiative, "Green Power Switch," was provided to CRS.

(Summary Only)

We audited $61.92 million in costs billed to TVA by a contractor, under two contracts for performing engineering services between October 2004 and December 2008 and found TVA had been overbilled $683,122 as follows:

1. TVA was overbilled $70,838 because labor costs were billed using hourly billing rates instead of cost reimbursable payment terms as required by the contracts.
2. TVA was billed $558,463 in ineligible and excessive temporary living costs because (1) short-term daily travel rates were paid to employees instead of (lower) long-term temporary living allowances, and (2) unauthorized local mileage costs were paid to personnel receiving temporary living allowances.
3. TVA was overbilled an estimated $40,034 in travel costs due to (1) overstated mileage reimbursement rates, (2) meal costs for unidentified personnel, (3) unallowable rental car expenses, and (4) daily travel costs in excess of daily limits.
4. TVA was overbilled $13,787 because (1) an ineligible markup was added to certain subcontractor costs, and (2) an incorrect billing rate for other direct costs was used.

The contractor (via a response submitted by an outside law firm) generally disagreed with most of the audit findings and stated its billings to TVA were correct, fair, reasonable, and in accordance with the plain language of the contracts, the contract manager's interpretation of ambiguous language and/or based upon the parties' pattern and practice of contract performance under both contracts. However, in our opinion, the contractor's comments did not provide additional evidence or documentation to support its claims that TVA had been billed in accordance with the terms of the subject contracts. Accordingly, we recommended TVA management take action to recover $683,122 of overbilled and excessive costs from the contractor.

(Summary Only)

As part of our annual audit plan, we reviewed the process for postponing and cancelling fossil capital projects. Our objective was to determine whether fiscal years 2007 and 2008 project postponements and cancellations were properly approved, effectively communicated, and monitored to prevent inappropriate charges. We determined that Fossil Generation (FG) projects were approved by the appropriate levels of authority and contained a capital classification designated by Fixed Asset Accounting (FAA). We noted that 15 FG cancelled projects contained a cancellation date prior to Strategic Business Unit approval for cancellation, which project management stated could be attributed to timing issues. In addition, we identified eight projects in which travel costs were split among projects. Although there is no policy governing the splitting of project costs, according to project management personnel, the dollar amount of costs allocated among projects would not be material. We also determined that Business Services is responsible for performing an independent review of project costs for reasonableness.

We determined there were control weaknesses that could allow business units to manipulate project costs in order to meet budget goals. Specifically, communication and monitoring controls were not adequately designed to mitigate the risk that project costs were (1) accurately and timely communicated for recording in the financial statements and (2) appropriately classified as capital costs, rather than operations and maintenance costs. We determined communication by FG to FAA of project cancellation did not occur for seven of the 24 cancelled projects we reviewed; communication by FG to FAA of an additional four of the 24 cancelled projects we reviewed did not occur within the required time frame; project documentation (1) was not updated with changes in project status as required for four of the 23 postponed and three of the 24 cancelled projects and (2) did not include a detailed reason for the postponement of one of the 23 postponed projects and 11 of the 24 cancelled projects; and several FG project cancellations occurred due to identification of a duplicate scope within other projects.

We made recommendations to the FG Senior Vice President (SVP) who responded to our draft report and agreed with our recommendations. The SVP, FG, also provided planned actions to address those recommendations. We concurred with FG management's planned actions.

  Full Report

As part of our annual audit plan, we reviewed the process for postponing and cancelling capital projects. Our objectives were to determine whether fiscal years 2007 and 2008 project postponements and cancellations for River Operations (RO) were properly approved, effectively communicated, and monitored to prevent inappropriate charges. We determined all sampled cancelled capital projects reviewed were approved by the appropriate levels of authority and contained a capital classification designated by Fixed Asset Accounting (FAA). However, we noted that project documentation was not updated with changes in project status as required. In addition, we determined that one project cancellation was not communicated to FAA; however, we noted that costs related to the project were written off in a timely manner. We made recommendations to address the above findings. The RO Senior Vice President responded to a draft report and agreed with our recommendations. The RO Senior VP also provided planned actions in addressing those recommendations.

  Full Report

As part of our annual audit plan, we reviewed the process for postponing and cancelling Power System Operations (PSO) capital projects. Our audit objectives were to determine whether fiscal years (FY) 2007 and 2008 project postponements and cancellations were (1) properly approved, (2) effectively communicated, and (3) monitored to prevent inappropriate charges.

Based on our review, we determined that PSO's postponed and cancelled projects (1) contained a capital classification designated by Fixed Asset Accounting (FAA), (2) were approved in accordance with Standard Programs and Processes 2.1, and (3) had valid justifications for postponement and/or cancellation. We also noted that project changes were communicated internally using a listing of projects known as the "checkbook," rather than Five Year Project Plans. We determined the use of the checkbook was a reasonable alternative to the Five-Year Project Plan.

We also determined that project cancellations required to be communicated to FAA were communicated to FAA in a timely manner. Finally, we noted that while there is no policy governing the splitting of project costs, there is an independent review of project costs performed by Financial Services personnel and an expectation for employees to appropriately charge their time to the specific project(s) they work on.

  Full Report

As part of our annual audit plan, we reviewed the process for postponing and cancelling Nuclear Power Group (NPG) capital projects. Our audit objectives were to determine whether fiscal years (FY) 2007 and 2008 project postponements and cancellations were (1) properly approved, (2) effectively communicated, and (3) monitored to prevent inappropriate charges.

Based on our review, we determined that NPG's postponed and cancelled projects contained a capital classification designated by Fixed Asset Accounting (FAA) and that justifications for postponing/cancelling projets were valid. However, we noted control weaknesses that could allow business units to manipulate project costs in order to meet budget goals. Specifically, communication and monitoring controls were not adequately designed to mitigate the risk that project costs were (1) appropriately and accurately charged to the projects, (2) appropriately classified as capital costs rather than operations and maintenance (O&M;) costs, and (3) accurately and timely communicated for recording on the financial statements. We determined:

1. Communication by NPG to FAA of one project cancellation occurred prior to the approval of that cancellation.
2. One project cancellation was not communicated to FAA within the required time frame.
3. No reviews independent of NPG project management were performed to determine whether costs were appropriately and accurately charged to projects.
4. No criteria existed defining the process and requirement for (1) allocating capital and O&M; costs to a project, (2) allocating costs among projects, and (3) borrowing funds from other projects.
5. Project documentation was not retained in accordance with retention guidelines.

We made recommendations to the Chief Nuclear Officer and Executive Vice President, Nuclear Generation, in conjunction with other organizations regarding the above finidngs

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We audited $4.27 million of costs billed to TVA by a contractor for providing preemptive full structural weld overlays on Sequoyah Nuclear Plant Units 1 and 2. In summary, we found the contractor billed TVA $320,700 in unsupported and ineligible costs including (1) $271,200 of unsupported delay costs, and (2) $49,500 of ineligible billings for the cleaning and handling of equipment that was contaminated before it was shipped to TVA. We recommended TVA management recover $320,700 in unsupported and ineligible costs from the contractor.

(Summary Only)

We performed an audit of the prices billed to the Tennessee Valley Authority by a contractor for certain equipment related to dry cask storage systems for spent nuclear fuel at Sequoyah Nuclear Plant and Browns Ferry Nuclear Plant (BFN). In summary, we found TVA had been overbilled $276,000 because the contractor overstated the price of a vertical crawler that had been delivered to BFN. The overstatement resulted because the contractor did not follow the contract's pricing criteria which required the price of the BFN vertical crawler to be set at cost plus 10 percent. We recommended TVA management recover the $276,000 overbilling by the contractor.

The contractor disagreed it had overbilled TVA $276,000 stating (1) the contract's pricing for the vertical crawler had been changed from cost plus 10 percent to fixed price because the crawler sent to BFN had been diverted from another utility, and (2) the fixed price took into account the companies increased risk associated with a replacement crawler sent to the other utility.

Although the contractor stated its price to TVA for the BFN crawler took into account its increased risk associated with the replacement crawler sent to another utility, our audit acknowledged that TVA would probably need to cover the contractor's increased cost for the replacement crawler. Accordingly, our recommendation for TVA to recover $276,000 allowed the contractor to be reimbursed for its cost of the replacement crawler sent to the other utility plus a 10 percent markup.

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We reviewed TVA's Hearing Conservation Program (the Program) to determine whether (1) the Program complied with Occupational Safety and Health Administration's (OSHA) regulations, and (2) TVA organizations were in compliance with the Program guidelines. We also looked at actions taken to address recommendations in a prior, related OIG report. We found TVA's Hearing Conservation Program complied with significant provisions of 29 CFR Part 1910.95, "Occupational Noise Exposure" issued by OSHA. However, we found certain TVA sites did not (a) perform and/or use sound level surveys in accordance with the Program, (b) adhere to Program hearing protection requirements and/or discipline employees when hearing protection was not worn in designated areas, (c) ensure Program individuals' annual audiogram and training requirements were met, and (d) record loggable Standard Threshold Shifts (STS) on the OSHA 300 log. We also found TVA's current organizational structure does not allow for enforcement of the Program by Corporate Health and Safety. Finally, our review confirmed the existence of an employee culture which promotes the filing of hearing loss claims. This was also included in a report issued by the OIG in March 2009

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The OIG performed a review of Murphy Power Board (Murphy), a distributor for TVA power based in Murphy, North Carolina. Our review of Murphy found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Murphy and TVA would not be material. In addition, we found Murphy had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 12 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive.

We also found improvements were needed to (1) comply with contract provisions regarding customer contracts and use of joint cost studies, and (2) strengthen internal controls. Finally, we found one TVA billing error as well as certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include a lack of: (1) guidance related to when a demand meter is required, (2) guidance on what constitutes prudent expenditures, and (3) criteria for evaluating when a distributor's cash reserves are excessive.

We recommended the Group President, Strategy and External Relations, work with Murphy to: (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. In addition, we recommended the Group President, Strategy and External Relations: (1) recover amounts incorrectly credited to Murphy, and (2) determine if other Competitive Index Rate (CIR) customers with other distributors have been credited appropriately. TVA and Murphy management generally agreed with and are taking actions to address the recommendations. However, TVA management did not agree with the recommendation to recover incorrectly credited CIR amounts from Murphy since the customer receiving the credit is no longer in business and recovery through litigation is unlikely. In addition, TVA stated they have been focused on putting procedures and processes in place to better assure that TVA rates and pricing programs are implemented and carried out as intended in the future.

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To facilitate public understanding of TVA's efforts to promote the use of green power in the Tennessee Valley, we reviewed the Green Power Switch? program. Specifically, we reviewed the program to determine whether (1) the methods used by TVA to market the program disclosed that green power goes into the general power mix, and (2) revenue from the program exceeded related marketing expenses. In summary, while not all advertising materials reviewed directly stated that green power is part of TVA's power mix, they did direct consumers to information disclosing that the green power goes into the general power mix. In addition, for fiscal years 2007 and 2008, the revenue generated from the Green Power Switch? program exceeded the related marketing expenses.

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As part of our annual audit plan, our office reviewed the risks associated with the Tennessee Valley Authority's (TVA) pension plan and how those risks are mitigated. Our audit covered areas such as (1) controls designed to mitigate pension risk, (2) the TVA Retirement System's (TVARS) financial statement audit performed by their external auditor as it relates to the existence and valuation of assets, (3) the work of TVARS' actuary in determining TVA's pension liability, (4) funding and benefits decisions and other factors impacting the financial status of TVARS, and (5) concerns raised during the audit by TVARS members.

Our review determined TVARS' (1) controls were suitably designed and operating with sufficient effectiveness to provide reasonable assurance that the control objectives specified were achieved, (2) external auditor performed the work according to their audit program, and we found nothing to question their work or conclusions, and (3) method used to calculate the pension liability and funding contribution was acceptable.

We also determined that a combination of factors resulted in TVARS experiencing a significant shortfall between assets and projected obligations and being funded at a lower level relative to obligations than most other comparison utilities.

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We audited $10.16 million in costs billed to TVA by a contractor for providiing professional engineering and technical support services associated with the detailed, scoping, estimating, and planning study related to the potential completion of Unit 2 at Watts Bar Nuclear Plant. In summary, we found (1) the contractor directly billed TVA $175,094 for home office senior management and administrative personnel that should have been recovered through its overhead rate; (2) the contractor overbilled TVA an estimated $9,393 due to miscellaneous unsupported and ineligible billings for payroll additive costs, relocation expenses, and travel costs; and (3) TVA paid the contractor an additional $33,000 in fees due to conflicting contract language regarding the application of fees for travel costs. We recommended TVA management (1) take action to recover the $184,487 in overbilled costs, and (2) determine the appropriateness of including travel costs in the contractor's fee base.

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In comparison to the fiscal year (FY) 2008 FISMA report, we found TVA had generally improved in the area of establishing its inventory of systems requiring certification and accreditation and general security awareness training for network users. However, we identified several areas during this year's audit in which (1) performance had declined, or (2) TVA had not completed actions from the prior year's audits.

During our FY 2009 review we noted improvements were needed in the following areas: (1) the oversight and evaluation of contractor systems; (2) the POA&M; process; (3) the C&A; process; (4) incident reporting; and (5) security awareness training.

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We audited $147.7 million of costs billed to TVA by a contractor for providing security services for TVA facilities. In summary, we found (1) TVA made an erroneous payment of $206,531 to the contractor for costs related to another contract, (2) the contractor overbilled TVA an estimated $72,645 due to miscellaneous unsupported and ineligible costs, and (3) the contractor understated its provisional billing adjustments for 2007 and 2008 by $7,705.

The contractor subsequently refunded or provided credits for $247,438, including (1) the erroneous payment of $206,531, and (2) $40,907 of the miscellanious unsupported and ineligible expenses. We recommended TVA management recover the remaining overbilled costs.

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The OIG performed a review of the Princeton Electric Plant Board (Princeton), which is a distributor for Tennessee Valley Authority (TVA) power based in Princeton, Kentucky. Our review of Princeton found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing power to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Princeton and TVA would not be material. In addition, we found Princeton did not have enough cash on hand as of June 30, 2008, to cover expenditures for planned capital projects and provide a cash reserve. However, Princeton obtained a loan in August 2009 to provide additional funds for capital expenditures.

We also found Princeton (1) did not comply with contract provisions for allocation of joint costs and establishing contracts for customers with demand above 50 kW and (2) could improve internal controls related to the completeness, accuracy, and validity of the billing and metering data. Finally, we have identified certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include: (1) the absence of a joint cost study being performed, (2) the lack of an adequately defined process to document approval of Small Manufacturing Credits, (3) the lack of guidance related to when a demand meter is required, and (4) the lack of guidance on what constitutes prudent expenditures.

Princeton has elected to terminate its power contract with TVA effective January 24, 2010. Consequently, we have no recommendations which require response from either Princeton or TVA. However, we provided specific suggestions to help Princeton strengthen its internal controls and accurately bill its customers in the future. Our suggestions included: (1) remediate classification and metering issues, (2) develop and document a consistent methodology for allocating all joint costs, (3) obtain contracts for customers as appropriate, (4) update the automated system (and manual customer cards, if maintained) with changes, including contract demand, on a timely basis, and (5) identify and utilize exception reports to ensure customers are classified correctly and identify problems that need to be addressed in a timely manner. As noted in the report, Princeton personnel corrected the classification issues and started reviewing additional exception reports.

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The OIG performed a review of Tullahoma Utilities Board (Tullahoma) which is a distributor for TVA power based in Tullahoma, Tennessee. Our review of Tullahoma found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Tullahoma and TVA would not be material. In addition, we found Tullahoma had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 29 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. Based on prior distributor audit findings, TVA is in the process of defining criteria for determining when a distributor's cash reserves are excessive. We also noted that Tullahoma used electric system funds to pay for expenses of the fiber optic business prior to obtaining TVA approval to loan funds to the fiber department.

We also found improvements were needed to (1) comply with contract provisions regarding the allocation of costs between departments and customer contracts and (2) strengthen internal controls over the completeness, accuracy, and validity of billing system data. Finally, we identified certain opportunities to enhance TVA oversight of the distributors that were also identified in previous distributor audits. TVA is in the process of addressing these findings which include the (1) absence of a joint cost study being performed in over 20 years, (2) lack of an adequately defined process to document approval of credits, (3) lack of guidance related to when a demand meter is required, (4) lack of guidance on what constitutes prudent expenditures, and (5) lack of criteria for evaluating when a distributor's cash is excessive.

We recommended the Group President, Strategy and External Relations, work with Tullahoma to (1) remediate classification and metering issues, (2) comply with contract provisions related to proper allocation of joint costs, and (3) strengthen its internal controls. TVA and Tullahoma management generally agreed with and are taking actions to address the recommendations.

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Based upon questions posed to OIG personnel regarding TVA's criteria for the adjustment of tributary water levels, the OIG conducted a review of TVA's Reservoir Operations. Our objectives were to determine (1) whether criteria exist to balance the competing objectives of managing water in TVA reservoirs, (2) how those objectives compare to those of the U.S. Army Corps of Engineers, and (3) whether TVA was following its criteria. This report encompasses TVA-managed lakes, tributaries, and overall Reservoir Operations.

Our review found TVA has Board-approved guidelines that were developed with public input in 2004. We noted in discussion with two offices of the U.S. Army Corps of Engineers that they balance similar objectives and manage their reservoirs in a like manner as TVA. We performed testing based upon the approved TVA guidelines and found no issues. Specifically, we found that there were no issues related to the following summer criteria: (1) Recreational Releases (releases water to enhance recreation opportunities). (2) Chickamauga Flow (the required flow through Chickamauga Dam). (3) Tributary Balancing (ensuring that no individual tributary is disproportionately affected when meeting river system minimum flow goals). Lastly, we found there were no issues related to the following nonsummer criteria: (1) Minimum Flow Commitments, which is measured in pulse commitment violations (a pulse represents a release of an agreed-upon amount of water, and a violation is an instance where TVA does not provide the pulse on time). (2) Flood Storage Availability (flood storage is defined as the volume, or capacity, in a reservoir that is reserved for the storage of flood water, and anytime a tributary's headwater elevation exceeds the flood guide, it is in violation). Since we had no recommendations, this report was issued for informational purposes only.

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Based on reports of government and contractor employees obtaining phony/counterfeit educational degrees, we conducted a review of Bechtel and subcontractor employees assigned to the Watts Bar Nuclear Plant Unit 2 Construction Completion Project (WBN U2 Project). Our objective was to validate, for selected personnel, the highest educational degree listed on the resume submitted for employment. Our review found no instances where an employee was hired based on a fraudulent degree. However, neither Bechtel nor the OIG was successful in verifying one employee's degree. Specifically, we recommended the Vice President, WBN U2 Project, in conjunction with the Bechtel Project Director, make certain that employees' educational degrees are verified if the degree is required for the position for which they are hired. Furthermore, a copy of a diploma supplied by an employee should not be considered adequate verification. TVA management agreed with our findings and recommendations and plans to take corrective action.

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We reviewed TVA's decision to construct a gas plant in northeast Tennessee to determine if TVA's analyses supporting its decision were reasonable. TVA's decision was initiated by a court-ordered accelerated schedule to install emission control equipment at John Sevier Fossil Plant, which would require TVA to shut down units at the plant for about 20 months during the construction. Although TVA evaluated various alternatives, TVA's need to preserve the reliability of the power system was the most significant factor influencing its decision.In summary, we determined TVA's analyses appeared reasonable to make the decision to construct the gas plant in northeast Tennessee.

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This review was the third in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regard to operational performance." In conducting this review we: (1) assessed key performance measures and their alignment with the key strategic objectives, (2) evaluated TVA's performance relative to key performance indicators by using target metrics and available benchmark information, and (3) identified key management challenges confronting TVA. Our report found TVA's performance is positive with respect to system reliability and safety; however, system efficiency could be improved. In summary:

1. Reliability: One of TVA's primary responsibilities is to serve as a reliable and cost competitive source of electric power to its customers. TVA has performed exceptionally well in terms of system reliability, delivering electric service with 99.999 percent reliability. TVA also performed better than the industry at large in all its key reliability performance metrics. In addition, TVA has maintained an adequate capacity reserve margin, which has contributed to this strong reliability performance.
2. Efficiency: System efficiency is a measure of the effectiveness of TVA's expenditures on the operations and maintenance of its generation fleet. Additional focus in this area is warranted. Specifically, higher than average forced outage rates, especially for its fossil units, have negatively impacted TVA's system efficiency performance. In addition, while TVA's delivered cost of power ranked in the second quartile of a selected peer group, its average non fuel operations and maintenance costs ranked only in the third quartile. High operations and maintenance costs coupled with low plant availability combined to depress TVA's efficiency metrics. Two things clearly impacting TVA's efficiency performance included (1) an aging fossil generation fleet and (2) reduced availability of hydroelectric power.
3. Safety: TVA ranked in the first quartile based on the number of recordable injuries per 200,000 hours worked as based on data provided by the Occupational Safety and Health Administration and comparable data provided by the 2007 Edison Electric Institute Benchmark Data. However, the recent death of a contractor employee involved in the Kingston Fossil Plant ash spill cleanup effort emphasizes to us that safety must be the first priority in everything we do.

Additionally, TVA faces many significant management challenges in attaining and maintaining operational excellence. Our report discusses the areas of (1) an aging generation fleet and transmission system, (2) an aging work force, (3) generation mix, and (4) management culture.

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We audited $25 million of costs billed to TVA by a contractor from January 1, 2006, through December 31, 2008, for the administration of TVA's dental benefit plan. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we found TVA had been overbilled $25,591, including: (1) $17,713 for duplicate claim payments; (2) $832 for claims which exceeded plan limits; and (3) $7,046 for ineligible orthodontic payments. In addition, due to the high amount ($132,000) of additional coinsurance that was billable to members during our audit period, we determined the "Alternative Benefits" provision in the dental benefit plan might be unclear as it relates to the member's responsibility when alternative procedures are used. We recommended TVA management (1) recover $25,591 in overbilled costs from the contractor, and (2) revise the dental benefit plan to more clearly define the member's responsibility as it relates to alternative procedures The contractor and TVA management agreed TVA had been overbilled $25,591. In addition, TVA management agreed to consider revising the dental benefit plan to clearly define the member's responsibility as it relates to alternative procedures.

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We performed three agreed-upon procedures which were requested solely to assist TVA management in determining the validity of TVA's Winning Performance (WP) payout awards for the year ended September 30, 2009. In summary, we found: (1) the fiscal year (FY) 2009 WP goals were properly approved; (2) actual year-to-date inputs for all the metrics agreed with the respective supporting documentation with one exception related to the Power System Operations Non-Fuel Operations and Maintenance metric which did not impact the WP payout; and (3) the payout percentages were mathematically accurate.

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The OIG performed a review of Bolivar Energy Authority (Bolivar), a distributor for TVA power based in Bolivar, Tennessee. Our review of Bolivar found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Bolivar and TVA would not be material. In addition, we found Bolivar had more than enough cash on hand to cover planned capital projects and provide a cash reserve of about 12 percent. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 percent to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive.

We also found improvements were needed to (1) comply with contract provisions regarding the co-mingling of funds; allocation of costs between departments; and customer contracts, and (2) improve Bolivar's internal controls related to the accuracy of contract demand data entered into the system, monitoring of manual data changes, monitoring of negative usage (kWh) amounts in billing data, and monitoring repetitive instances of zero usage. Finally, TVA has not: (1) performed a joint cost study in over 20 years even though the TVA Accountant's Reference Manual calls for one to be performed every three to four years or when major changes occur that affect joint operations; (2) adequately defined the process for granting the Small Manufacturing Credit to ensure proper documentation, including evidence of approval, is submitted and maintained; (3) provided adequate guidance on when a demand meter is required; and (4) defined criteria for evaluating when a distributor's cash balance is excessive.

We recommended the Chief Financial Officer (CFO) work with Bolivar to: (1) remediate classification and metering issues and institute controls to prevent the issues from recurring; (2) assure compliance with contract provisions related to proper allocation of joint costs and customer contracts; and (3) assure internal controls are strengthened. In addition, the CFO should establish a process to document approval of distributor customer's credit applications. TVA is in the process of addressing findings from previous reviews that were also found at Bolivar related to: (1) contracts for customers whose demand exceeds 50 kW; (2) guidance for distributors on cash reserves; (3) performing joint cost studies; and (4) providing guidance on when a demand meter is required. TVA does not plan to take action regarding the co-mingling of electric and nonelectric funds, another issue we found at Bolivar and in previous audits; therefore, we suggested the power contract be modified to address the co-mingling funds language in existing contracts.

TVA and Bolivar management are taking or have taken action to address certain recommendations. For the remaining recommendations, Bolivar does not plan to take additional actions.

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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)

At the request of the Senior Vice President of Environment and Research, we initiated reviews of the 11 Tennessee Valley Authority (TVA) managed campgrounds to determine if the (1) campgrounds were being operated in accordance with the program intent and (2) operating controls were functioning as intended. We found that the campgrounds were operating in accordance with the program intent, which was to provide public areas for recreation. In addition, we found the operating controls appeared to be functioning as intended and campground guidelines were generally being complied with. However, we noted:

• Some minor overall program guideline inconsistencies.
• For the four campgrounds with a resident manager, the resident manager contracts did not include some specific responsibilities identified in the TVA Resident Manager Manual.
• The resident manager contract for one campground differed somewhat with regard to duties and responsibilities when compared to the other three resident manager contracts.
• One resident manager contract had not been updated to reflect revised responsibilities.

TVA management generally agreed with our findings and recommendations and has taken or plans to take corrective actions.

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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.

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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.

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We audited the costs billed to TVA by a contractor for providing (1) modification and supplemental maintenance services at TVA nuclear plants (operating unit work) and (2) construction services for the restart of Browns Ferry Nuclear Plant Unit 1 (BFN U1). The scope of our review included $272.2 million of noncraft costs billed by the contractor through December 31, 2007, including (1) $89.6 million for modification and supplemental maintenance services and (2) $182.6 million for the BFN U1 services.

In summary, we found TVA had overpaid the contractor (1) from $876,519 to $1,579,575 for BFN U1 performance fees due to an overstated fee base and inflated fee rates, (2) $268,538 due to ineligible and unsupported billings for labor costs, (3) $54,633 due to overbillings for temporary living and relocation costs, and (4) $6,650 due to miscellaneous overbilled costs. We recommended TVA management recover up to $1,909,396 in overpaid costs from the contractor.

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We audited $25 million of costs billed to TVA by a contractor for providing research and development activities. In summary, we found (1) TVA made invoice payments in advance of the work being performed, thus losing an estimated $1,125,000 in interest over the audit period, (2) project status reports submitted by the contractor were incomplete and inaccurate, and (3) TVA was delinquent in recovering overfunded project amounts.

We recommended TVA management (1) discontinue the use of advanced payments unless the contractor is required to pay interest on the advanced payments; (2) require the contractor to provide a final status report for all projects worked, and (3) recover all unspent funds and institute procedures for ensuring the timely collections of all future overpayments.

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We audited $2.8 million in subcontractor costs billed to TVA by a contractor for work related to the restart of Browns Ferry Nuclear Plant Unit 1. Our preliminary review of the costs billed by the subcontractors caused us to have concerns that certain costs that were billed may have also been billed to TVA under other contracts. We identified two direct contracts TVA had with the companies and expanded our review to include $985,984 TVA had paid to the companies under these contracts.

In summary, we found TVA had been overbilled $1,075,020 including (1) $174,912 of unsupported and ineligible labor and per diem costs, (2) $621,428 of unsupported and ineligible equipment costs, (3) $199,180 of unsupported material costs, and (4) $79,500 of overstated task costs.

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This redacted Report of Administrative Inquiry regarding a personnel matter was released on September 14, 2009, in response to an administrative appeal of a FOIA request.

The OIG reported that a TVA employee provided false information to the OIG during an OIG inspection of the Maintain and Gain (M&G;) Program.

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The OIG performed a review of the City of Oxford Electric Department (Oxford) which is a distributor for TVA power based in Oxford, Mississippi. Our review of Oxford found issues involving customer classification and metering that could impact (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. We were unable to estimate the monetary effect of all the classification and metering issues because in some instances information was not available; however, for those where information was available, the monetary effect on Oxford and TVA would not be material.

In addition, we found Oxford 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 6.6 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 areas of (1) co-mingling of funds, (2) customer bill adjustments, (3) Oxford's accounting practices, and (4) customer contracts.

Finally, we noted opportunities to enhance TVA oversight of the distributors. Specifically, we noted TVA has not (1) performed a joint cost study in over 20 years when the TVA Accountant's Manual calls for one to be performed every three to four years or when major changes occur that affect joint operations, (2) provided adequate guidance on when a demand meter is required, (3) provided definitive guidance for distributors on what constitutes prudent expenditures, and (4) adequately defined how often meters should be tested by the distributors.

We recommended the Chief Financial Officer (CFO) work with Oxford to improve compliance with the contract. In addition, we recommended that the CFO (1) put procedures in place to perform joint cost studies with each distributor that shares costs with other entities at least every three to four years, and (2) develop guidance to indicate when a distributor should require that a demand meter be installed for GSA Part 2 customers. TVA is in the process of addressing findings from previous reviews that we also found at Oxford related to (1) a lack of guidance for distributors on what constitutes prudent expenditures and (2) how often meters should be tested by the distributors.

TVA and Oxford management generally agreed with and are taking actions to address the recommendations with the exception of our finding of co-mingling of funds where no management action is planned. If TVA management accepts the mingling of electric system funds and accounts with other funds and accounts of the Municipality, we suggest TVA consider modifying Section 1 of the power contract in their planned formal implementation of a rate change to no longer prohibit such actions.

  Full Report

We audited the cost billed to TVA by a contractor for performing preheat and post-weld heat treatment services and found the contractor (1) had billed certain tasks at lump sum prices instead of using the time and material billing rates provided for by the contract and (2) overbilled or could not provide support for $1,350 that had been billed as time and material.

We recomended TVA Supply Chain Management ensure the (1) contract documents how Procurement Agents will determine whether to use time and materials pricing or fixed prices for task assignments, and (2) Procurement Agents maintain documentation of how TVA assessed the reasonableness of the price for any work performed as fixed price. Additionally, we recommended TVA recover the $1,350 of overbilled/unsupported cost.

(Summary Only)

On December 22, 2008, a major dike failure occurred on the north slopes of the ash pond at the Tennessee Valley Authority's (TVA) Kingston Fossil Plant. This failure resulted in the release of approximately 5.4 million cubic yards of coal ash spilling onto adjacent land and into the Emory River. TVA's Chief Executive Officer (CEO) directed the TVA Office of the General Counsel to contract with a firm to do a root cause analysis of the spill, and AECOM Technology Corporation (AECOM) was commissioned with the task. The objectives of our review were to (1) provide an independent peer review of AECOM's root cause analysis and (2) review TVA's ash management for weaknesses. To assist us with technical aspects of this review, we hired Marshall Miller & Associates (Marshall Miller) to independently peer review TVA's root cause analysis and provide other observations about ash management practices at TVA. In summary, we found:

• TVA management handled the root cause analysis in a manner that avoided transparency and accountability in favor of preserving a litigation strategy. TVA elected not to publicly disclose management practices that may have contributed to the Kingston Spill.
• TVA could have possibly prevented the Kingston Spill if it had taken recommended corrective actions. TVA was aware of "red flags" that were raised over a long period of time signaling the need for safety modifications to TVA ash ponds.
• AECOM overemphasized the "slimes" layer as a trigger for the Kingston Spill. Marshall Miller concluded that factors other than the "slimes" layer may have been of equal or greater significance.
• Despite internal knowledge of risks associated with ash ponds, TVA's formal Enterprise Risk Management process, which began in 1999, had not identified ash management as a risk. While over the years there was internal discussion about placing the ash ponds under the TVA's Dam Safety Program, ultimately, TVA did not place the ash ponds under its Dam Safety Program. Treating the ash ponds like dams would have required more rigorous inspections and engineering.
• Attitudes and conditions at TVA's fossil fuel plants that emanate from a legacy culture impacted the way TVA handled coal ash. Ash was relegated to the status of garbage at a landfill rather than treating it as a potential hazard to the public and environment.

In addition, this Office of the Inspector General report was presented to the TVA Board on July 14, 2009. After the OIG briefed the Board on its findings, a specially called Board meeting was held on July 21, 2009. A report prepared by McKenna Long and Aldridge that was commissioned by the Audit Committee of the Board in February of 2009 was released. TVA management acknowledged at the July 21, 2009, meeting many of the management failures that we identify in this report. These admissions reflect the type of transparency and accountability for TVA that the OIG has pressed for some time. We applaud the Board's leadership in this matter and TVA management's acknowledgement of TVA's role in the Kingston Spill.

TVA's CEO provided comments on a draft to this report. The CEO generally agreed with our recommendations and, in addition to identifying actions already taken, stated that actions in-process or planned include (1) implementing a cultural focusing initiative across the agency, incorporating lessons learned from the Kingston Spill, (2) using the detailed, technical explanation of what and how the Kingston dike failure occurred to ensure that it never happens again and to safely close the failed cell, (3) developing and implementing (a) more detailed and rigorous policies and procedures for storing, handling, and maintaining ash and ash disposal facilities and (b) a comprehensive program for future Coal Combustion Product remediation and conversion, and (4) implementing enterprise risk management improvements to better achieve the goals of the program.

  Full Report

  (Opening Statement of Richard W. Moore, Inspector General, Tennessee Valley Authority before the Subcommittee on Water Resources and Environment of the Committee on Transportation and Infrastructure - July 28, 2009)

We reviewed $9.98 million in costs billed to TVA by a contractor for right-of-way clearing and land restoration services for transmission line projects. In summary, we found the contractor overbilled TVA $34,678 including: (1) $28,925 in unallowable rental costs, and (2) $5,753 due to miscellaneous invoice errors. Additionally, we could not determine if price changes had been accurately accounted for under the contract because the contract's provisions relating to price changes were unclear. We recommended TVA recover $34,678 in overbilled costs and revise the price change clause in the contract to clarify when and how price changes should occur.

(Summary Only)

This review was the second in a series of reviews that will benchmark TVA's performance in key areas and answer the question, "How is TVA doing in regard to financial performance." In conducting this review, we: (1) assessed key performance measures and their alignment with the key strategic objectives, (2) evaluated TVA's results relative to targets and available benchmark information, and (3) identified key management challenges that could affect how successful TVA is in achieving these strategic objectives.

In our judgment, TVA's overall financial performance for this assessment period was adequate; however, the agency faces several significant financial challenges, some of which have recently emerged. This conclusion is based on our analysis of TVA's financial health in three areas: (1) maintaining adequate revenues, (2) making sound capital investments, and (3) containing costs. In summary:

• TVA's ability to set its own rates and the implementation of a fuel cost-adjustment clause provides flexibility to help maintain adequate revenues to cover costs. Additionally, TVA operates in a service area that is largely free from competition and has a large diverse customer base.
• TVA has made certain investment decisions in the past that did not pay off. TVA is seeking to improve its capital investment decisions and the financial performance of its capital assets. However, TVA's ability to make these large investments pertaining to (1) new generation and transmission assets, (2) environmental requirements, and (3) existing assets that are aging and need regular updates to keep running, will be a challenge given its financing structure and legislative debt ceiling.
• TVA is attempting to reduce certain costs to improve its financial position. TVA fairs poorly when compared to other electric utilities with respect to non-fuel operation and maintenance (O&M;) costs. TVA is seeking to reduce non-fuel O&M; costs but has made limited progress to date. TVA has also focused on reducing interest costs as a percentage of revenues and has made progress in doing so in recent years.

Recent events have negatively affected TVA financially including: (1) a wet coal fly ash spill at the Kingston Fossil Plant, (2) a downturn in the economy causing declining power sales, (3) a court ruling on a lawsuit brought by the state of North Carolina, and (4) significant losses on accounts established to fund pensions and asset retirements. Our report includes discussions of the necessity to manage commodity price, investment price, credit, and capital requirement risks, and the risk that interest rates might rise. In addition, while TVA's bond rating is based primarily more on its federal ties that its financial position, TVA management has identified maintaining the AAA bond rating as a risk factor in its 2008 U.S. SEC Annual Form 10-K.

  Full Report

Tennessee Valley Authority (TVA) is engaged in responding to one of the largest spills in its history, the ash spill at Kingston Fossil Plant (KIF) in which 5.4 million cubic yards of ash poured onto adjacent land and into the Emory River. This report focuses on (1) TVA's initial emergency response, including implementation and utilization of the National Incident Management System (NIMS); (2) TVA's actions to quickly respond to the media; and (3) reparations to the victims and restoration of the affected Roane County community. In summary, we found:

• TVA has not implemented NIMS in accordance with Homeland Security Presidential Directive (HSPD)-5 which hampered communications and delayed certain emergency response actions following the spill.
• TVA's actions for responding quickly to media and public inquiry resulted in releases of inaccurate and inconsistent information and subsequent public criticism which caused reputational harm.
• TVA has responded effectively to victims in the affected area, however, failure to communicate the claims policy and decisions in a timely manner increased settlement expectations for some.

TVA management generally agreed with and is taking actions to address the recommendations. Specifically, management plans to: (1) fully implement NIMS, ensure required NIMS training is completed, and evaluate the implementation of best practices identified by the Roane County Emergency Management Director; (2) document the protocol and verification process for the release of media statements and maintain verification that the appropriate processes were followed; and (3) continue to work with the communities and local residents to improve the communications related to TVA's efforts with property acquisition and claims process.

  Full Report

We audited the costs billed to TVA by a contractor for providing turbine generator outage services at TVA nuclear plants. Our audit included $57.4 million in payments TVA made to the contractor. We found the contractor overbilled or had not provided services to TVA totaling an estimated $281,023, including: (1) $171,150 of labor and per diem costs that were either unsupported or unallowable; (2) $6,729 of overbilled fixed price labor; and (3) $103,144 of engineering services that were not provided in accordance with the terms of the contract.

(Summary Only)

We completed agreed-upon procedures to assist the Center for Resource Solutions (CRS) in determining TVA's compliance with the annual reporting requirements of CRS' Green Pricing Accreditation Program for the year ended December 31, 2008. The required information on TVA's renewable energy initiative, "Green Power Switch," was provided to CRS, including five identified exceptions and explanations.

(Summary Only)

We audited the costs billed to TVA by a contractor for the design, engineer, and delivery of air preheater equipment for TVA fossil plants. Our audit, which covered $23.2 million TVA had paid the contractor, found TVA had been overbilled at least $2,232,780.

The contract provided for all work, with the exception of a baseline project at Allen Fossil Plant, to be performed on a cost reimbursable basis. However, we found the contractor had overbilled TVA at least $2,025,739 on four additional fossil plant projects because it had billed fixed prices instead of using the required cost reimbursable terms. The actual overbilling may have been higher because our calculation of the overbilling used a maximum fee rate the contractor would have been eligible to receive. In addition, the contractor overbilled $207,041 for field technician services because incorrect billing rates had been used.

We recommended TVA management recover the overbilled costs from the contractor.

(Summary Only)

The OIG performed a review of Lewisburg Electric System (LES) which is a distributor for TVA power based in Lewisburg, Tennessee. Our review of LES found no material issues related to (1) the proper reporting of electric sales and (2) nondiscrimination in providing electricity to members of the same rate class. However, we found a contract compliance issue regarding LES's execution of contracts with customers with demand greater than 50 kW.

In addition, we found that LES had more than enough cash on hand to fund planned capital expenditures and provide a cash reserve. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. As of June 30, 2008, LES reported cash of $7.5 million and planned capital expenditures of about $4.8 million which left cash reserves of about $2.7 million.

Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA has not (1) provided definitive guidance for distributors on what constitutes prudent expenditures and (2) defined criteria for determining when a distributor's cash reserves are excessive.

We recommended the Chief Financial Officer (CFO) take action to ensure LES complies with contract provisions for formal customer contracts. In addition, the CFO, in collaboration with the TVA Board of Directors, where necessary, should (1) provide additional guidance on proper use of funds and (2) develop criteria to be used in determining whether a distributor's cash reserves are excessive.

TVA and LES management generally agreed with and are taking actions to address the recommendations.

  Full Report

The OIG performed a review of Monroe County Electric Power Association (Monroe) which is a distributor for TVA power based in Amory, Mississippi. Our review of Monroe found no material issues related to (1) the proper reporting of electric sales, and (2) nondiscrimination in providing electricity to members of the same rate class. However, we found improvements were needed regarding (1) Monroe's accounting for prepaid expenses to ensure conformity with FERC guidelines and (2) Monroe?s execution of contracts with customers with demand greater than 50 kW.

In addition, we found Monroe had more than enough cash on hand to fund planned capital expenditures and provide a cash reserve. While TVA has established guidelines to determine if a distributor has adequate cash reserves (cash ratio of 5 to 8 percent), TVA has not established guidelines to determine if a distributor's cash reserves are excessive. As of June 30, 2008, Monroe reported about $2.9 million in cash and $4.9 million in the TVA Power Invoice Prepayment Program and planned capital expenditures of about $5 million which left cash reserves of about $2.7 million.

Finally, we also identified opportunities to enhance TVA oversight of the distributors. Specifically, TVA (1) does not include cash paid in advance to TVA for future delivery of power in the calculation of the cash ratio for rate review purposes and has not defined criteria for determining when a distributor's cash reserves are excessive, (2) has not provided definitive guidance for distributors on what constitutes prudent expenditures, and (3) has not adequately defined how often meters should be tested by the distributors.

We recommended the Chief Financial Officer (CFO) take action to ensure Monroe complies with contract provisions regarding accounting practices and formal customer contracts. In addition, the CFO, in collaboration with the TVA Board of Directors, where necessary, should (1) provide additional guidance on proper use of funds, (2) review its calculation of the cash ratio for distributors with prepaid power accounts, (3) develop criteria to be used in determining whether a distributor's cash reserves are excessive, and (4) provide guidance on the frequency of meter testing.

TVA and Monroe management generally agreed with and are taking actions to address the recommendations.

  Full Report

This review was conducted to determine whether: (1) TVA gave anyone preferential treatment in the review and approval of Maintain and Gain transactions; and (2) the policies and procedures related to the design and execution of the Maintain and Gain process were adequate. We reviewed all Maintain and Gain transactions that had been approved since the inception of the program up to the date of this report and found:

• Certain actions by TVA employees and by others created the appearance of preferential treatment and thereby increased TVA's risk of reputational harm.
• TVA did not have a protocol in the Maintain and Gain process to ensure a transparent and independent review of applicants having known conflicts of interest.
• The Maintain and Gain program has been administered in an arbitrary manner and requires substantial improvement if it is to be retained by TVA. We noted that exceptions were granted in seven of the ten key steps required in a Maintain and Gain Transaction.
• TVA's failure to retain records of who filed applications and why those applications were rejected damages the integrity of the Maintain and Gain program.
• The Maintain and Gain program may undermine the TVA Board's 2006 Land Policy and its apparent goal of restricting residential development on TVA shorelines.

We recommended TVA:

• Eliminate the Maintain and Gain program and only consider changes to water access rights during the periodic update of the Shoreline Management Policy. Alternatively, if the Maintain and Gain program is retained, TVA should (1) evaluate the extent it may conflict with the Land Policy regarding residential development; (2) strengthen procedural guidelines to reduce the inconsistency in how matters are resolved; and (3) implement procedures to ensure adequate documentation of rejected and withdrawn applicants is maintained.
• Establish a clearly defined protocol which creates a procedure for identifying inherent conflicts of interest by those applying for any TVA benefit and includes: (1) a definition of inherent conflicts of interest broad enough to capture the majority of cases that involve conflicted parties soliciting something of value from TVA; (2) a training program for TVA employees to enable them to recognize and report conflicts; (3) a process to refer these cases to the Ethics and Compliance Officer, the Designated Agency Ethics Officer (DAEO) and the OIG to track, review, and report on whether any preferential treatment occurred; and (4) a notice provision to any conflicted party applying for a TVA benefit advising them that their request or application will be the subject of a formal review and public report.

The Chief Executive Officer provided comments on the draft report and agreed to implement our recommendations. Specifically, in response to our recommendations, management plans to: (1) recommend to the TVA Board that the Maintain and Gain program be terminated; (2) incorporate policy and process concerns addressed in the report in the design of any future water access rights programs that would be recommended to the Board, and if such a future program is needed, recommend any future Maintain and Gain activities be made public early and be subject to TVA Board approval to add public notice and transparency to the process; and (3) develop, in coordination with the Audit, Governance, and Ethics Committee of the TVA Board, a policy that will provide a means to identify any potential actual or apparent conflicts of interest or the appearance of exertion of undue influence on the part of persons applying for a TVA benefit.

  Full Report

  (Referral Report to the Committee on Standards of Official Conduct - Redacted)

Following are observations from the review of documentation for 30 claims:

• Of the 12 claims that were disputed, 2 of the dispute letters were not submitted within 30 days after the notice of injury, as required by federal code.
• One claim did not include the supervisor's signature on the form.
• In one instance, the claim was not submitted to the Office of Workers' Compensation Programs within ten business days, due to a supervisor not forwarding his/her completed portion of the form within the allotted eight days, as required by federal code and TVA policy, respectively.

We found prescribed services for TVA's Workers' Compensation (WC) department and assigned site personnel go beyond the Federal Employees' Compensation Act's WC requirements. However, when we interviewed selected managers, nurses, TVA site WC contacts, and other staff at seven TVA site locations, we were told the WC program support could be improved by: (1) increasing the expertise in the WC department, including medical knowledge of personnel; (2) improving education and training for personnel responsible for facilitating the WC process at TVA sites; (3) enhancing communications from the WC department; and (4) addressing the abundance of hearing loss claims.

  (Referral Report to the Committee on Standards of Official Conduct - Redacted)

We audited $211.6 million of costs billed to TVA by a contractor from January 1, 2006, through December 31, 2007, for the administration of TVA's medical benefit program. Our objective was to determine if the costs billed to TVA were in compliance with the contract terms and conditions. In summary, we found TVA had potentially been overbilled up to an estimated $473,024. The overbilling included (1) $327,513 in potentially duplicate line item charges; (2) $71,518 for unallowable procedures and services; (3) $4,659 for claims that exceeded plan limits; (4) $61,840 of audit recoveries that had not been credited to TVA; and (5) $7,494 of miscalculated claim payments.

In addition, we found TVA had been billed an additional $1 million due to payment provisions the contractor had negotiated with some of the providers in its preferred provider organization network. These provisions, referred to as stop-loss provisions, effectively offset discounts TVA would have otherwise received when providers' costs exceeded specified amounts.

(Summary Only)

We reviewed TVA's process for ensuring it does not knowingly contract with vendors that have been: (1) debarred or suspended by the federal government and/or (2) found unsatisfactory within TVA. In summary, we determined:

• TVA does not have formal procedures for ensuring TVA does not knowingly contract with vendors that have been debarred or suspended by the federal government. However, Procurement requires its Contract Managers/Procurement Agents to review the Excluded Parties Listing System (EPLS), which is the federal government's database of debarred and suspended vendors, before awarding contracts over $100,000. Although we found TVA had not awarded contracts to vendors that were included on the EPLS during our review period (2005-2008), TVA's process was not always followed and/or documented.
• The Federal Acquisition Regulations (FAR) include certain requirements that if implemented by TVA could improve TVA's process and further ensure that TVA does not do business with contractors and subcontractors that are debarred or have committed a civil or criminal offense.
• TVA does not have a formal process for internally identifying vendors that have been found unsatisfactory within TVA. The lack of such a process could result in TVA not being aware of problems it has had with vendors prior to awarding contracts to them.

We recommended TVA Procurement develop written procedures detailing its vendor debarment process. In addition, TVA should improve its process by requiring more verification of the debarment status of contractors and subcontractors as prescribed by the FAR, including certifications and notifications by contractors regarding debarment and/or civil or criminal actions. TVA should also develop a process for (1) identifying TVA vendors that should be on a "watchlist" based on certain serious offenses committed by the vendor and (2) reporting any significant misconduct by contractors to the federal government.

(Summary Only)

We found TVA's process for the disposal of surplus computer equipment does not adequately protect TVA resources or track the disposition of surplus equipment. Specifically, (1) the equipment inventory in HP Service Desk was not correctly updated when equipment was removed from service; (2) equipment transferred from Information Services (IS) to Technology Initiative (TI) was not tracked to prevent unnecessary storage, loss, or theft; (3) TI did not maintain an inventory of equipment received for disposal or reconcile equipment received with equipment that was put in surplus by IS, and (4) the disposition records maintained by TI do not account for the disposition of 6,631, or 63.9 percent, of the computers put in surplus by IS.

  Full Report

We reviewed TVA's VISA purchasing card program to (1) identify and assess the operating effectiveness of controls over the program and (2) determine if they incorporate identified best practices. The scope of the project covered all transactions from October 1, 2005, through December 31, 2007. Our review determined:

• Key internal controls were not functioning as intended with regard to (1) the review of purchasing card transactions and their supporting documentation and (2) transaction limits.
• Certain purchases were made that were disallowed by TVA policy or questionable in nature.
• TVA's purchasing card program incorporates some best practices, but key best practices were absent.
• TVA employees were not reporting all instances of known or suspected waste, fraud, and abuse or violation of law to the OIG as required by Business Practice 2.

Management agreed with most findings and recommendations and has initiated or plans to initiate corrective action

  Full Report

TVA contracted with Ernst & Young LLP (E&Y;) to audit TVA's balance sheet as of September 30, 2008, and the related statements of income, changes in proprietary capital, and cash flows for the year then ended. In addition, the contract called for the review of TVA's fiscal year 2008 interim financial information filed on Form 10-Q with the Securities and Exchange Commission. The contract required the work be performed in accordance with generally accepted government auditing standards. We evaluated E&Y;'s work to determine compliance with these standards. The objective of our review was not intended to enable us to express, and we did not express, an opinion on TVA's financial statements or on management's conclusions about the effectiveness of its system of internal control. E&Y; is responsible for the auditor reports dated December 12, 2008, and the conclusions expressed in those reports. However, our review disclosed no instances where E&Y; did not comply, in all material respects, with generally accepted government auditing standards.

  Full Report

The objective of our review was to assess the procedures and key control activities used to track and account for tools on the Watts Bar Nuclear Plant Unit 2 Construction Project (WBN U2 Project). Our review of the WBN U2 Project tool program found (1) nothing to indicate significant discrepancies in the tool inventory at this time; (2) data entry errors in the Tool Hound system; (3) opportunities exist to improve controls, based on our review of the contractor's Small Tools and Small Capital Equipment Procedure; and (4) some non-compliances with the contractor's Small Tools and Small Capital Equipment Procedure. We recommend the contractor (1) ensure accuracy of data entry in the Tool Hound system; (2) consider modifying the contractor's WBN U2 Project small tool procedure to include the additional control opportunities identified and the valuation criteria for bulk items; (3) ensure compliance with the contractor's Small Tools and Small Capital Equipment Procedure; and (4) enhance controls over inventory contained in unlocked sea/land containers. Management agreed with our findings and has initiated or plans to initiate corrective action.

  Full Report

TVA contracted with the independent certified public accounting firm of PricewaterhouseCoopers LLP (PwC) to audit revisions to the balance sheets and the related statements of income, changes in proprietary capital, and cash flows as of September 30, 2007 and 2006, for the purpose of restating TVA's previously issued financial statements. The contract required the audit be done in accordance with generally accepted government auditing standards. Our review disclosed no instances where PwC did not comply, in all material respects, with generally accepted government auditing standards.

  Full Report

We reperformed certain procedures due to changes in data previously reviewed by the OIG, the results of which were reported in our October 24, 2008, report under project No. 2008-12062. In reperforming the procedures, we found the (1) actual year-to-date input for the revised fiscal year (FY) 2008 Non-Fuel Operations & Maintenance TVA-wide metric agreed with the underlying support provided by the Controller's organization on December 4, 2008, and (2) revised FY 2008 scorecard and weighted scorecard payout percentages were mathematically accurate.

(Summary Only)

We audited $25.24 million of costs billed to TVA by a contractor for subcontract services between September 30, 2002, and December 31, 2007. The subcontractors provided personnel to perform asbestos abatement and sampling, along with removal and installation of other insulation material at TVA nuclear plants and subsequently in support of the Browns Ferry Nuclear Plant Unit 1 Recovery Project. In summary, we found that TVA had been overbilled $132,657 as a result of (1) craft labor costs that were not provided for or were in excess of TVA's Project Maintenance and Modification Agreement, (2) duplicate billings for some materials, and (3) inaccurate insurance cost adjustments. We recommended TVA management recover the $132,657 in overbilled costs from the contractor.

(Summary Only)

We audited the costs billed to TVA by a contractor for providing professional engineering and technical support services associated with the restart of Browns Ferry Nuclear Plant (BFN) Unit 1. Our audit, which included $110 million of payments TVA made to the contractor from June 2004 through October 2007, found the contractor had overbilled or not credited TVA an estimated $276,484 for (1) home office labor and related costs that should have been covered by the contractor's overhead rate, (2) certain miscellaneous labor costs and markups that were not allowable, (3) unspent employee recognition costs, (4) home office computer and facility charges for some employees who did not meet the contract eligibility requirements, and (5) overbilled provisional payroll taxes and insurance. Additionally, we found that changes TVA made to the contract resulted in TVA paying $343,548 in excessive paid time off costs for certain contractor personnel assigned to the BFN Unit 1 project.

(Summary Only)

We reviewed TVA's efforts to implement telework as well as any planned telework initiatives. Our review determined (1) Business Practice 20, Off-site Use of Business Equipment (BP 20), provides a framework for telework; however, we found little evidence of compliance with the policy, especially as related to required training and method of approval; (2) pockets of teleworkers exist throughout TVA; however, TVA has no system for tracking individuals who telework and the extent to which they telework; and (3) employees are approved to telework by being granted remote access to TVA systems instead of following the BP 20 approval process.

We also reviewed TVA's Continuity of Operations Plan (COOP) and Pandemic Plan and determined both adequately included the use of telework in those programs. However, the COOP does not require essential employees to take their laptop computers home in the evenings to ensure continuity of operations in the event they are unable to move to the alternative location during an emergency.

We recommended the Chief Administrative Officer and Executive Vice President of Administrative Services (CAO) (1) work with other TVA organizations to determine which jobs and functions in TVA are conducive to telework; (2) consider a pilot program that would assist in future decisions about telework and identify ways to use telework to facilitate COOP planning and responding to emergency situations such as pandemics or natural disasters; (3) implement a telework policy that provides a method for approving employees to telework, appropriate training to supervisors and all employees authorized to telework, a tracking system for individuals who telework, and effective communication of TVA's telework policy to TVA employees; (4) consider designating a Telework Managing Officer; (5) consider requiring that essential employees take their laptop computers home at the end of their workday in the event an emergency occurs and they are unable to move to the alternative location.

The CAO agreed to work with other TVA organizations to determine which jobs and functions in TVA are conducive to telework. Upon completion of that assessment, the CAO will take appropriate actions regarding our other recommendations.

  Full Report

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)

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)