TVA Locations W.V. IL. R o i v i e Lovers Lane KENTUCKY h r Soccer Complex O Paradise Fossil Plant Shawnee Fossil Plant VIRGINIA Kentucky MISSOURI Marshall Dam & Lock Clear Creek Dam Combustion Turbine Duffield Primary School Beaver Creek Dam r e Ft. Patrick Henry Dam South Holston Dam v Boone Dam C i Doakes Wilbur Dam u Creek Dam John Sevier m Fossil Plant & Dam R Cumberland Watauga Fossil Plant b Adventure Gallatin Fossil Plant Dam ARK. Gleason e Morgan County i Combustion Turbine r Science Center &Combustion Turbine Buffalo Vocational Technical Norris Dam l Mountain a Cherokee p Nolichucky n School Dam d Bull Run Dam p Ijams Johnsonville R American Museum of Science and Energy Fossil i v Plant Nature Cocke County i Fossil Plant & e Douglas r Center Dam High School s Combustion Turbine Melton Kingston Fossil Plant Hill Dam s & Lock i Cedar Ft. Loudoun Dam & Lock TENNESSEEDam s Tellico NORTH Pin Oak Dam Great Falls Dam Dam s Beech Dam Redbud Dam Dollywood CAROLINA i Lagoon Dogwood Dam Watts Bar Watts Bar Pine Dam Dam & Lock M Creek Lost Creek Dam Nuclear Plant Combustion Sycamore Dam Fontana Dam Turbine Brownsville Normandy Dam Combustion Turbine BRIDGES Center R i v e r Apalachia Sequoyah Nuclear Plant Dam Tims Ford Dam Hiwassee Dam Allen Fossil Plant, Ocoee #1 Dam Combustion Turbines, & Methane Facility Chickamauga Dam & Lock Ocoee #2 Dam Chatuge Dam Pickwick Landing Dam & Lock Nickajack Dam & Lock Ocoee #3 Dam Nottely Dam Florence Water Raccoon Finley Stadium Southaven Widows Creek Mountain SOUTH Magnolia Treatment Facility Combined-Cycle Wheeler Dam Fossil Plant Pumped Blue Ridge Dam CAROLINA Plant Combined-Cycle & Lock Storage Plant Colbert Fossil Plant & Browns Ferry Bellefonte Plant CombustionTurbine Wilson Nuclear Plant Nuclear Plant Dam (UNDER CONSTRUCTION) & Lock University of Mississippi e Cedar Creek Dam Intramural Sports Complex e Guntersville b Little Bear Creek Dam g i Dam & Lock b Bear Creek Dam m y T e n n e s s e e o a Albertville T w - r e Diesel Generator GEORGIA e e t s a s Upper Bear Creek Dam W e n n MISSISSIPPI e T LEGEND Caledonia ALABAMA State Line TVA Combined-Cycle Plant Combined-Cycle Plant Water TVA Combustion Turbine Plant Power Service Area TVA Diesel Generator TVA Pumped-Storage Plant Mississippi TVA Watershed State TVA Customer Service Office University TVA Hydroelectric Dam TVA Non-Power Dam TVA Economic Development Office TVA Watershed Team Office TVA Coal-Fired Plant Green Power Switch® Solar Site TVA Nuclear Plant Kemper Green Power Switch® Wind Site Combustion TVA Nuclear Plant Turbine Under Construction Green Power Switch® Methane Site Meridian Diesel Generator 0 20 40 60 mi. Sept. 2011 N TVA POWER GENERatION FY 2011 (in millions of kilowatt hours) Natural gas Nonhydro and/or oil-fired renewable 5% resources <1% V Coal - 74,583 Coal 52% Hydroelectric V Nuclear - 49,562 9% V Hydroelectric - 12,706 V Natural gas and/or oil-fired - 6,809 Nuclear 34% V Nonhydro renewable resources - 17 Source: TVA FY 2011 Annual Report TABLE CONTENTS THE CHALLENGEof OF MANAGING CHANGE Message from the Inspector General . 4 Special Feature . 7 Executive Overview . 19 Organization . 23 Audits . 29 Evaluations . 39 Investigations . 41 Legislation and Regulations . 47 Appendices . 52 Appendix 1 – Index of Reporting Requirements Under the Inspector General Act . 53 Appendix 2 – OIG Audit and Evaluation Reports Issued . 54 Appendix 3 – Audit and Evaluation Reports Issued With Questioned and Unsupported Costs and Recommendations for Better Use of Funds . 56 Appendix 4 – Audit and Evaluation Reports With Corrective Actions Pending . 58 Appendix 5 – Investigative Referrals and Prosecutive Results . 60 Appendix 6 – Highlights . 61 Appendix 7 – Government Contractor Audit Findings . 62 Appendix 8 – Peer Reviews of the TVA OIG . 63 Glossary . 65 Abbreviations and Acronyms . 66 ............................................................................................................................................................................................ TVA OIG SEMIANNUAL REPORT | 3 Message from the INSPECTOR GENERAL I am pleased to present our report for the period October 1, 2011, through March 31, 2012 . The theme of our semiannual is “Managing Change,” and our feature highlights the challenges with managing one particular change—the decision to increase the Tennessee Valley Authority’s (TVA) reliance on nuclear energy . In TVA’s lengthy history, one As you will see from the results Nuclear Power Group; thing that has remained constant of this semiannual period, the and the effectiveness of is change . This is especially true hard work of our OIG team has remediating problem today as TVA works to realign resulted in about $12 million evaluation reports at Watts its generation portfolio, which in recoveries, fines/penalties, Bar Unit 2 . includes constructing new plants potential savings, questioned and idling others while keeping costs, or funds put to better V Governance and compliance rates low and continuing high use . We also identified other reviews, including reviews reliability . The utility industry monetary losses resulting of TVA’s budget process, has always faced the need to be from a capital project that had information technology nimble in adjusting to a volatile no realized benefits . Finally, security and data protection, market . Today, however, the we have provided numerous Winning Performance challenges for companies like recommendations to help payouts, demurrage costs, TVA seem to come more quickly . TVA improve . Some of the coal quality adjustments, The effective management highlights include: contract compliance reviews of change has become even related to other TVA program more critical . V TVA nuclear power program areas, and other reviews reviews, including a look at related to compliance with The role of the Office of the the Browns Ferry Nuclear federal requirements . Inspector General (OIG) Plant Extended Power Uprate in this area is: (1) providing project and the Watts Bar V Investigations resulting in four an objective, fact-based Nuclear Plant (Watts Bar) convictions, five indictments, look at how well TVA is Unit 2 project cost and and one pretrial diversion managing change; schedule; preaward reviews related to falsification of (2) identifying risk areas of engineering, support, quality control documents associated with managing and inspection services cost at Watts Bar Unit 2; a change; and (3) providing proposals; nuclear-related kickback scheme involving recommendations to contract compliance reviews; the president of a distributor reduce risks . performance trends in the and a distributor contractor; ............................................................................................................................................................................................... 4 | TVA OIG SEMIANNUAL REPORT a Ponzi scheme presented as management team who during In the end, our collaborative an opportunity to assist in the this last reporting period have efforts will benefit all of our Kingston ash spill clean-up; requested reviews by the OIG stakeholders . workers’ compensation fraud; and who have given their full and misuse of TVA funds . cooperation in identifying challenges for TVA programs Finally, I would like to thank and then adopted appropriate Richard W . Moore the many members of TVA’s solutions for those challenges . Inspector General ............................................................................................................................................................................................ TVA OIG SEMIANNUAL REPORT | 5 THE CHALLENGE of MANAGING CHANGE TVA OIG SEMIANNUAL REPORT SpecialTHE CHALLEN FeatureGE OF Watts Bar Nuclear Plant MANAGING CHANGE Since its creation in 1933, TVA has a long history of benefiting the Tennessee Valley . While TVA has had much success, it has also faced significant challenges . For all of those years, one constant remains: change . How those entrusted with oversight and management of TVA have managed change has largely determined the degree of success the agency has achieved . Many changes over TVA’s well or how poorly TVA manages August 2011, the TVA Board storied history were beyond the change within its control . approved the completion control of TVA Boards or TVA of Bellefonte Nuclear Plant management . Some changes In this feature article, the OIG (Bellefonte) Unit 1 in Alabama, were driven by the anticipation highlights one particular change which would add 1,260 MW of of deregulation, weather, and by TVA: the strategic decision to generating capability . At an shifting political forces that increase its reliance on nuclear April 5, 2012, press conference, had their effect on the agency . energy . The strategic shift to TVA management announced There remains, however, much rely more on nuclear power they would ask the TVA Board that both the TVA Board and to meet generation needs is a for an additional $1 .5 billion TVA management can control, change that must be managed to $2 billion and to extend and focusing on what TVA can well if it is to make the lives of Watts Bar Unit 2’s completion actually control has become people in the Valley better . date to December 2015 . This increasingly critical . For decision would also postpone example, TVA most assuredly TVA currently has six nuclear construction of Bellefonte can control its own strategy, units at three sites in Tennessee Unit 1 because TVA has said its oversight of the enterprise, and Alabama with a total of construction