DOCUMENT RESUME 00170 - L A07511681 [TVA Expenses and Deductions]. END-77-14; B-114850. February 2, 1977. Released February 7, 1977. 5 pp. Report to Rep. Clifford Allen; by Elmer B. Staats, Comptroller General. Issue Area: Accounting and Financial Reporting (2800). Contact: Snergy and Minerals Div. Budget Function: Natural Resources, Environment, and Ene.rgy: Energy (305); General Government: Central Fiscal Operations (803) . Organization Concerned: Tennessee Valley Authority. Congressional Relevance: Rep. Clifford Allen. Authority: TVYA Act (16 U.S.C. 831n-4(c)). The accuracy and integrity of TVAes accounting procedures and financial statements for fiscal year 1976 were questioned, and the reasons why TVAts net income dropped from $163.2 million on March 31, 1976, to $126.1 million by yearend were investigated. Findings/Conclusions: TVA's fuel expense exceeded budget expenses by about $15§9 billion. The unit cost of power generated was higher than budgeted, accounting for about $5.3 million of the overrun. Another 410.6 million of unbudgeted fuel expense resulted from a higher than anticipated coal inventory shortage. Purchased power expenses exceeded budgeted expense by $50.7 million. Maintenance expenses during the fourth quarter exceeded budget estimates by about $20.9 million. This overrun was attributable to difficulties in estimating repair costs and stepped-up maintenance at coal fired steamplants. It was noted that increases in the cost cf fuel and purchased power are billed to consumers two months after costs are incurred. (RRS) ,bCPTROAJ.R.LqR EtEAL4F TIE UNr Zaslf-1S2 WASHINGTON..Dc 'sI ' 3.;:50 a l C) B-114850 E9e i 2B1977 The Honorable Clifford Allen - 7 House of Representatives Dear Mr. Allen: Your August 25, 1976, letter questioned the accuracy and integrity of The Tennessee Valley Authority's (TVA) accounting procedures and financial statements for fiscal year 1976. You asked us to investigate why TVA's net income for the year dropped from $163.2 million at March 31, 1976, to $126.1 million by yearend. You also asked us to explain several expenses and deductions which you noted were itemized in TVA's yearend financial statements, but not shown individually in TVA's financial statements at March 31, 1976. ANALYSIS OF NET INCOME TVA's budgeted and actual net income for the pertinent periods discuss~ds are shown below. .- ... Net income ....... Budgete d -Actual Difference .-.-.- (millions) July 1, 1975, to Maich 31,1976 $164.4 $163.2 $ -1.2 April 1, to June 30, 1976 40.2 -37.1 -77.3 Total $204.6 $126.1 $-7b.5 Since actual net income approx mately ecualled budgeted net income as of March 31, 1976, we limited our examination to identifying the differences between budgeted and actual fourth quarter operations. The major differences occurred in operating expenses-- fuel, purchased power, and maintenance. Budgeted and actual fourth quarter operating expenses are show;n in the following table. EMD-77-14 B-114850 Fourth-quarter-FY 1976 (million) Operating-expense Budgeted Actual Difference (millions) Fuel $182.2 $198.1 $15.9 Purchased power 1.7 52.4 50.7 Maintenance --47.6 - 68;5 20.9 Total $231.5 $319.0 $87.5 A portion of these higher operating costs was offset by lower than budgeted interest expenses and slightly higher revenues. The following sections discuss the budget estimates Rnd actual expenses for fuel, purchased power, and maintenance expenses during the fourth quarter. Fuel expense TVA's fuel expense exceeded budgeted expenses by about $15.9 million. The unit cost of power generated was higher than budgeted, accounting for about $5.3 million of the overrun. TVA's budget assumed an average cost of 7.66 mills per kilowatt-hour generated. Actual costs during the fourt'h quarter averaged 9.14 mills per kilowatt-hour generated. The higher average cost was caused by increased generation from its higher cost steamplants, rather than increases in the price of coal purchased. TVA increased generation at the higher cost plants to compensate for generation lost from steamplants because of unexpected, or longer than expected, maintenance outages. Another $10.6 million of unbudgeted fuel expense re- sulted from a higher than anticipated coal inventory shortage. In June 1976, as a result of physical inventories of coa2 stockpiles, TVA discovered that the physical count differed from the book inventory by $15.3 million. TVA had anticipated an inventory difference of $4.7 million during the year and had adjusted its inventory records by this amount through May 1976. After the discovery of the coal shortage, TVA formed a coal task force to identify the cause of the short- age and develop recommendations and procedures to better account for coal received, burned, and stored. The task force's preliminary report, dated September 9, 1976, did not conclusively explain the reasons for the inventory shortages, but reported that, at some plants, (1) scales used for measuring coal burned were inadequate and outmoded, and v 2 ) administrative procedures should be improved to insure accurate measurements of the coal burned at plants. -2- B-114850 differences The task :orce did not identify any significant and received. between the quantity of coal purchased manager con- TVA's chairman of the board and general represented the cludel that the annual inventory adjustment operations and was cumulative effect of an entire year's for a given month. :not r-perly classified as a fuel cost for fiscal year Ther. f.re, the annual inventory adjustment under TVA's 1976 was not passed through to power customersfuture revenues fuel adjustment clause, which reAuced TVA's by $12.5 million. Purchased power expense budgeted expense TVA's purchased power expenses exceeded overruns re- the by $50.7 million. About $10.8 million of than budgeted, sulted from unit costs which were higher 15.87 mills per TVA's budget assumed an average cost of 20 mills Der kilowatt-hour, but actual costs averaged kilowatt-hour of purchased power. budgeted to TVA required more purchased power than accounting for meet consumer demand in the fourth quarter, overrun. Actual the remaining $39.9 million of the budget by approximately purchase power exceeded the budgeted estimate in purchased power 2.6 billion kilowatt-hours. The increase the Browns Ferry resulted directly from delays in restarting ' Ferry would : Browns nuclear plant. TVA had estimated tha of elec- generate approximately 3.4 billion kilowatt-hours tricity during the fourth quarter When the nuclear plant TVA had to remained out of service the entire period, to meet consumer purchase power from other electric systems demand. Maintenance expenses of rela- Historically, the fourth quarter is a period TVA Valley, therefore, tively low demand in the Tennessee its maintenance generally does a considerable portion of during the period during the period. Maintenance expenses million. TVA exceeded budget estimates by about $20.9 overrun to (1) difficulties in officials attributed the and estimating repair costs (2) stepped up maintenance for the fact at TVA's coal fired steamplants to compensatenot be available that the Browns Ferry nuclear plant would high consumer demand. during the following summer months of Ferry nuclear When it became apparent that the Browns power help meet summer plant would not be available to scheduled at demands, TVA did maintenance not previously -3- B-114850 some plants to assure maximum system availability during the peak period. As a result, system availability for Juiy 1976 was 87.5 percent, compared to 79.5 percent during the fourth quarter of fiscal year 1976. An estimate 1-percent increase in annual system availability saves the consumer about $8.6 million in purchased power costs. PRESENTATION OF EXPENSE ACCOUNTS IN TVArs FINANCIAL STATEMENTS You .1oted six items of expenses and deductions-- Transmission, Customer Accounts, Demonstration of Power Use, Administrative and General, Other Interest Expenses, and Social Security Taxes--which were itemized in TVA's y arend Ainancial statements, but not shown individually in TVA's report for the 9 months ended March 31, 1976. We found that these items were consolidated with each other or with other accounts in the March 31, 1976, report. Transmiysion, Customer Accounts, Demonstration of Power Use, and Administrative and General Expenses were con- solidated at March 31, 1976, as Other Expenses. Social $ecur ty Taxes was combined with Payments in Lieu of Taxes and shown a; Taxes and Payments in Lieu of Taxes. Also at March 31, 1976, Other Interest Expenses was combined with Interest on Long-Term Debt and presented as Interest on Debt. CONCLUSIONS As required by the Government Corporation Control Act (31 U.S.C. 850), we periodically examine TVA's financial statements. In addition, since 1960, as provided by section 15d(c) of the TVA Act (16 U.S.C. 831n-4(c)), TVA has employed a firm of certified public accountants to audit its accounts and financial statements for each fiscal year to facilitate its issuance and sale of revenue bonds. As a part of our examination, we also observe and test the firm's audit work. The firm completed its audit on August 25, 1976, and expressed its opinion that TVA's financial statements present fairly the results of its operations for the year ended June 30, 1976, in conformity with generally accepted accounting principles applied on a consistent basis. We have completed our examination of TVA's financial statements for the year ended June 30, 1976, and expect to report that TVA's reported net income of $126.1 million presents fairly the results of its operations for the year ended June 30, 1976, in conformity with generally accepted -4- B-114850 accounting principles applied on a consistent basis. Variations between estimated net income and actual net income for the fourth quarter of fiscal year 1976 resulted from unanticipated operating problems. It should be noted, however, that as provided by TVA's fuel adjustment addendum, increases in the cost of fuel and purchased power are billed to consumers 2 months after the costs are incurred. In July and August 1976, TVA received, through customer billings, about $62.4 million from fuel adjustment clause increases based on unanticipated increases in fuel and purchased power costs incurred during the fourth quarter of fiscal year 1976. Additional information regarding TVA's fuel adjustment addendum is provided in the report on our examination of TVA's financial statements for fiscal year 1975 (FOD-76-6). In accordance with arrangements with you, we will sub- sequently send copies of this report to the oversight committees, TVA, and other interested par'ies. 'S I your s Comptroller General of the United States - 5-
TVA Expenses and Deductions
Published by the Government Accountability Office on 1977-02-02.
Below is a raw (and likely hideous) rendition of the original report. (PDF)