TVA's Coal Procurement Practices--More Effective Management Needed

Highlights

Because the coal purchases of the Tennessee Valley Authority (TVA) have a major impact on its costs and power rates, GAO reviewed the coal purchasing practices of TVA over the past 10 years and analyzed the timing of TVA coal purchases, the process used in buying coal including the type and length of contract, TVA quality assurance practices, and the level of coal inventories at the powerplants.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Tennessee Valley Authority	TVA should revise its coal purchasing practices and implement a better program of forward planning to minimize the award of contracts during periods when coal demand is high and to limit the duration of contracts that must be awarded during these periods.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should work for the success of the Small Coal Operator Assistance Program by establishing all set-asides possible.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should consider all responsive offers from coal suppliers regardless of geographic location, and the economics of the source should be the primary consideration as to whether the offer is accepted or rejected.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should renegotiate at the earliest opportunity long-term contracts with reopeners entered during unfavorable conditions. If better prices cannot be renegotiated, TVA should consider cancellation.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should exercise caution in proceeding with development of the Ewing-Northern Coal Association (ENCA) reserves, particularly the economic feasibility of producing the desired quality and quantity of coal from ENCA. It should avoid the problems encountered at Breckenridge in developing ENCA. Specifically, ENCA production levels should be realistically established; the coal quality of ENCA should be thoroughly analyzed to determine if it will need to be washed. If so, the expense of another wash plant should be factored into the feasibility determination and, if transportation is contracted for separately, the contract should not be tied to optimum production levels and should allow for reopeners.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should discontinue using the current coal quality price adjustment formula. Instead, it should review the alternate formula GAO developed or should develop another formula that will reflect actual costs. In addition, the formula should be included in any planned procurements as soon as possible.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should install effective sampling facilities at the Kingston Steam Plant and take action against those vendors that continually provide lower quality coal. TVA should also assign someone to monitor the sampling at Breckinridge. In the future, TVA should also avoid contract provisions that allow contractors to do sampling.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should revise its coal procurement procedures to make greater use of spot purchases at all steamplants and satisfy a specific percentage of forecasted coal requirements through spot purchases, and it should include provisions in all term contracts which give it the option to cut back on deliveries when needs are not as great as forecast.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should incorporate new density figures, based on density surveys recently completed and those now being conducted, into inventory calculations.	Closed Please call 202/512-6100 for additional information.
Tennessee Valley Authority	TVA should exercise its option to reduce deliveries by 10 percent to steamplants with inventories that exceed target levels.	Closed Please call 202/512-6100 for additional information.

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Topics

Government Operations

CoalCoal pricesEnergy suppliesInventoriesPowerplantsProcurement practicesPublic utilitiesQuality assuranceSmall business set-asidesClean air