Thursday, March 29, 2018

Regulators find issues with Tennessee Valley Authority aircraft purchase

The Tennessee Valley Authority's Inspector General Office has found TVA's reasons for buying a pair of $17.7 million corporate aircraft did not justify the high value purchase.

The utility may have also violated federal code, according to the federal regular's audit, in improper justifications for use of the federal agency's aircraft. 

TVA's contract approval for the new jet and turboprop aircraft stated the corporation needed "aircraft with newer technology that enhances safety, increases reliability and performance while reducing maintenance expense." 

Report: TVA did not provide documentation

The corporation also said it needed the jets to land on short runways in parts of its service area that do not have commercial air service.  But the OIG report says TVA did not provide documentation of any cost, safety, reliability or time efficiency comparisons prior to the purchases.

The inspector general also said its purchase of an $11.2 million corporate jet was not cost effective when compared to the price of the $6.4 million turboprop aircraft.

TVA management said additional costs associated with purchasing and operating the jet were "acceptable to improve the margin of safety for pilots and passengers," and that the jet cost just 7 percent more than the turboprop to operate.

"We appreciate the inspector general taking a look at this and helping us improve our performance," said Mike Skaggs, TVA's executive vice president for operations. "We believe we made a good purchase but we don't believe the written justification on that purchase was as good as it needed to be." 

But the Inspector General's Office found it cost TVA 18 percent more because the corporation was flying short distances. 

Skaggs said the company did not agree with the OIG's 18 percent calculation, but that even if it did, the 18 percent increase in cost was negligible given the jet's better safety record.

"The jet has a five-fold safety increment over the turboprop, according to data from the National Transportation Safety Board," Skaggs said. 

CEO's personal travel noted

The Inspector General's Office noted the corporation may have violated federal code for failing to provide written pre-authorizations for business flights and for providing proper justifications for 13 days of travel that appeared to be for "the personal preference and convenience of TVA's CEO" Bill Johnson. 

FAA records show the utility aircraft flew to Raleigh-Durham, North Carolina, 18 times from August 2015 to December 2017. 

The flights included stops in Raleigh, where Johnson's house is and where his wife lives.

TVA told the Inspector General's Office that all but one of the flights to Raleigh-Durham had a business purpose, the other was for a medical issue Johnson's wife had. The corporation said the TVA board chair approved the trip, but the inspector general said the chair did not have the authority to make that approval. 

The Inspector General's Office said the other trips appeared to be to pick Johnson up from his house in Raleigh, or drop him there, and his wife accompanied him on three such occasions. 

The office said Johnson's wife flew on the plane a total of 18 times between the audit period of July 1, 2015, and February 28, 2017.

"We've looked at those trips to Raleigh-Durham, some were made on an emergency, some were him completing biz travel and they dropped him off," said Skaggs.

He added he did not believe the utility was in noncompliance of federal codes, but that they have has "learned" from the inspector general's report that it needed to be more detailed on its flight justification procedure, which includes providing the business reason for travel and "imputing income."

"Imputed income" refers to the added value of flights used for personal reasons to an employee's salary, without actually giving them the money the flights cost. That way, Johnson and others who used the aircraft for personal reasons pay taxes on the value of the flight. 

TVA was not only not doing that, but had no policies in place for reporting personal use of the aircraft, according to the inspector general.

TVA spokesman Jim Hopson said the company lacked a "clear connection" between its aviation services group and payroll department. He said TVA is retroactively imputing income where necessary so that employees like Johnson pay taxes on personal flights.

Skaggs said neither Johnson nor others who have taken personal flights are required to reimburse the corporation -- and by extension, ratepayers -- for the cost..

On the jet, that can amount to about $1,500 per hour, Skaggs said in February. 

But, Skaggs said, the jet allows TVA to have face-to-face conversation with employees and stakeholders that may help TVA keep its rates down and save money in its operations and maintenance budget.

According to TVA, about 30 percent of customers' rates fund that budget.

"We are proud of work we've done over last 5 years with savings we've made to operations and maintenance," Skaggs said. 'We've improved almost every key performance metric for TVA, and that's important. When you think about the airplanes, they are a significant cost, but they are part of an integrated approach."

Original article can be found here ➤

KNOXVILLE, Tenn. (WATE) - Tennessee Valley Authority regulators found that TVA's reasons for the sole source purchase of two new fixed-wing aircraft for almost $18 million were neither supported nor cost-effective and the TVA may have violated federal code with their use of the aircraft.

A release by the TVA Office of Inspector General, an independent body that oversees applicable laws and regulation and ensures TVA's own policies are consistently followed, said the TVA failed to do so when they purchased the two jets this year.

TVA claimed they needed to purchase the two jets for increased use, greater capacity and the ability to land on runways as short as 4,000 feet, among other reasons. The report by the OIG says TVA was not able to provide documentation of any cost, safety, reliability or time efficiency comparisons prior to the purchases. 

The report states part of the reasoning for buying the two jets from a sole source was not justified as they found other jet models would have met the specifications TVA outlined. They also found the purchase of one jet and a turboprop, an aircraft whose engines power propellers, would've been cheaper and more cost-effective.

The report also says it's unclear how TVA determined they needed two aircraft instead of one and why they purchased two jets instead of a turboprop and a jet. It says the purchase has not been cost-effective and time savings for the two jets compared to a turboprop has been negligible. 

Additionally, TVA did not comply with various federal regulations and TVA policies and procedures regarding use of the aircraft and may not have complied with Title 31, United States Code, Section 1344(a)(1), Passenger Carrier Use.

The OIG says failure to follow federal regulations prevents TVA from accurately determine the need for owning aircraft and ensuring travel costs are managed effectively. The OIG made ten recommendations to TVA management to improve controls around purchases of future aircraft, use of fixed-wing aircraft and compliance with all applicable laws and regulations. 

In a statement to WATE 6 On Your Side on Thursday, TVA representatives said the TVA disagrees with the OIG's conclusions in some areas, but agrees the findings support the need to improve documentation and recordkeeping.

“Safely fulfilling our mission across an 80-thousand square mile service area, as well as inspecting TVA facilities and engaging stakeholders outside that area, while maintaining fiscal responsibility requires us to appropriately document the business justifications of our resources, including aircraft,” said TVA Executive Vice President of Operations  Mike Skaggs. “Safety and cost were the key factors used to make the correct decisions on obtaining the aircraft, and we appreciate the OIG’s recommendations that will allow us to better document those decisions.”

The TVA said audited aircraft were purchased to allow safe and timely travel to smaller airports in the Tennessee Valley that are not served by commercial airlines.

"Key safety performance characteristics were a deciding factor when selecting a jet aircraft over a turboprop - operating cost differences were only seven percent per mile," said TVA is their statement. "A focused purchase process resulted in $2.8 million in savings below fair market value for two aircraft."

TVA said they are purchasing a new software system to address the flight scheduling and recordkeeping shortfall. 

Original article can be found here ➤

TVA's purchase of an $11.2 million Citation jet nearly four years ago has not been cost effective and the sole source purchase method for buying the jet and a $6.5 King Air prop plane may have violated federal rules, according to an internal TVA audit released today.

The TVA Inspector General said TVA did not justify buying the aircraft without a normal bidding process for a government agency and the upgrade from a prop plane to a corporate jet may not have been necessary.

"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 fixed-wing aircraft needs," the TVA Inspector General said in a 34-page review of the aircraft purchases released today. "The purchase of a jet instead of a second turboprop has not been cost effective."

The audit reviewed the 2015 purchases, which have been questioned by the Southern Alliance for Clean Energy and others. Since then, TVA added a second jet and an executive helicopter, which the IG report did not consider.

Mike Skaggs, executive vice president of TVA, said today that the audit did indicate that TVA could do a better job documenting its use and need for the aircraft. But Skaggs disagreed with the findings of Inspector General and insisted that the new aircraft have improved safety, efficiency and performance of TVA "and are a key part of our overall cost containing strategy" which has cut nearly $800 million a year in the utility's operating costs.

Skaggs said the new jets are at least five times safer than the airplanes they replaced and allow TVA to improve communication and response to both customer and utility issues across TVA's 7-state region. 

"We probably have a third less aircraft that the other utilities of our size and we did not identify any instances in which these aircraft have been used inappropriately," Skaggs said.

 The TVA audit found that TVA's overall aircraft fleet "is generally comparable to the number of fixed wing aircraft maintained by eight of its peers."

But after reviewing the use of the TVA jets — the first ever owned by the 85-year-old federal utility — TVA auditors concluded that the extra cost of buying and operating the jets compared with a prop airplane was not justified.

"The purchase of a jet instead of a second turboprop has not been cost effective because, in addition to the higher purchase price for the jet, the turboprop has a lower operating cost and the time savings for use of the jet compared to the turboprop are negligible based on TVA's usage," the IG report concludes.

The inspector general said operating the jet is 18 percent more expensive than the turboprop planes, even excluding the higher purchase price for the jet. But Skaggs said jet operating costs are only 7 percent higher than the planes they replaced.

TVA officials said the federal utility, for its size, actually has fewer jets than most of its investor-owned utility peers and the jet aircraft are both safer and quicker to allow TVA executives to more easily travel around the Tennessee Valley and to Washington D.C. 

TVA President Bill Johnson said last month that the jets have allowed him and other TVA executives to more frequently visit TVA plants and employees and meet leaders of the municipalities and power co-ops that buy TVA power.

"We have improved results with much better customer relations and major projects being done now on time and on budget," Johnson said. "The only way that happens is if you go visit and see. I am a strong believer in management presence and oversight."

But the audit suggested that the sole source purchase method for the aircraft "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 prevents TVA from being able to accurately determine the need for owning aircraft, prevents TVA from ensuring travel costs are managed effectively, and may cause reputational risks for TVA with regard to misuse (or perceived misuse) of the aircraft," the TVA IG report said.

But in response to the audit, Jacinda Woodward and William Croin, the TVA executives responsible for the aircraft purchase, said the aircraft purchases were made as negotiated sales that saved $2.8 million off the market value of the purchases

When TVA replaced one of its turboprop planes last year with another jet, Skaggs said the utility did not use the same sole source method, "although we do not believe that that was inappropriate when we did in 2015."

Original article can be found here ➤

1 comment:

  1. Tva has 2 2017 Cessna Citation xls+ jets . 1 2016 Beechcraft King air 350 and a Eurocopter ec-145 executive helicopter . 40 million area . Far off what has been reported