Good Morning, Chairman Sarbanes and other distinguished members of the Committee. My name is Skila Harris, and I serve as Director on the Board of the Tennessee Valley Authority. On behalf of TVA’s Chairman Glenn McCullough and Director Bill Baxter and more than 13,000 employees, I would like to thank you for the opportunity to appear here today to give testimony on corporate responsibility at the Tennessee Valley Authority, as well as the breadth and depth of financial disclosure and oversight at TVA. I would also like to discuss what TVA will do in the future to uphold the spirit of the landmark Sarbanes-Oxley Act of 2002. We at TVA commend you, Mr. Chairman, for your leadership and perseverance on this important legislation.
TVA Background
TVA has a proud heritage of service in the Tennessee Valley. TVA exists to serve the public good, and our
leadership standard is that TVA will achieve excellence in business operations
and public service for the good of the people of the Tennessee Valley region. Created by Congress in 1933, TVA serves the
people of the Valley by producing reliable, affordable electric power;
supporting sustainable economic development; and maintaining stewardship of the
region’s natural resources. A
corporation of the federal government, TVA uses the best practices of private
enterprise to achieve excellence in business operations and public service.
TVA is entirely self-financing and receives
no funding from Congress. TVA’s mission,
set forth by the TVA Act, remains at the cornerstone of TVA’s day-to-day
activities in the Valley. TVA is
charged primarily with providing navigation, flood control, and agricultural
and industrial development, while providing electric power to the Tennessee
Valley region. At the core of TVA’s
mission is creating value and delivering quality service for stakeholders
throughout the region.
Affordable, reliable electric power is the
fuel of the economy in the Tennessee Valley, and TVA’s power system is setting
performance records as it keeps pace with increasing power demand. TVA’s electric power system has a winter dependable
generating capacity of 30,365 MW and operates 59 coal-fired units at 11 plants,
five nuclear reactors at three plant sites, 29 hydro-power plants, and five
combustion turbine plants. Through 158
local power distributors and 62 directly served industrial customers, TVA
supplies electricity for 8.3 million people in the Tennessee Valley. As the nation’s largest public power system,
TVA reflects the nation’s strengths and challenges in developing a strategy for
providing reliable, affordable, and environmentally sound energy.
The Administration has proposed a national
energy strategy that includes important efforts to restructure the electric
power industry, improving the nation’s energy infrastructure and encouraging
competition in the industry. TVA
supports these policy reforms.
During this crucial time in our nation’s
history, it is also noteworthy that TVA’s mission includes a role in national
defense and a long-standing history of support for U.S. national security
requirements – from the early days of making munitions in Muscle Shoals,
Alabama, and building dams to supply power for vital aluminum factories during
World War II, to TVA’s current efforts to assist the Department of Energy to
obtain tritium.
In service to the region and the nation, TVA
manages the Tennessee River system, the fifth largest river system in the
United States. Although similar
responsibilities for resource management are funded with taxpayer dollars
elsewhere in the United States, TVA uses no current appropriation dollars for
this work. Fiscal year 1999 was the
last year in which TVA received appropriated dollars for these activities. The 652-mile-long river, the 42,000 miles of
streams and tributaries, and TVA’s 49 dams and 14 navigation locks are a vital
part of the nation’s navigation system, providing for the shipping of 45
million tons annually. TVA’s other purposes in managing the river system
include reducing flood risk and producing hydro power. The river and its 12 tributary watersheds
touch 125 counties in portions of seven states.
TVA’s Board of
Directors is committed to achieving excellence in business operations and
public service as the organization prepares for the competitive marketplace of
the future. The Board and the employees
of TVA are working to optimize the corporation’s operational and financial
performance while remaining dedicated to economic development in the Valley,
environmental stewardship, integrated resource management, and stakeholder
communications. While there is still
much work to be done, I am confident that a bright future lies ahead for the
people we are charged to serve.
TVA Business Practices
TVA is committed to conducting its business
in an open and forthright manner that instills confidence in Congress and the
Administration and in our investors, our customers, and our ratepayers within
the Valley and among federal taxpayers and citizens who have an interest in
programs run by the federal government.
TVA’s owners, investors, customers, and
other stakeholders, including taxpayers, already benefit from a number of
protections. I appreciate the
opportunity to outline those protections and to share with you today what TVA
is already doing to ensure financial integrity for our stakeholders.
For the future, TVA is also committed to
doing even more, and TVA is making specific commitments to corporate
responsibility, auditor independence, and increased financial disclosure that
will enable us to keep the continued confidence and support of our
stakeholders.
TVA’s stakeholders, including investors in
its bonds, benefit from and can have confidence in the multiple levels of
oversight to which TVA is subject, as a corporation wholly owned by the United
States government. Because TVA’s
mission as a government-owned corporation is somewhat different from that of
publicly traded companies, the oversight under which we operate is different
from that under which privately owned, publicly traded companies operate.
As I noted earlier, TVA’s mission is to
serve the public interest by supporting economic development of the Tennessee
Valley, managing a thriving Tennessee River system, and supplying low-cost,
reliable power to the Tennessee Valley region.
TVA’s mission is quite different from the profit-oriented goals of an
investor-owned company. In fact, far
from calling upon TVA to maximize earnings, TVA’s congressional charter, the
TVA Act, calls for TVA to offer electricity at rates as low as are feasible – balanced
with an additional requirement that TVA charge rates sufficient to meet, among
other things, the annual principal and interest payments on TVA’s bonds.
Privately owned, publicly traded companies
have a similar responsibility to provide reliable goods and services to their
customers while earning a fair return on investment for their
shareholders. The U.S. Securities and
Exchange Commission has the major regulatory and oversight role with respect to
securities of publicly traded companies; and its major focus, appropriately, is
on ensuring fairness in the issuance and trading of stocks.
Another difference between TVA and publicly
traded companies is that the ownership interest in TVA is held by the federal
government. TVA has an interest in
protecting the interest of its owner, the US Government and by implication the
American people, although TVA does not issue stock. Consequently, TVA does not have any incentive to generate a
return for shareholders, nor can TVA reward executive performance with stock
options. As a result, the oversight
Congress has put in place for TVA is different from the oversight for publicly
traded companies.
But make no mistake, as a government agency,
TVA is subject to considerable oversight.
TVA management is governed by a three-member
Board of Directors appointed by the President and confirmed by the U.S.
Senate. Board members are sworn to
uphold TVA’s congressional charter, the TVA Act, which bounds the range of
business activities in which TVA can engage.
TVA, like many other government agencies,
has an independent Inspector General (IG) with broad audit and investigative
powers. TVA’s Inspector General was
previously appointed by the TVA Board of Directors but, pursuant to recent
legislation, will be appointed in the future by the President. TVA’s Acting Inspector General, Mr. Don
Hickman, is here with me today.
TVA’s Inspector General conducts audits of
TVA’s financial systems, business decisions, operations, and contracts. The Inspector General is also charged with
conducting investigations of possible fraud, waste, and abuse within TVA. The Inspector General routinely publicizes
its hotline to employees and investigates reports of financial or accounting
irregularities, in addition to its other responsibilities. The Inspector General provides semiannual
reports to Congress and to the public on the results of its audit and
investigative work.
In carrying out its audit responsibilities,
the Office of the Inspector General provides TVA with oversight that is much
like that provided by a publicly held company’s Audit Committee. The Office of the Inspector General performs
many of the same duties and functions as those of an Audit Committee but does
so with more authority and professional resources. For example:
·
An Audit
Committee must include at least one member with financial expertise. The Inspector General’s staff that oversees
audits of TVA finances includes 19 certified public accountants.
·
The Inspector
General has greater access to TVA financial and management information than
would a company’s Audit Committee because the Inspector General has access to any
information in TVA.
·
The Inspector
General has the authority to investigate not only financial matters but any
alleged ethics violation in TVA, and the Inspector General is charged by
federal statute with aggressively pursuing any such allegation.
·
Also by
federal statute, the Office of Inspector General is independent of the Board of
TVA. A publicly held company’s Audit
Committee is a committee of the company’s board of directors.
·
The Inspector
General has the authority to investigate any impropriety and report
expeditiously to the Attorney General whenever the IG has reasonable grounds to
believe criminal law has been violated.
This authority extends not only to investigations of actions by TVA
managers or employees, but also to actions by people outside TVA, such as contractors
and vendors, when an alleged violation is related to TVA.
TVA also has an independent external
auditor, PricewaterhouseCoopers, which is appointed by the TVA Board. The TVA Office of the Inspector General
provides oversight of the firm’s work and maintains the budget for the firm’s
annual audit of TVA. The Inspector
General also has the legal authority to determine whether TVA’s audit will be
performed by the Office of the Inspector General itself or by an independent
external auditor.
PricewaterhouseCoopers audits TVA’s
financial statements in accordance with government auditing standards and
provides an opinion on whether those statements are presented in conformity
with generally accepted accounting principles, or GAAP. TVA’s financial results are also included in
the federal government’s consolidated financial statements, which are audited
by the General Accounting Office.
In addition, Congress exercises considerable
oversight over TVA, as exemplified by today’s hearing. The U.S. Senate is charged with providing
oversight through the Environment and Public Works Committee and its
Subcommittee on Clean Air, Wetlands, and Climate Change.
The U.S. House of Representatives is charged
with providing oversight through the Transportation and Infrastructure
Committee and its Subcommittee on Water Resources and Environment.
The General Accounting Office (GAO) conducts
frequent audits of various TVA activities and programs, often at the request of
members of Congress. GAO is also
authorized by the TVA Act and the Government Corporation Control Act to audit
TVA’s financial statements.
Under the provision of the TVA Act, TVA is
obligated to periodically provide Congress, the Federal Energy Regulatory
Commission, the Office of Management and Budget, and other interested federal
and state agencies with detailed financial and operational information on the
generation, transmission, and distribution of electric energy by the TVA system. The development and submission of this
information is a element of the “yardstick” function that TVA was intended by
Congress to serve – to better enable Congress to formulate legislative policy
for the electric power industry.
TVA also files various reports with the
President, Congress, and U.S. Treasury:
Furthermore, before TVA can issue bonds with
maturities of one year or more, the Secretary of the Treasury must approve the
time of issuance and maximum interest rate of the bonds. Also, since most of TVA’s bonds are listed
on the New York Stock Exchange and trade through its bond exchange, TVA must meet
the NYSE’s listing requirements.
As you can see, TVA, as a government agency,
has a considerable amount of oversight that provides significant assurance to
our stakeholders. Additional measures
further ensure TVA’s integrity in the areas of corporate responsibility,
auditor independence, and increased financial disclosure.
Corporate Responsibility
By law, all TVA employees must adhere to the
standards of ethical conduct for federal employees, which require that all
Officers complete ethics training and file financial disclosure statements
annually. In addition to that
requirement, TVA will develop a code of financial ethics consistent with the
Sarbanes-Oxley Act for all Officers and Business Managers, as well as a
training program on full, fair, accurate, timely, and understandable financial
and non-financial disclosure, TVA’s corporate governance practices, and
financial ethics requirements for all employees who prepare TVA’s financial and
business reports.
Beginning with the 2002 TVA
Annual Report, TVA’s Board and CFO will certify the financial statements and
related information for the fiscal year ending September 30, as well as all
future financial statements and related information. The Information Statement, which is TVA’s primary disclosure
report to the public financial markets, will be similarly certified. The certification process will include
signed certifications by all TVA Officers and Business Managers of the
information they provide for these reports.
Because TVA is wholly owned by the U.S.
government and cannot issue stock, TVA Directors and Officers do not receive
stock options. In addition, TVA does
not presently make personal loans to its Directors or Officers and does not
plan to make any such loans in the future.
Auditor Independence
TVA has significant protections in the area
of auditor independence. The
independent TVA Inspector General has broad audit and investigative
responsibilities. The Inspector General
conducts ongoing audits of TVA’s operational and financial matters in
accordance with government auditing standards.
The Inspector General also conducts an annual audit of the work of TVA’s
independent external auditor, PricewaterhouseCoopers, to ensure compliance with
government auditing standards. TVA’s
Office of the Inspector General itself undergoes a peer-review audit every
three years conducted by an Inspector General from another federal agency.
Beginning next fiscal year, TVA will not
enter into any new contracts with PricewaterhouseCoopers for non-audit
services, and TVA will phase out all consulting and actuarial services
currently performed by PricewaterhouseCoopers.
In addition, TVA’s Inspector General, Senior
Vice President of Procurement, and Chief Financial Officer have clearly defined
the roles of all parties with responsibilities related to the external audit of
TVA’s financial statements in order to ensure auditor independence, with the
Inspector General being responsible for the technical management of the audit
contract with PricewaterhouseCoopers.
TVA is taking several other steps to ensure
auditor independence, comparable to those in the Sarbanes-Oxley Act. TVA will require its external auditor to
rotate the lead audit partner and the audit partner responsible for reviewing
the audit every five years. Also, TVA’s
CFO, Controller, and Chief Accounting Officer will not be hired from its
external auditor if they have worked on the TVA audit during the preceding
year. TVA currently does not have a Chief
Executive Officer, but this prohibition will also apply to TVA’s CEO if TVA has
one in the future.
The TVA Board will ensure an appropriate
review of its external audit through quarterly meetings with the Inspector
General and the external auditor.
Financial Disclosure
TVA is committed to fully disclosing all
material financial and business information to the public financial markets by
providing a steady flow of timely, comprehensive, and accurate
information. TVA currently issues
quarterly financial reports and publishes an annual report that includes a
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and audited financial statements prepared in accordance with
generally accepted accounting principles.
We provide Information Statements and
Offering Circulars, similar to prospectuses for publicly-traded companies, to
investors and the bankers and brokers who sell TVA bonds. TVA issues news releases on significant
events and conducts open Board meetings to ensure that major decisions by TVA’s
Board are made in a public arena with opportunity for input from the public we
serve.
TVA also conducts an annual conference in
New York for financial analysts and investors and distributes a detailed Fact
Book with information on TVA’s strategy, finances, and operations.
TVA is forming a Disclosure Committee to
document procedures for reporting material events and occurrences on a more
timely basis.
Conclusion
In conclusion, TVA is committed to
conducting its business in an open and forthright manner that instills
confidence in Congress and the Administration and in our investors, our
customers, and our ratepayers. TVA
already has a number of mechanisms in place for the protection of its
stakeholders, and we are committed to doing even more to ensure that we earn
your continued support and confidence.
Thank you, and I look forward to answering
any questions the Committee might have.
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