TVA pays for outside help to deal with risk

PDF: TVA announcement

America's largest government utility is turning to one of the nation's top business consulting companies to improve the management of power facilities and avoid another disaster like the Dec. 22 coal ash spill at the Kingston Fossil Plant.

McKinsey & Co. will be paid up to $5 million to assist the Tennessee Valley Authority to restructure its management and reorganize its processes. The consultants were hired in August after TVA's internal auditors and outside lawyers criticized the utility for minimizing the potential risks from coal ash pond leaks.

TVA spokesman Jim Allen said McKinsey should complete a detailed review of systems, standards, controls and culture at TVA in early 2010. TVA created a new organization, Corporate Governance and Compliance, and appointed former TVA Controller John Thomas to work with McKinsey on the restructuring plans.

"We're surveying the best practices of other companies to see if there are any programs and procedures out there that we are missing," Mr. Thomas said in an earlier interview. "We're stressing organizational cross-communication and I think we're off to a good start."

TVA President Tom Kilgore said the initiative "will be a means of improving our performance at every level of the organization.

"TVA is beginning this important process to correct our deficiencies," he stated in a memo to employees.

TVA Chairman Mike Duncan has vowed to improve TVA's management processes "to ensure that another spill like the one in Kingston never happens again."

TVA detected leaks in one of the earthen dams at the Kingston coal plant on at least two occasions prior to last year's spill of more than 5.4 million cubic yards of coal ash into the Emory River and surrounding lakefront property. TVA had considered phasing out the leaking ash pond in favor of dry storage, but TVA managers at the time determined such changes were too expensive.

The Dec. 22 spill, one of the worst industrial spills in U.S. history, dumped coal ash over nearly 300 acres and is projected to cost TVA at least $933 million to clean up.

An Atlanta law firm that reviewed the Kingston spill, McKenna Long & Aldridge, found that TVA's management system lacked accountability and communication.

"The necessary systems, controls, standards and culture were not in place," said Bill Ide, an Atlanta lawyer who specializes in management ethics and corporate governance.

In response to the critical review, TVA created an enterprise risk management council to help ensure agency managers do a better job of listening to employee concerns and evaluating potential problems.

TVA also separated coal ash disposal from coal plant operations. TVA Vice President John Kammeyer was appointed to head a group that will oversee coal combustion products at all 11 of TVA's coal plants. Previously, coal ash disposal was largely controlled by plant managers at each site.

In an interview this summer, Mr. Kammeyer said TVA "is writing a new chapter and developing new budgets to fix all the issues" surrounding the way TVA disposes of ash and other residues left after coal is burned.

TVA expects to spend from $1.5 billion to $2 billion to replace all of its wet ash storage systems with dry, recyclable processes over the next eight years.