TVA audit: Jet purchase not 'cost effective' [document]

TVA audit: Jet purchase not 'cost effective' [document]

Method utility used to buy aircraft may have violated federal rules

March 29th, 2018 by Dave Flessner in Business Around the Region

TVA bought a Cessna Citation Excel jet in 2015 for $11.2 million and a similar jet in 2017 for $10.7 million. A Mercedes Benz-style EC145 helicopter previously used by Dallas Cowboys owner Jerry Jones was bought for $6.95 million.

Photo by Contributed Photo /Times Free Press.

This story was updated March 31, 2018, at 6:18 p.m.

TVA's purchase of an $11.2 million corporate jet nearly four years ago has not been cost effective, and the sole-source method used to buy the jet and a $6.5 million King Air turboprop plane may have violated federal rules, according to TVA auditors.

The Tennessee Valley Authority inspector general said Thursday that TVA did not justify buying a Citation jet to replace its turboprop planes in 2015 and has since frequently used its aircraft to transport TVA directors around the Tennessee Valley and CEO Bill Johnson to his second home in Raleigh, N.C., where his wife Sally still lives. Some of those trips and other use of the aircraft were not adequately documented and may have broken federal travel rules, inspectors found.

"The purchase of a jet instead of a second turboprop has not been cost effective," the inspector general concluded in a 34-page audit of TVA's aircraft purchases and use. "TVA's stated justifications for sole sourcing the purchase of the aircraft (in 2015) were not supported and did not include any analyses of historical usage to determine TVA's fixed-wing aircraft needs."

Document: TVA Inspector General audit

Read the TVA Inspector General audit.

TVA bought a Cessna Citation Excel jet in 2015 for $11.2 million and a similar jet in 2017 for $10.7 million. A Mercedes Benz-style EC145 helicopter previously used by Dallas Cowboys owner Jerry Jones was bought for $6.95 million.

TVA bought a Cessna Citation Excel jet in...

Photo by Contributed Photo /Times Free Press.

TVA bought a Cessna Citation Excel jet in 2015 for $11.2 million and a similar jet in 2017 for $10.7 million. A Mercedes Benz-style EC145 helicopter previously used by Dallas Cowboys owner Jerry Jones was bought for $6.95 million.

TVA bought a Cessna Citation Excel jet in...

Photo by Contributed Photo /Times Free Press.

Despite such concerns, TVA last year purchased a second Cessna Citation Excel jet for $10.6 million and a Mercedes-Benz-style executive helicopter formerly used by Dallas Cowboys owner Jerry Jones for $6.5 million. Those aircraft purchases were not included in the inspector general's report released Thursday, but TVA auditors questioned why the agency was spending more to buy and operate any jet when turboprop planes were nearly as effective at a cheaper price point.

"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 TVA's jet operations cost an average of 18 percent more than the turboprop planes it replaced, even excluding the higher purchase price for the jet, and the jets can't land in many smaller airports in TVA's seven-state region.

"TVA couldn't even justify one jet and yet they went out and bought a second jet last year and then they used these jets to transport Bill Johnson and his wife to Johnson's home in Raleigh, N.C.," said Stephen Smith, a Tennessee pilot and executive director of the Southern Alliance for Clean Energy who wants Johnson fired for his use of the corporate jets. "It's absolutely scandalous that the highest-paid federal employee in America is jetting back and forth to his home in Raleigh at the cost of the TVA ratepayers."

Records obtained by the Energy and Policy Institute from the Federal Aviation Administration show that TVA jets flew to the Raleigh-Durham airport at least 18 times between 2015 and 2017. Raleigh is outside of TVA's territory, but it is the location of a "second home" belonging to Johnson and his wife, Sally, who is a professor at the University of North Carolina-Chapel Hill.

Smith said TVA has failed to respond to records requests under the Freedom of Information Act about who is using TVA's aircraft.

But in their review, the TVA auditors in the Office of Inspector General said that Sally Johnson rode on 18 flights — 15 on jets and three on turboprop planes — during the audit period.

TVA spokesman Jim Hopson said the flights were justified and Johnson's wife was never on any flight by herself. Any personal benefit from any extra flight or passenger was added to Johnson's taxable income, Hopson said.

"Where necessary for the federal travel regulations, it was inputed income assigned to Mr. Johnson for his spouse to accompany him," Hopson said. "In areas where with further review based upon the IG audit it was found that there may have been some things missed because our documentation wasn't up to snuff, we've gone back and corrected that and are in the process of going back even further."

But the inspector general's audit found that "TVA had no policies in place for reporting personal use of TVA aircraft" and "no personal travel by the CEO or his spouse was reported to corporate accounting" or in TVA's financial reports of Johnson's compensation package.

Last year, Johnson was paid a total compensation package of $6.7 million, making the 63-year-old attorney the highest-paid federal employee in America.

But Johnson is still paid nearly 40 percent below the median pay of comparable CEOs at other similar power utilities, according to Willis Towers Watson, and TVA's use of executive aircraft is nearly a third less than that of comparable utilities in the region such as Southern, Duke and NextEra, auditors said.

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

Mike Skaggs, an executive vice president at TVA responsible for the aircraft operations, said the agency needed to make some improvements in its documentation "but there was no evidence of any improper use of our aircraft."

Skaggs disagreed with the findings of the inspector general and insisted that the new aircraft have improved safety, efficiency and the performance of TVA "and are a key part of our overall cost containing strategy." Under Johnson, TVA has cut nearly $800 million a year in the utility's operating costs and lowered average power rates by 2 percent since 2013.

Skaggs said the new jets are probably five times safer than the airplanes they replaced and allow TVA to improve communication and response to both customer and utility issues across its seven-state region. He also said jets are only 7 percent more expensive to operate than airplanes, disputing the audit findings of an 18 percent difference.

"We have less aircraft than our peers in the industry and we did not identify any instances in which these aircraft have been used inappropriately," Skaggs said.

TVA directors, who serve part time on the board that oversees the federal utility and meets in public four times a year, traveled on the TVA jets or airplanes 243 times during the audit period. Last month, during a TVA board meeting in Chattanooga at which questions were raised in a public hearing about the agency's aircraft, TVA Chairman Richard Howorth defended the purchase of the jets and the compensation of Johnson.

"He could make more somewhere else," he said, "and we are fortunate to have him at TVA."

TVA bought a Cessna Citation Excel jet in 2015 for $11.2 million and a similar jet in 2017 for $10.7 million. A Mercedes Benz-style EC145 helicopter previously used by Dallas Cowboys owner Jerry Jones was bought for $6.95 million.

TVA bought a Cessna Citation Excel jet in...

Photo by Contributed Photo /Times Free Press.

The executive jets and helicopter are part of TVA's overall aircraft fleet of nine active helicopters, airplanes and jets, plus a King Air 350 plane that TVA bought for $6.5 million and which is now for sale.

Before Johnson's arrival, TVA did not own any jets or executive helicopters, but Johnson said the aircraft have allowed him and other TVA executives to more frequently visit the agency's 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."

The inspector general said the sole-source purchase method for the aircraft bought in 2015 "did not comply with various federal regulations and TVA policies and procedures ...

"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 audit said.

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

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 it in 2015."

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.


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