South Carolina Legislative Audit Council Report to the General Assembly February 1995 A Limited-Scope Review of Santee Cooper LAC/94-3 Legislative Audit Council 400 Gervais Street Columbia, SC 29201 (803)253-7612 (803)253-7639 FAX Authorized by §2-15-10 et seq. of the South Carolina Code of Laws, the Legislative Audit Council, created in 1975, reviews the operations of state agencies, investigates fiscal matters as required, and provides information to assist the General Assembly. Some audits are conducted at the request of groups of legislators who have questions about potential problems in state agencies or programs; other audits are performed as a result of statutory mandate. The Legislative Audit Council is composed of three public members, one of whom must be a practicing certified or licensed public accountant, and six General Assembly members who serve ex officio. Audits by the Legislative Audit Council conform to generally accepted government auditing standards as set forth by the Comptroller General of the United States. Copies of all LAC audits are available to the public at no charge. LAC/94-3 Briefing Report to the General Assembly A Limited-Scope Review of Santee Coo er Februar 1995 embers of the South Carolina General • Revenues returned to the state treasury_. Assembly requested that ~e conduct a limited­ • Procurement of goods and services such as coal. scope management revtew of the South • Carolina Public Service Authority, otherwise known as In some of these areas we found no material problems and Santee Cooper. We were asked to target specific areas of have made no recommendations. In other areas, we have legislative concern, including: made recommendations to improve agency operations. The following summarizes our review. • Fringe benefits provided to Santee Cooper employees. • Funds given to non-profit and other organizatio~. Employee Benefits . I In comparing the fringe benefits provided to Santee Santee Cooper also is more Cooper's employees with those provided to other state generous with employee workers, we found mixed results. Santee Cooper's benefits incentives and bonuses. For sometimes are less· generous and sometimes are more example, it pays an attendance incentive bonus every six gene~us than otlier state agencies. Here are some months to employees who take fewer than eight hours of examples: sick leave or leave without pay. And for the past ten years, Santee Cooper's employees have received a year-end Annual Leave-Santee. COoper's employees receive from bonus equal to 3 days' pay with a maximum of $1,000. 5 to 25 days of annual leave, while other state employees We concluded that Santee Cooper, which is not a receive 15 to 30 days, depending on years of service. traditional state agency, has the authority to provide more benefits to its employees than other state ag~ies. Sick Leave-Santee Cooper, 9 days each year; other state However, the benefits provided should serve a public agencies, 15 days each year. purpose and be related directly to Santee Cooper's corporate purpose. Holidays-Santee Cooper, 11 holidays each year; other state agencies, 12 holidays. · In one area, the use of revenues for employee social· and recreational activities for employees, Santee Cooper may Health Insurance-Santee Cooper's employees pay less not have met the public purpose test. For example, from than other state employees because Santee Cooper 1991 through 1993 it spent $140,000 for agency picnics subsidizes its employees' costs in ore. For example, a and sporting events. Santee Cooper employee choosing full family coverage for Executive employees also receive extra benefits. from the state's economy plan would pay $28 per month Santee Cooper, including: compared to _$114. per month for other state workers for the • Additional retirement payments varying from 10% to same coverage. 30% of their final salaries. • Additional disability insurance and life insurance. For benefits such as tuition, professional exam and • A monthly vehicle· allowance ranging fro~ $332 to licensing fees, memberships in professional organizations $565. and employee relocation expenses, Santee Cooper exceeds · • Reimbursement for other automobile costs, such as those paid for other state employees. business mileage and maintenance costs. .... South Carolina Legislative Audit Council • 400 Gervais St. • Columbia, SC 29201 • (803)253-7612. totalling $721,250. ·We found that this figure did not Contributions include other contributions totalling $62,015 made to 37 organizations. Santee Cooper did not report these because they considered them advertising or economic s Santee Cooper is required by state law to return development expenditures. excess funds "not necessary or desirable" for the prudent operation of the business to the state treasury. We Santee Cooper's policy concerning contributions does not identified additional funds that the agency could be address potential favoritism. For example, Santee remitting to the state. Cooper contributed funds to organizations whose boards of directors included Santee Cooper staff. In addition, In 1987, Santee Cooper decided to remit 1% of contributions were made to outside organizations to "projected revenues" to the state treasury each year. name facilities after board members. The agency excluded interest and miscellaneous revenues in this calculation. If these revenues were included, the We sampled contributions made in 1993 to determine if state's general fund would have received an additional they met guidelines for donations of public funds as $505,970 from 1992 through 1994, an average of outlined in opinions of the attorney general. We found $168,657 per year. some contributions were made to religious organizations, private educational institutions and organizations .that Santee Cooper's-payments to the general fund are: primarily benefitted members. These types of contributions might not be_legal. 86/87 $2,003,000 Procurement 87/88 $3,003,000 88/89 $5,180,oooa Coal-Santee Cooper purchases approximately 4.4 million tons of coal annually, costing $119 million. 89/90 $5,591,000 We analyzed Santee Cooper's process for purchasing 90/91 $5,635,000 coal under long-term and short-term contracts, and found no material problems. 91/92 $5,728,000 92/93 $5,905,000 Railcars-As of November 1994, Santee Cooper owned 407 railcars and leased 374 railcars to transport coal from coal mines to its generating plants. We found that the railroad charges· Santee Cooper a discounted rate to a Year calculation for remitting funds to state was changed. haul coal in railcars that Santee Cooper owns or leases. The discount is large enough to make owning and leasing railcars cost-effective. Santee Cooper also uses its revenues to make financial Attorneys-Santee Cooper hires private attorneys to contributions to public agencies and private provide. various legal services, and, unlike other state organizations. In 1993 Santee Cooper reported to the agencies, is not required to obtain the approval of the General Assembly that it made 229 contributions attorney general to hire private attorneys. We analyzed savings Santee Cooper obtained by litigating two long-term coal contracts that were alleged Agertcy commet1ts to the audit begin on page 71. to have been fraudulently administered. We also analyzed the legal fees paid to a private attorney to handle the case. The litigation resulted in a renegotiated contract, and allowed the agency to save approximately $251 million over 13 years. South Carolina Legislative Audit Council • 400 Gervais St. • Columbia, SC 29201 • (803)253-7612 South Carolina Legislative Audit Council LAC Report to the General Assembly A Limited-Scope Review of Santee Cooper i LAC/94-3 P•i LAC/94-3 Sautee Ceoper Contents Executive . • . • . v Summary Chapter 1 Audit Objectives . 1 Scope and Methodology . 2 Introduction, Background and History . 3 Background and Deregulation . 5 History Chapter 2 Standard Benefits . 7 Benefits for Top-Level Employees . 14 Employee Benefits Legality of Benefits . • . 18 Chapter 3 Contributions to Outside Organizations . 21 Contributions to Payments to State Treasury . 26 Outside Organizations and the State Treasury Chapter 4 Coal Purchasing . 31 Purchase of Railcars to Ship Coal . 31 Procurement of Single Source Purchases . • . 33 Goods and Blanket Purchase Orders . 35 Land and Easement Procurement . 36 Services Legal Services From Private Attorneys . 37 Renegotiation of Coal Contracts . 40 Page iii LAC/94-3 Suttee Cooper Contents Appendices A List of Santee Cooper's Contributions Since 1990 . 49 B List of Legal Authorities . 69 C Agency Comments . 71 Papiv LAC/94-3 Sutee Cooper Executive Summary At the request of members of the South Carolina General Assembly, we conducted a limited-scope management review of the South Carolina Public Service Authority (Santee Cooper). In some areas we were asked to review, we did not find material problems and have made no recommendations. In other areas, we have made recommendations to improve agency operations. The following summarizes our review. Employee Benefits In some areas, we found that fringe benefits provided to Santee Cooper's employees exceed those provided to employees of other state agencies. In other areas, Santee Cooper's benefits are less generous. The following summarizes fringe benefits provided to Santee Cooper's employees. Santee Cooper's employees receive from 5 to 25 days of annual leave, while other state employees receive 15 to 30 days, depending on years of service. Santee Cooper's employees receive 9 days of sick leave each year, while employees of other state agencies receive 15 days. In addition, Santee Cooper's employees receive 11 holidays each year, while employees of other state agencies receive 12 (seep. 7). Santee Cooper's employees pay less for their health insurance than other state employees. For example, a Santee Cooper employee choosing full family coverage for the state's economy plan would pay $28 per month while other state employees would pay $114 per month for the same coverage. This is because Santee Cooper subsidizes its employees • costs more than other state agencies do for their employees (seep.