Santee Cooper Allegations of racism, favoritism and environmental problems come amid billion-dollar miscalculations

Bulldozers move coal at Santee Cooper's Cross coal-fired generating plant.

Late one afternoon near Lake Moultrie, heavy gray rain clouds part, and the sun casts an orange tint on the Cross Generating Station. Shadows from the plant’s tall stacks inch toward hills of coal, giant ink-black mounds fed by a straight line of rail cars that stretches deep into Santee Cooper Country.

Santee Cooper Country is a swampy region north of Moncks Corner with lakes full of big stripers and country roads where you might see a hunter lugging a rifle at twilight. The Cross plant sits in the middle of it all, a monument to how the land, people and Santee Cooper are bound together like cable strands.

Santee Cooper is the area’s largest employer, and many workers live nearby amid the pine forests and farms around the Cross plant. After work, they run blood drives and hold youth deer hunts; they volunteer in local schools. Talk to enough of them and you find they know each other’s business, like a small town, and not all of this talk is good.

In interviews with nearly 20 former and current Cross employees, you hear stories about how fly ash from the plant poured out of broken ducts and vents instead of going up the stacks; how dust covered them and made them wonder about their lungs; they talk about seeing nooses and a racially charged photograph a supervisor passed around to his white colleagues. They talk about fear and retaliation if they report problems, though at least one experienced former worker reported his concerns to state and federal regulators.

They use the term “state-owned, family-run” to describe a web of family connections they say stifles creativity and perpetuates favoritism and insularity.

You hear other stories in Santee Cooper’s headquarters in Moncks Corner.

There, top officials say they are proud of the agency’s environmental, safety and affirmative action records. They point to publications that tout their industry awards. They talk about how the agency does the best it can to stamp out racially insensitive behavior and pay disparities. They point out that Santee Cooper is a large employer in a lightly populated area, and that it’s natural for people to have family and social connections.

“There are a lot of good people at Santee Cooper doing good work for the state, and I’m proud of every one of them,” said Lonnie Carter, president and chief executive officer.

These differing perspectives come amid a time of massive changes in the global energy landscape, changes fueled by fracking and other natural gas extraction technologies and tougher environmental regulations. One of the biggest effects of these changes has been the price of natural gas, which has tanked and prompted many utilities to use that fuel to generate electricity instead of coal.

Yet, during the past five years, Santee Cooper made a billion-dollar bet on a coal plant it eventually nixed; it lost $1.5 billion in future business from one of its biggest customers; it invested in a nuclear plant that raised red flags with credit analysts, then tried to sell some of that investment to other utilities because it had power to spare; its strategic “roadmap” is more than four years old. Now, the agency is planning to raise rates 7 percent by the end of 2013.

Is Santee Cooper equipped to navigate this complex energy landscape and its own internal environmental and workplace issues? And what about government watchdogs charged with regulating this public agency?

A visit to Santee Cooper Country is one place to look for answers.

Santee Cooper literally shaped the land north of Moncks Corner. Its roots stretch back to the Great Depression, when 93 percent of the state’s rural residents had no electricity. With help from the Roosevelt administration, the state formed a new agency called the S.C. Public Service Authority, which eventually took on its more common nickname, Santee Cooper.

Santee Cooper cleared 200 million board feet of timber and built dams that created the long, catfish-shaped Lake Marion and its flounder-shaped twin, Lake Moultrie. Santee Cooper drained swamps to control malaria; it built coal plants, invested in a nuclear plant near Columbia; it erected a concrete and glass headquarters that overlooks Moncks Corner on one side and the Santee Canal on the other.

Today, the agency employs 1,800 people, including more than 1,200 who make more than $50,000. It’s the third-largest publicly owned utility in the nation.

Yet, Santee Cooper remains an odd bird, a government-regulated monopoly that is itself a government agency in an industry dominated by shareholder-owned corporations, such as Scana and Duke Power. It’s governed by an 11-member board appointed by the governor and screened and confirmed by state lawmakers.

Unlike investor-owned utilities, Santee Cooper’s board has sole discretion over whether to raise rates or build new power plants. Scana and Duke must get permission from state regulators.

Jobs at Santee Cooper pay well and are in high demand.

“Where else can someone with a high school education make $70,000 or $80,000?” said Shane Keller, a former Cross Generating Station employee. Many employees grew up in the area, went to college, and sought jobs at Santee Cooper when they graduated. It’s not unusual to bump into a relative who also works there.

The agency’s nepotism policy says no relatives can “report directly or indirectly to another relative” or “report to the same immediate supervisor” or work in “sensitive jobs or on critical assignments which interrelate.” But there are exceptions, and they start at the top.

For much of this year, Santee Cooper had eight people on its senior management team. Of those eight, five had other relatives working at the agency, including Lonnie Carter, the utility’s chief executive officer. His brother, Mark, is manager of construction and transportation services.

Both started in the 1980s at Santee Cooper but worked in different departments. When Lonnie Carter became president and CEO in 2004, he agreed that decisions involving his brother would be transferred to Santee Cooper’s board chairman and a second board member.

In addition to the Carters, Bill McCall, Santee Cooper’s former second-in-command, also had family connections, but with a different twist.

Until last fall, McCall’s son worked for a contractor at the Cross plant. He then left that job and got one with Santee Cooper as a financial analyst.

Laura Varn, Santee Cooper’s vice president of corporate communications, said Santee Cooper’s nepotism policy doesn’t apply to contractors, and that the younger McCall worked under Mark Carter, not his father, who recently retired after 41 years at the agency.

It’s no secret that Santee Cooper has a large number of relatives working together, Carter and Varn said. They acknowledged that the agency has never examined the scope and impacts of these relationships at either the executive level or lower down. And they said that Santee Cooper has no intention to do so in the future.

“We’re all very proud to work at Santee Cooper,” Carter said. “It’s a good, stable place to work, and when you, for example, go to a family reunion and talk about how it’s a good place, it shouldn’t surprise anyone that those people would also want to work there.” But, he added, “There is no intricate web” of family connections. “When we talk about family atmosphere, we’re talking about the culture and the way we treat people, the way we care about each other and respect each other and work together. Like families do. ... We’re not talking about blood relations.”

However, a number of employees, particularly at the Cross plant, say these connections have created a sense of insularity that makes environmental and workplace problems difficult to root out.

It takes about 30 minutes to drive around Lake Moultrie from Santee Cooper’s headquarters to its coal plant in Cross. The road passes through pinelands and farms and clusters of homes down dirt roads.

People watch each other closely, and news travels fast. One night a reporter and a former Cross worker visited an employee’s house; the employee was still at work, but an occupant called sheriff’s deputies. Thirty-six hours later in Moncks Corner, Varn had the incident report in her hands.

During another evening interview with a former Cross employee, a curious neighbor knocked on the door, a pistol with a laser sight strapped to his waist.

“I pointed the red (laser) light in your car and didn’t see anyone duck. I just wanted to see if (the neighbor) was OK.”

The Cross plant itself sits like a castle between Lake Moultrie and Lake Marion. Every day, conveyors and cranes feed this coal into crushers and send the powder to furnaces that burn at 2,500 degrees. Heat from the furnaces turns purified water into steam that spin giant turbines 60 revolutions a second. When going full tilt, the plant generates 2,390 megawatts, enough to power more than 1.1 million homes. Cross is so large that if its turbines suddenly went down on a hot summer day, the loss would ripple through the East Coast’s grid.

Santee Cooper built its first generator there in 1983 and added three more over the years. In 2002, crews began building a third unit without proper federal and state permits. An off-duty worker with the state Department of Health and Environmental Control discovered the work by accident while boating on Lake Moultrie. The federal government sued, and in 2004, Santee Cooper agreed to pay $2 million in fines, spend $4.5 million on conservation programs and install $100 million in pollution control devices.

Nearly 230 Santee Cooper employees work at Cross, plus a large contingent of contractors. Some who work there now or recently quit or retired describe the plant as a cliquish place. “You’re OK as long as you’re in the buddy-buddy club,” said one current employee.`

Bill Manigault, a Cross employee who retired in 2009 after 23 years, said the insularity perpetuates the status quo and excludes others.

“If it’s your company, who are you going to give jobs to? You’ll give them to friends and family.”

He and others said better-trained black employees were passed over for jobs and pay raises; they said tight family and social connections make it more difficult to discipline people.

“State-owned, family-run, that’s something everyone hears,” added Shirley Segar, a former contractor at Cross. Segar, in her 60s, said a co-worker who was good friends with a Santee Cooper supervisor exposed himself to her and slapped her behind. She said she told managers, but they did nothing, and she was let go a few months later. “We couldn’t say too much because if someone reported it, you would be out the gate,” she said. “It didn’t matter how hard you worked; it was who you knew.” (Varn said Santee Cooper is aware of the issue, and the contractor employee no longer works at the plant.)

Neil Knudsen, another former Cross worker, said the network of friends and family had a corrosive effect that led to a mix of environmental and racial problems. In his case, it turned him from a company insider into a whistleblower.

Knudsen lives in Goose Creek with his wife and son. He is a tall man with broad shoulders, a square jaw and boyish face. He limps from knees he smashed while climbing a staircase near one of the plant’s boilers. Because of his injuries, Knudsen quit Santee Cooper last summer and qualified for federal disability assistance.

Knudsen joined Santee Cooper in 1988, starting in the coal yard. Over time, he worked in nearly every corner of the plant: on the mountainous coal piles, on scrubbers that strip sulfur dioxide and other chemicals before they leave the stacks, on turbines so precise a quarter-ounce imbalance could trip them up.

He planned dinners and other social activities, according to a Post and Courier review of his personnel file. Copies of letters show that supervisors gave him high marks year after year for his knowledge and leadership skills. A letter in 2002 from one described him as “one of the most dedicated and conscientious employees that I have worked with while at Santee Cooper.”

Knudsen rose through the ranks to become an “A Mechanic,” someone who could work on virtually any piece of equipment.

Knudsen said his star began to fall in 2005 when a metal grate collapsed and he injured his left shin. He was unhappy about the medical care he received, and he complained to managers. After that, and without explanation, he received lower marks for his skills and knowledge in his performance evaluations.

“Did I suddenly get less knowledgeable? It didn’t make sense.” All this translated into lower raises and less money for his pension. He began to view the company through a new lens; he grew angrier about the hostile comments white employees made toward their black colleagues; he saw a pattern of pollution problems. Sometimes when he saw something that bothered him, he pulled out his cellphone and snapped pictures.

Some photos show fly ash spewing from a pipe, and clouds of ash swirling around the plant as if it had been hit by a dust storm. That’s not supposed to happen; flue gas and ash are supposed to go through scrubbers and collectors before they go up the stacks.

But Knudsen, along with a dozen other current and former Cross workers, said that particles poured out from holes in ducts and pipes for months at a time. Manigault, the retired Cross worker, said swirling fly ash from leaks sometimes made it difficult to breathe. Another current employee said: “The SO2 (sulfur dioxide) is so bad sometimes it will knock you down.”

One time, Knudsen also took photos of pipes piled in the back of a truck. He said he was surprised to see them out in the open because they contained asbestos. He had learned during Santee Cooper-sponsored training that broken asbestos materials should be wrapped so flakes don’t get in the air. Small particles can lead to mesothelioma, a cancer of the lungs. Knudsen said he showed the photo to a supervisor, who told him a contractor was removing the pipes and not to worry.

Knudsen and other employees said they often saw dead birds throughout the plant grounds, especially near the stacks. Knudsen said he told managers about the fly ash.

“They told me they would take care of it the next time the unit was shut down, which was months later.” He said he contacted the EPA, and an EPA official in Atlanta referred the matter to the South Carolina Department of Health and Environmental Control. Knudsen said he talked with a DHEC air quality staffer in Columbia, but no one followed up to see his photos or get names of people who might corroborate his observations. “I kept expecting to hear from them, but it never happened.”

He also had other concerns.

One recent afternoon, Knudsen flipped open the cell phone he had at Cross and pressed the power button. A maroon Gamecocks logo glowed to life. He searched the phone’s in-box for the Internet photo a supervisor sent him. “There it is,” Knudsen said, his eyes on an image of a noose.

Next to the noose was a white sign that said, “for sale n***** swing set.”

At the time, the same grainy photo had been floating across the Web and causing problems elsewhere: In Oklahoma, a prison guard was fired after the image was sent to his supervisor from his phone; in Minnesota, a white high school football player was suspended and kicked off the team when he sent it to a black teammate.

Knudsen said a supervisor was passing around the photo to other white colleagues. He said he was appalled but not surprised.

Over the years, he had seen some white supervisors give black employees more physically demanding jobs than white employees, an allegation that several black employees confirmed.

One current employee told The Post and Courier that some supervisors spoke to black workers “in a tone like you would use calling your dog back if he ran across the street.”

Manigault, who is black, said Santee Cooper isn’t alone when it comes to complaints of racist behavior. “It’s in all the companies, and it shouldn’t be in any companies.”

Knudsen said he cajoled the supervisor into sending him the photo with the noose and sign. “For 22 years, going on 23, I had been hearing ungodly things said at Santee Cooper, but this was the first smoking gun.”

Before Knudsen left Santee Cooper last year on disability, he filed a discrimination charge with the Equal Employment Opportunity Commission. He told the EEOC that black workers were “subjected to a racially hostile working environment” and “discriminated against regarding job assignments,” and that he had been called racial epithets because he stood up for his black colleagues.

Varn dismissed Knudsen as a “disgruntled former employee.” She said that a power plant is an inherently dangerous place to work, and “safety is the number one priority at Santee Cooper.”

She declined to talk about Knudsen’s discrimination complaint because it’s still under investigation, but said that the agency has an admirable affirmative action record. She pointed to a 2011 report by the Human Affairs Commission showing that Santee Cooper had top state rankings for reaching goals to increase diversity in its workforce.

As for concerns about fly ash, she said staffers “went back and looked at records and we couldn’t find any violations. We weren’t cited (by DHEC).” She provided studies from a contractor that measured air quality around the plant last year and found no unusual levels of particles or toxic chemicals.

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She said the agency is aware of reports of dead birds, and that no one is sure what’s causing this issue. One theory is that when a unit is shut down, birds roost in the stacks and then get cooked when the unit starts back up. Regarding the asbestos pipes, she said they were handled properly by a contractor and didn’t need to be wrapped.

Adam Myrick, the agency’s director of public relations, said photos of ash escaping from pipes “may potentially be a violation” if ash was released for more than an hour. But without a DHEC inspector on hand, the agency would need to look for clues in Santee Cooper’s own monitoring data and records.

“We inspected the facility and its records after the allegations were made. We found no evidence of the alleged violations.” Asked why DHEC didn’t interview Knudsen or other employees about how long the ash was released, Myrick said, “We did not believe additional discussions with Mr. Knudsen were warranted at the time.”

It’s unclear what is happening in response to Knudsen’s other workplace discrimination allegations. Federal EEOC investigations are cloaked in secrecy.

Last year, however, a female investigator showed up to interview employees but was told by Santee Cooper officials she couldn’t interview them without a Santee Cooper lawyer present, according to an account by Porter Barron Jr. in Columbia’s Free Times online newspaper. A tense standoff reportedly ensued with the EEOC investigator arguing that she had a right to an independent investigation. She left without doing the interviews.

Terrie Dandie, the EEOC’s outreach manager in the Atlanta office, declined to comment on the Santee Cooper case. She added, however, that the Atlanta office covers Georgia and 12 counties in South Carolina and every year receives nearly 6,000 complaints. She said that investigations typically take nine months, or much longer if the case involves numerous employees.

It has been 16 months since Knudsen filed his complaint. “What this tells me,” Knudsen said, “is that these government agencies don’t have enough teeth to stand up to Santee Cooper.”

Amid these internal workplace and management culture issues, Santee Cooper also faces broad questions about its direction and future.

Far away from Santee Cooper Country, tectonic forces have reshaped the global energy industry. Many of these changes are rooted in advances in computing power and drilling technologies in the 1990s that gave geophysicists new ways to find and extract natural gas and oil. Drillers injected fluids in underground rock layers, a process known as “fracking,” to unlock huge new reservoirs of natural gas.

As a result, natural gas prices cratered, making it a cheaper fuel source than coal. Amid these changes, utilities face new federal requirements to reduce greenhouse gasses and other pollutants.

For years, coal had been the go-to source for electricity. Now, it’s natural gas, a change that prompted utilities to cancel and close coal plants across the nation.

“Over the 40 years I’ve been doing this, this is the most change we’ve seen,” said Ronald J. Calcaterra, president and chief executive officer of Columbia-based Central Electric Power Cooperative. “Now you have to be willing to think outside the box.”

Santee Cooper had long been dependent on coal to generate between 70 and 80 percent of its electricity. Coal-fired power was the agency’s specialty; it had long-term relationships with suppliers in Appalachia’s coal belt. Instead of hiring a contractor to build the Cross unit, the norm for most utilities, the agency did the contracting itself and proudly touted how it built it at a lower cost than had they gone outside. They also were slow to predict this shift toward natural gas. An example can be found in its “Generation Resource Plan,” a 300-plus page document that Varn described as the agency’s strategic “road map.”

Done in 2008, it predicted that natural gas prices would remain much higher than coal in the foreseeable future. Based on this flawed assumption, the plan recommended construction of two new coal-fired generating units on the Pee Dee River and 45-percent investment in a new $10 billion nuclear reactor with Scana, a project that would cost Santee Cooper $4.5 billion.

Meanwhile, as many economists began predicting a recession in late 2007, Santee Cooper officials predicted demand for electricity would continue to increase. In 2008, top Santee Cooper officials warned about an “imminent crisis” in the availability of electricity and were so confident about their predictions that they bought more than $250 million worth of equipment for the Pee Dee project.

Yet, outside of Santee Cooper, some were growing skeptical about the agency’s decisions. In 2008, the Southern Environmental Law Center urged the agency to consider moving toward natural gas, which emits less pollution than burning coal. That year, officials with the electric cooperatives also warned Santee Cooper to look at other options than building a new coal plant on the Pee Dee River.

It was a significant alarm bell given that the electric cooperatives are Santee Cooper’s biggest customer. They buy Santee Cooper’s electricity and resell it to 719,000 customers in 70 percent of the state. But Santee Cooper pushed forward with its coal plant plans anyway.

In 2009, Standard & Poor’s noted the agency’s reliance on coal-fired generation and its 40 percent increase in debt over the previous five years. That year, Synapse Energy Economics, a respected consultant hired by local environmental groups, warned that Santee Cooper’s projections and assumptions about energy industry trends were way off.

Then, the cooperatives did something residents typically can’t do: shop for a better deal on electricity.

They found one from Duke Power. Despite warnings from Santee Cooper officials about a statewide energy crisis, Duke actually had power to spare from shuttered textile plants. The cooperatives decided to buy 1,000 megawatts of its electricity load from Duke instead of Santee Cooper beginning in 2013. The co-ops said doing this would would save its customers $1.5 billion over the next 17 years.

It was a huge blow to Santee Cooper’s capital construction plans. The loss of the co-ops business represented about 20 percent of Santee Cooper’s generation capacity and effectively made the $2 billion-plus Pee Dee plan unneeded. A year later, Santee Cooper nixed the project.

More recently, in January, Standard & Poor’s issued a negative outlook for Santee Cooper’s long-term debt, citing the agency’s financial exposure in the nuclear project and other factors. For similar reasons, Fitch Ratings also downgraded $5 billion in Santee Cooper debt.

Santee Cooper has since inked preliminary agreements to sell some of its interest in the nuclear project to utilities in the Midwest and Mississippi, though those have yet to be finalized. So far, it has spent $1.2 billion on the nuclear project.

Meanwhile, the legacy of Santee Cooper’s Pee Dee bet is spread across warehouses in rural Johnsonville and in the Cross plant. That’s where Santee Cooper stores its turbine and other power plant equipment until it finds a buyer. It costs Santee Cooper $13 million a year to keep that equipment in good condition, though Varn said that cost doesn’t affect rates. “We’re a $2 billion company, so that ($13 million) is something we can absorb without having to raise rates.”

Did Santee Cooper miss the natural gas train? “I don’t think so,” Carter said. He blames the country’s shifting energy policies. “We were forced, in a sense, by the country’s policies to be heavily dependent on coal.” Now, coal is out. “Will we build more natural gas (plants) in the future? There’s a good chance of that.”

Then again, natural gas prices could go up as environmental concerns about fracking grow. “I wouldn’t say we’re too dependent on coal. We’re working to diversify our mix.” If natural gas prices rise in the future, “we’ll be back to running our (coal) units.”

And its 2008 roadmap? Even though the plan is more than four years old and its forecasts are obsolete, the agency has no plans to redo it. Varn said the plan’s main purpose is to guide the agency’s efforts to build new power plants. “We’re not in need of any additional generation now.” She said Santee Cooper still uses the plan. “It helps set the foundation for the future. We do use it a lot.”

Late one evening outside the Cross plant, the setting sun catches signs along the road. Some of the signs are partially obscured by a film of gray ash. Nearby, there’s a lakeside campground owned by the parents of a Santee Cooper executive, a roadside bar frequented by Cross employees.

Santee Cooper began as a Depression-era movement that electrified South Carolina’s rural areas and became become an entrenched part of the Lowcountry’s physical, business and cultural landscape. It’s an agency that faces difficult economic questions involving energy use and climate change, along with questions about its internal social and management culture.

As the night falls, the area around the giant electric plant becomes pitch dark, broken up by an occasional house light on the two-lane road that leads out of Santee Cooper Country toward the electric glow of the cities beyond.

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