Politics & Government

Feds, state cast wide net in investigation of failed nuclear project

Back in February 2016, long before the State House hearings, federal and state investigations and lawsuits began, SCANA’s top executives joined a conference call to discuss the company’s latest fiscal quarter and its massive nuclear project.

They breezed through aerial photos of the Fairfield County reactor site, noting where parts had been placed and concrete poured. And they explained why their construction contract protected SCANA and the V.C. Summer project from a contractor’s financial problems.

But no SCANA official on that call, or in any other public statements, mentioned that just two weeks before, they had received a damning report diagnosing critical problems that stood to doom the construction effort.

That glaring omission could be of interest to federal investigators probing SCANA’s handling of the Summer project, which the company and minority partner Santee Cooper abandoned on July 31 after $9 billion spent and nearly a decade of work.

Putting a bow on it

Federal agents are looking into whether the Cayce-based utility failed to reveal “material” information about the faltering project to investors, and whether its actions constitute fraud or general securities violations, sources told The State newspaper.

The project’s failure surprised the public and has cost S.C. power customers and SCANA shareholders billions of dollars in the form of higher power bills and lost stock value. Under law, publicly traded companies are supposed to disclose matters that could affect their stock prices.

One source, who asked not be named because the material is confidential, said at least six FBI agents are working on the case. The U.S. Securities and Exchange Commission also has subpoenaed records from SCANA.

But federal investigators aren’t expected to make decisions on criminal charges for several months at the earliest, sources said.

“Before the feds bring charges, they are going to complete their investigation and have a bow on it,’’ one source said. “While they are working hard, I’d say spring would be a reasonable expectation.”

Investigators also have compared notes with some state legislators to determine what politicians had learned through the course of legislative hearings on the failed project. Among those is Rep. Kirkman Finlay, a Richland Republican who had met with SCANA officials after the July 31 nuclear abandonment, sources said. Finlay met with federal agents about a month ago, The State has learned. Finlay declined comment Thursday.

Rep. James Smith, D-Richland, said he met with federal investigators before the probe became publicly known in September.

“It was very preliminary,’’ said Smith, a 2018 candidate for governor. “It was just kind of trying to understand some basics about the process.’’

Federal agents also sat in on at least one of the State House hearings into the nuclear project. Representatives of the U.S. Attorney’s Office and the FBI declined comment.

Meanwhile, federal authorities have talked with Nanette Edwards, deputy director of the S.C. Office of Regulatory Staff, which helps police utilities, she said.

At the state level, as many as six State Law Enforcement Division agents are looking into the matter in a separate state investigation, a source said. Details of that investigation were unknown last week.

SLED agents have interviewed several former Summer plant workers about construction problems at the site, said Tom Clements, an anti-nuclear activist who said he has met with the employees. Clements said one of the employees told him investigators have asked questions about high-level project managers at the site.

SLED spokesman Thom Berry and Robert Kittle, a spokesman for state Attorney General Alan Wilson, declined comment.

SCANA told the newspaper the company would cooperate with law enforcement investigations but would not “comment publicly on details related to legal matters or litigation.”

‘When in doubt, disclose’

Much of the federal investigation might center on what SCANA reported in required federal filings.

By law, companies are supposed to report “material’’ information in quarterly and annual filings to the U.S. Securities and Exchange Commission. Any major problems that would affect cash flow, for instance, are supposed to be noted in SEC filings.

“The whole premise of the federal securities law is to provide disclosure so investors can make their own decisions about publicly traded companies,’’ said Thomas Hazen, a University of North Carolina law professor.

If companies do not report important information, the federal government can make either civil or criminal cases, said Hazen and Duke University law professor James Cox. A civil case would be easier to make because it takes less proof to show violations. A criminal case often involves intent, or knowingly violating federal securities law, Hazen said.

Even if the SEC finds that a company failed to report material information, that doesn’t mean it will result in civil or criminal penalties, Cox said.

The company could escape penalties if its attorneys show that the public or the stock market had the information through other sources, such as the media.

In their defense, companies could say “it was a technical violation, but it did not cause any damage,’’ Cox said.

Either way, Hazen said the rule of thumb is “when in doubt, disclose it.

“Companies, unfortunately, sometimes don’t want to disclose embarrassing information.’’

In hot water?

It is unclear whether SCANA’s disclosures – or omissions – will land the Fortune 1000 company in hot water with law enforcement.

For years, SCANA put a good face on its nuclear project in company earnings calls and in media reports, even as it struggled through a bog of construction delays, disputes with contractors and productivity issues.

But over the past seven years, a list of risk factors in SCANA’s annual financial filings gradually grew to reflect the growing possibility of something going wrong. Among a number of possibilities, SCANA wrote in later filings, the project’s lead contractor could go bankrupt, SCANA could be forced to absorb cost overruns and the two new reactors could be delayed or abandoned.

In quarterly reports, the company wrote generally of delays, disputes, cost overruns and other technical problems at the site. Those explanations lengthened as problems mounted, cresting with disclosures this spring that painted a suddenly stark portrait of a project on the verge of abandonment and a company in crisis.

Still, SCANA executives offered rosy public remarks on the project’s progress and improvements and doubled down on their nuclear bet, even amid warnings of the site’s dysfunction.

For example, at an Aug. 7, 2013, media tour of the site, SCANA Chief Operations Officer Stephen Byrne conceded to reporters that construction delays at a module fabrication facility off site had contributed to an 18-month delay in the completion date – at a $200 million cost.

However, Byrne told reporters: “They’re getting their act together. They appear to have turned a corner.”

Just two weeks later, Santee Cooper’s chief executive Lonnie Carter privately was not as certain. Carter wrote an Aug. 23, 2013, letter to SCANA chief executive Kevin Marsh worrying that the contractors’ “inability to fulfill their contractual commitments in a timely manner places the project’s future in danger.”

Less than a year later, in May 2014, Marsh and Carter wrote a 14-page letter complaining to contractors Westinghouse and Chicago Bridge & Iron about their performance and accusing their executives of taking advantage of “our cooperative nature.”

“We regret that this letter is necessary and regret its length,” the owners wrote, saying the delays would cause the project’s costs to soar. “Your poor performance has made both necessary. A complete description of our grievances would make this letter even longer.

“You have made promise after promise, but fulfilled few of them.”

SCANA didn’t disclose key documents warning that the project likely would not be finished by Dec. 31, 2020, a key deadline to collect $2 billion in federal tax credits. That money would have been used to defray the project’s rising cost.

One of those documents was a Nov. 9, 2015, draft study written by San Francisco-based Bechtel Corp.

In an October 2015 email, Michael Crosby, Santee Cooper vice president of nuclear energy, called Bechtel’s early findings “sobering.” The engineering firm found that the first reactor likely was 18-26 months behind its projected June 2019 completion date, according to Crosby’s email. Meanwhile, the second reactor likely was 24-32 months behind its projected June 2020 completion.

But according to Santee Cooper documents turned over to state lawmakers, an Atlanta-based attorney hired by the two utilities pushed Bechtel to delete those findings from the final report. The attorney also told Bechtel that negative wording about SCE&G’s management of the project “must be softened,” according to those documents.

SCANA never publicly disclosed the final February 2016 Bechtel report – even as later studies of the project confirmed many of Bechtel’s findings.

Still, at a Sept. 21, 2016, media tour at the Summer site, Marsh told reporters that the progress was quickening and “most of those issues and roadblocks are behind us.”

Even in hindsight, he said, plowing forward with the nuclear project was the right call. “I feel as strongly today – probably even stronger today than I did back in 2008 – that this is the solution for us in a clean energy future.”

Ten months later, the project was left for dead.

Avery G. Wilks: 803-771-8362, @averygwilks

Sammy Fretwell: 803-771-8537, @sfretwell83