Legal morass deepens in South Carolina’s nuclear fiasco

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The decision by South Carolina's Santee Cooper not to complete two nuclear reactors is growing more complex with a new round of legal finger-pointing about who's to blame for the project’s failure.

The state-owned public utility said in a 45-page filing Dec. 27 that South Carolina Electric & Gas breached its contract and unjustly enriched itself as the manager of the project.

The charges were among seven cross-claims Santee Cooper made against its former partner in the expansion at the V.C. Summer Nuclear Station in Fairfield County.

Santee Cooper alleged that SCE&G mismanaged the project in the court filing, made just days before SCANA and SCE&G merged with Dominion Energy on Jan. 1.

“As a result of SCE&G’s intentional misconduct and failure to exercise even slight care, Santee Cooper has suffered and will continue to suffer damages including, but not limited to, incurring and continuing to incur attorney’s fees, court costs, and other costs in connection with defending” a class-action lawsuit filed in August 2017, a month after Santee Cooper’s board of directors voted to cancel the project.

SCE&G, an investor-owned utility, had a 55% share in the project. The company reached a $2.1 billion settlement in a separate lawsuit in late November. In December, state regulators approved the settlement, which includes customer refunds and rate reductions, along with the utility’s merger with Dominion.

Santee Cooper, a state agency known formally as the South Carolina Public Service Authority, owned a 45% stake in the failed reactor project. To finance its share of costs, the authority issued about $4.2 billion of debt. The utility also has $2.94 billion of bonds outstanding for other electric and water projects.

The cross claims against SCE&G were included in a filing that was due in December as part of Santee Cooper’s answer as a defendant in the Jessica Cook class-action lawsuit in Hampton County, said agency spokeswoman Mollie Gore.

SCE&G has publicly denied the allegations made by Santee Cooper.

The class-action litigation was filed by six South Carolina residents on behalf of themselves and others similarly affected by the failed project as electric customers of the public utilities. They are suing Santee Cooper and members of its board of directors individually, Central Electric Cooperative Inc., Palmetto Electric Cooperative Inc. and SCANA.

Santee Cooper, the state’s largest utility, sells wholesale power to the cooperatives. Central Electric is its largest customer, contributing about 60% of Santee Cooper's revenues.

The litigants contend that Santee Cooper and SCE&G knew early into the project that the “base load” or energy to be produced by the two nuclear units was far more than what was needed, but they continued working on the project.

Westinghouse was the engineering and procurement contractor until it filed for bankruptcy in March 2017. Before that time, project costs had escalated and completion was delayed.

“The cost overruns and delays continued unabated as a direct result of the project’s mismanagement,” the Cook litigants said in their fourth amended complaint.

Central and Palmetto, as power distribution cooperatives, were also aware that the project was unnecessary and far exceeded the needs of their customers, the plaintiffs said, adding that the cooperatives had “ample opportunity to discover and protect their customers from the waste and mismanagement at the project.

“The funding that Santee Cooper provided for the voluntarily abandoned project came out of plaintiffs’ pockets, flowed upstream, and ended in one of two places — abandoned property in Fairfield County or in the SCANA shareholders’ pockets,” the plaintiffs said.

Santee Cooper has spent approximately $4.7 billion in pre-construction, capital, in-service, construction, interest, and other pre-operational costs associated with the project, paid with rate increases to its direct and indirect customers, the class action suit said, adding that costs associated with the project account for 8.5% retail customers’ monthly bills.

The 12-count suit seeks a judgment declaring that Santee Cooper was not authorized by state law to impose rates for the uncompleted nuclear project, and for breach of contract.

It also charges Santee Cooper’s board of directors with statutory and fiduciary breach of duties; Central and Palmetto cooperatives with breach of contract; and SCANA and SCE&G with breach of contract and unjust enrichment.

All defendants were negligent, the suit said, because their conduct was “willful, wanton, and reckless, thereby entitling plaintiffs and the class to an award of punitive damages,” said the complaint, which requests a jury trial.

The suit has generated a flurry of cross-claims, including those from Central and Palmetto cooperatives against Santee Cooper.

On Nov. 7, Circuit Court Judge John C. Hayes denied Santee Cooper's motion to dismiss the complaint and rejected the utility's numerous arguments about why the suit should not go forward.

"Plaintiffs’ declaratory judgment claim, which asserts the increased rates associated with the project are unlawful, sufficiently alleges a justiciable controversy for the purposes of the Declaratory Judgment Act," Hayes found.

Hayes has not yet determined if the complaint will proceed as a class-action suit.

In its Dec. 27 filing, Santee Cooper included seven cross-claims against SCE&G, including for gross negligence, breach of contract by bad faith, and a count for waste because SCE&G allegedly abandoned construction and failed to preserve the site.

Santee Cooper has asked the court to order SCE&G to indemnify it against any judgment in the suit that favors the plaintiffs and the cooperatives; and to award damages, costs and attorneys’ fees.

The class-action suit and governance issues have led rating agencies to lower Santee Cooper's ratings.

Fitch Ratings lowered its rating to A-minus from A-plus in November after the judge refused to dismiss the complaint, because of the agency's “pronounced legal and political risk."

Fitch also revised the outlook to negative saying it reflected the potential for another downgrade “possibly by multiple notches” if Santee Cooper is legally or legislatively unable to collect costs related to the nuclear debt.

Citing similar concerns, Moody’s Investors Service in August downgraded Santee Cooper’s revenue bond rating to A2 from A1, while retaining a negative outlook.

S&P Global Ratings in August affirmed its A-plus rating and negative outlook, although S&P downgraded its rating to A-plus from AA-minus in 2017 after co-owners of the V.C. Summer project stopped construction.

In addition to fighting what probably will be a lengthy class-action suit, Santee Cooper still faces potential action — even restructuring or its sale — by the South Carolina Legislature.

Lawmakers’ annual session began Tuesday. At some point they are expected to receive a recommendation from a joint committee and the governor whether to sell the utility the state created in 1934.

The committee, which hasn't met since October, hired Virginia-based ICF International to solicit and analyze non-binding indicative bids to purchase Santee Cooper.

Gov. Henry McMaster, who wants the state to sell Santee Cooper, ascended to the office in 2017 after Nikki Haley resigned to become ambassador to the United Nations. He won a full four-year term in the Nov. 6 election. He was inaugurated Wednesday to serve his first full term.

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