It has been three years since two of South Carolina’s largest electric utilities abandoned their $9 billion effort to build two nuclear reactors, but the legal, political and financial consequences continue to ripple across the Palmetto State.
The scuttled V.C. Summer expansion in Fairfield County is now widely considered one of the biggest business failures in the state’s history. The announcement of the project’s cancellation on July 31, 2017, shook South Carolina’s power industry, state government and business community.
The two homegrown S.C. utilities that partnered on the project were thrown into disarray. Investigations were initiated by state lawmakers, financial regulators and federal law enforcement officials.
The state and federal court systems were flooded overnight with lawsuits by investors, ratepayers, construction workers and lenders. The state regulatory system that backed the project for nearly a decade was called into question.
And more than 1.7 million utility customers with S.C. Electric & Gas, Santee Cooper and the state’s 19 local electric cooperatives realized they might be forced to pay billions of dollars more for a power plant that will never produce a watt of electricity.
Much has changed since Santee Cooper and SCE&G’s leaders suddenly announced the project’s collapse. But the saga isn’t over quite yet. Here is a breakdown of where things stand.
What happened to SCE&G?
The project’s collapse sent SCE&G, an investor-owned utility and the project’s majority owner, into a tailspin. The stock price of its parent company, Cayce-based SCANA Corp., plummeted with the launch of legislative and criminal investigations into the project’s failure, not to mention a flurry of lawsuits against the company from ratepayers and shareholders.
The 175-year-old utility tried to make amends by offering a $5-a-month rate cut, only slightly reducing the $27 a month the typical residential customer was paying in higher power bills for the failed project. State lawmakers rejected that idea almost immediately, calling the meager offer insulting.
Some of SCE&G’s top executives soon left the company amid calls for their resignations.
To save the company and its stockholders, SCE&G’s leaders agreed to allow Dominion Energy to buy the company.
It took over a year for Dominion, an investor-owned utility based in Virginia, to seal that deal. But eventually, the Legislature and state regulators approved of the takeover.
Dominion officially took over SCE&G and SCANA in January 2019. The purchase turned SCE&G into Dominion Energy South Carolina and cut the utility’s nuclear-bloated rates.
But it also left its roughly 720,000 electric ratepayers on the hook to pay another $2.3 billion more for the project over the next two decades.
What about Santee Cooper?
Santee Cooper’s reputation was severely tarnished by the project’s failure. Longtime CEO Lonnie Carter announced his retirement less than a month after the project’s demise, and Gov. Henry McMaster soon called on state lawmakers to sell the debt-saddled utility.
Scrutiny of the state-owned power and water provider revealed problems beyond V.C. Summer, including poor business deals, a toxic relationship with its largest customer, and several executive compensation plans that have drawn the ire of state lawmakers.
Earlier this year, the General Assembly considered a bid from Florida-based NextEra Energy to purchase and privatize Santee Cooper, which has existed for 86 years. But that offer came with its own problems, including the possibility of higher rates for customers.
As it stands now, South Carolina lawmakers have not chosen to sell Santee Cooper. NextEra is still waiting in the wings. But many lawmakers have turned their attention to reforming the public utility so it doesn’t repeat its mistakes.
Moncks Corner-based Santee Cooper has submitted its own ideas to lawmakers for how to remake itself. It’s new executive team has laid out a plan to cut its operating costs and dramatically change its power system by adding more renewable energy.
The debate over the future of Santee Cooper, however, will likely continue into next year.
How much am I paying for the VC Summer project?
Dominion Energy South Carolina customers have already paid about $2 billion in the form of higher power bills for the scuttled project — thanks to nine rate hikes levied on customers while the reactors were still under construction.
Even with the lower rates that Dominion provided, former SCE&G ratepayers will continue to pay another $2.3 billion to cover the project’s debt — plus a tidy profit for Dominion — over the next 20 years.
Meanwhile, about 5 percent of Santee Cooper’s residential power bills is still attributable to the V.C. Summer project. The same goes for customers of South Carolina’s 20 electric cooperatives, which buy three-fifths of Santee Cooper’s power.
For Santee Cooper’s average residential customer, that portion of the power rates equals roughly $6.50 per month.
That rate will continue as Santee Cooper pays off its remaining $3.6 billion in nuclear-related bond debt over at least the next 12 years, a utility spokeswoman said.
Santee Cooper’s rates won’t rise any further for at least four years. The utility’s leaders agreed to reduce its expenses in order to handle any additional operational costs over that time period.
What about the criminal investigation of the project’s failure?
It’s heating up.
Federal prosecutors and investigators who have spent nearly three years probing the V.C. Summer venture got their first guilty plea earlier this month. Former SCANA chief operating officer Steve Byrne admitted in court to being part of a larger conspiracy to conceal important information about the project’s flaws from regulators and the public in order to keep the construction effort alive.
Byrne acknowledged that his actions defrauded SCE&G customers of billions of dollars in higher rates. Prosecutors revealed Byrne — who directly oversaw the project — has been cooperating with their investigation for about a year, providing valuable insights in their search for proof of criminal actions.
The U.S. Attorney’s Office in South Carolina also indicated more charges are coming, going so far as to quote sworn testimony from former SCANA CEOs Kevin Marsh and Jimmy Addison in court filings detailing the future of the investigation.
And don’t forget — as a result of the federal investigation, the U.S. Securities and Exchange Commission has sued the company, Marsh and Byrne — alleging they “repeatedly deceived” investors and regulators by hiding the project’s mounting flaws.
That lawsuit is on hold as the criminal probe unfolds.
Which lawsuits have been resolved?
Two huge ratepayer lawsuits against SCE&G and Santee Cooper have been settled, and so has one shareholder lawsuit against SCANA.
In the aftermath of the project’s cancellation, a group of trial attorneys from across the state sued both utilities on behalf of their ratepayers.
They negotiated up to $200 million possible cash refunds — minus their attorneys fees — from SCE&G. The utility agreed to give up $115 million in cash and property valued at up to $85 million. Refund checks are being mailed to customers as the property is sold and money becomes available. Ratepayers have gotten the first round of checks already. Many received less than $1.
The lawsuit against Santee Cooper, however, netted $520 million, minus attorneys fees.
The class-action shareholder lawsuit that was filed in federal court in South Carolina also came to a close earlier this month.
Three law firms representing SCANA’s former stockholders successfully negotiated a settlement for $192.5 million — the largest settlement of its kind in South Carolina history.
How much are the attorneys in those cases getting?
A lot. The V.C. Summer debacle made losers out of customers, investors, lawmakers and regulators. But the trial lawyers who sued the utilities became undisputed winners, netting $129 million in fees.
The group of attorneys took home $51 million of the $200 million SCE&G lawsuit settlement. They had originally asked for $66 million. But Columbia attorney Robert Dodson objected to that figure, calling it outrageously high. A judge reduced the fees by $15 million, then handed nearly $3 million of that to Dodson for his efforts. Judge John Hayes III did not allocate the money to specific law firms himself, leaving the law firms to divvy it up themselves.
The same attorneys stand to make about $78 million from the $520 million Santee Cooper lawsuit settlement, plus $1.5 million in recouped expenses. Former S.C. Chief Justice Jean Toal, who presided over the case, distributed the fees by law firm roughly as follows:
- Speights and Solomons — $14.8 million
- McGowan, Hood and Felder — $14.4 million
- Strom Law Firm — $14.4 million
- Richardson, Patrick, Westbrook and Brickman — $11.5 million
- Savage, Royall and Sheheen, including Democratic state Sen. Vincent Sheheen — $10.3 million
- Bell Legal Group — $4.1 million
- McCullough Khan — $4.1 million
- Galvin Law Group — $3.1 million
- Holman Law and McCallion and Associates — $585,000
- Janet, Janet and Suggs; and the Law Offices of Jason E. Taylor — $585,000.
In requesting the fees, the attorneys explained they worked for years to sue the two power companies. They reviewed millions of documents, took 26 depositions and engaged in high-stakes negotiations with the utilities involved. Some attorneys worked exclusively on the case for more than a year, with no assurance they would be paid.
The three law firms that sued SCANA on behalf of the company’s shareholders also took home a substantial prize for their work.
A federal judge ruled that Motley Rice; Labaton Sucharow; and Bernstein, Litowitz, Berger and Grossman deserved 14 percent of that lawsuit’s winnings. That means the New York and South Carolina firms will split roughly $26.95 million for their work in the securities case.
What about those $1,000 checks Dominion promised?
Gone. But that’s not a bad thing.
Dominion heavily advertised its offer to refund SCE&G customers $1,000 of what they had paid in higher bills for the V.C. Summer project, but that was never a good deal for customers. It was akin to a payday loan, as lawmakers and regulators ultimately realized. The company wanted to give customers $1,000 up front, then charge them all of that money — and then some — for the project over the next few decades.
Later in the process, Dominion revised its bid to scrap the $1,000 checks and provide deeper rate cuts instead. So, customers didn’t get money up front, but they will be charged far less on the back end.
What legal disputes haven’t been resolved?
One of the biggest disputes that Dominion still needs to resolve, as the new owner of SCE&G, is its potential tax liability with the South Carolina government.
Dominion’s latest financial reports show the S.C. Department of Revenue has asked the company to pay roughly $410 million, plus interest, on the material and equipment that was purchased for the abandoned nuclear project.
State tax officials have argued that money is owed because the tax exemption that existed for the nuclear project disappeared when SCE&G’s leaders canceled construction.
It’s yet to be seen whether Dominion will pay that alleged tax bill.
Santee Cooper also has a big legal liability still hanging over its head. The public utility is locked in an ongoing lawsuit in federal court that will decide whether it defrauded some of its investors.
The lawsuit involves so-called minibonds, which Santee Cooper issued to investors in order to finance part of the nuclear project.
The allegations in the case mirror the complaint in the shareholder lawsuit against SCANA. The case will hinge on whether Santee Cooper hid damaging information about the project.
Santee Cooper tried to have the lawsuit dismissed, but a federal judge ruled earlier this year that it can proceed to trial.
What is being done to prevent this from happening again?
Lawmakers, who in 2007 passed the utility-written law that made all of this possible, worked quickly after the project’s collapse to redeem themselves.
They repealed the Base Load Review Act so it can’t be used to incentivize future nuclear projects.
They sharpened the teeth of the state’s utility watchdog, authorizing the Office of Regulatory Staff to fight for customers in rate-hike hearings before the Public Service Commission. They also provided funding for a consumer advocate to argue on customers’ behalf in those trials.
They have systematically replaced PSC members who were long thought too friendly with utilities, kicking off nearly every member of the board as they come up for reappointment.
The results have been stunning. Utility regulators have greatly slashed major rate hike requests from three utilities in a row, giving Duke Energy, Blue Granite Water Service and Palmetto Utilities Inc. just half of what they requested.
South Carolina is quickly becoming tough on utilities.