Westinghouse's nuclear reactor business had become a "de facto Ponzi scheme" by the time it foundered — a money pit that could only be filled by signing up more and more customers to build power plants.
That's the case laid out in bankruptcy court filings by Citigroup and a group of hedge funds that have set out to do what a pair of South Carolina power companies didn’t: squeeze more money from the troubled company that could lower power bills for customers.
Citi has filed claims worth $7.5 billion against Westinghouse, accusing the company of papering over problems with its brand-new nuclear reactor technology and mismanaging a project to build two of them north of Columbia.
It's making that case with South Carolina Electric & Gas and Santee Cooper, the power companies behind Westinghouse's failed $9 billion nuclear project here.
The utilities sold Citi their $2.2 billion settlement with Westinghouse's owner as well as their right to sue Westinghouse, passing up an opportunity to take their lead contractor to court. The utilities had been considering a lawsuit for years but ultimately settled on a path that they say was safer, if less lucrative.
But as lawmakers decide who should pay for the project and Citi’s claims wend through the courts, South Carolina is left with an enormous question: Did the state's utilities miss out on a chance to claw back some of the money they spent?
"We have seen them make zero effort whether it comes to just reducing the rates on their own nuclear premium or pursuing legal action with Westinghouse to regain money for the ratepayers of the state," said state Rep. Peter McCoy, a Charleston Republican who led a panel that probed the V.C. Summer situation. "It just shows complete malfeasance of how they've handled the entire situation from day one."
To be sure, it's unclear whether the power companies left money on the table that could reduce the state's electric bills. Citi's claims have been unsuccessful so far, and as Westinghouse's bankruptcy case comes to a close, it's possible they won't get a penny for its investors.
But the legal filings represent one of the most full-throated arguments leveled against Westinghouse yet for its role in South Carolina's nuclear fiasco — a construction meltdown that will leave ratepayers on the hook for decades.
They accuse Westinghouse of running a project that was "blatantly mismanaged for years."
They accuse the company of pulling off an "'extend and pretend' scheme" to string the utilities along for years.
And they accuse it of digging in deeper and deeper to hide the extent of its problems, until they came crashing down.
All the while, South Carolinians paid their power companies tens of millions a month for a pair of reactors hurtling toward disaster.
Citi's allegations against Westinghouse fill hundreds of pages, a litany of arguments about Westinghouse's role in one of the biggest financial meltdowns in South Carolina history.
But its most explosive charge is summed up in four words: "de facto Ponzi scheme."
That's what the bank says Westinghouse became in the last two years of South Carolina's effort to expand the V.C. Summer Nuclear Station in Fairfield County. It scrambled to find customers to build reactors around the world, Citi says, and it needed to find one desperately.
According to Citi's filings, a former risk management office at Westinghouse said the company needed a cash advance from new customers to cover the costs mounting at V.C. Summer. The filings describe it as a "Hail Mary" strategy from a company without a long-term plan.
The filings don't name the former official, and Citi declined to comment for this story.
The customers never came so the money pit was never filled. And by the end of South Carolina's reactor project, Westinghouse had hemorrhaged so much cash that one of most storied names in American industry was brought to its knees.
In court papers, Citi alleges that Westinghouse knew about its financial problems by the fall of 2015, and that it stayed quiet at a pivotal moment for the nuclear project. That's when SCE&G and Santee Cooper signed their last contract with Westinghouse, agreeing to pay far more for the project if they could lock in its cost.
Utility executives knew Westinghouse would pay a steep price for that deal, but they've said they figured that was the cost the company would have to pay to build dozens of reactors around the world. It's unclear how much SCE&G and Santee Cooper knew about Westinghouse's financial woes.
Behind the scenes, however, the contractor's problems had started bubbling to the surface.
A month before the contract was signed, Westinghouse's owner, Toshiba, announced billions of dollars' worth of previously undisclosed losses. Toshiba didn't say that Westinghouse was the root of those losses until November 2015, a month after the deal was inked.
The utilities paid out nearly $1.3 billion between then and last July, when they called off the project, according to the Citi filings. Those costs will ultimately be passed along to ratepayers.
"Despite knowing its business was not viable, (Westinghouse) attempted to 'extend' the time until its unavoidable collapse and to 'pretend' that its business remained viable," Citi said.
At the same time, Westinghouse — a historic company that designed most of the world's nuclear reactors — made plans to take over the contractor tasked with building the new units at V.C. Summer.
The acquisition thrust Westinghouse into new territory and piled risk onto the company, a move that eventually toppled it. At the time, Westinghouse said the deal was meant to streamline a struggling project.
It would put an end to infighting between the V.C. Summer contractors, and it kept their conflicts out of court, where the project could grind to a halt.
Citi, however, suspected an ulterior motive: By avoiding a lawsuit, Westinghouse could also "hide from public view both its, and the project's, lack of viability."
Westinghouse declined to answer questions about the allegations.
Out of court
SCE&G and Santee Cooper had been growing frustrated with Westinghouse's work for years. And in the pivotal fall of 2015, they considered a lawsuit of their own.
That's why the utilities hired Bechtel Corp. to audit the project that year. Bechtel uncovered a litany of problems — from incomplete designs for the reactors to insufficient oversight — and the utilities say they kept its $1 million report hidden from public view because they planned to use it in court.
They never did.
SCE&G and Santee Cooper settled with Toshiba last summer for nearly $2.2 billion. That sum covered only a fraction of the roughly $9 billion they had already spent on the project, leaving ratepayers on the hook for the rest.
Citi's filings indicate that they could have pushed for more.
While the utilities' contract with Westinghouse capped how much they could collect in damages at 25 percent of what they paid, Citi argues the limit is nullified in the face of the contractor's "bad faith" and "grossly negligent misconduct."
But that wasn't the utilities' chief concern after they settled with Toshiba. They were nervous that they would be stuck with even less.
Toshiba had been brought to the brink by Westinghouse's failed nuclear bet. It was driven so close to disaster that it even had to sell off its business making memory chips, the crown jewel of its technology empire.
Its dire straits concerned SCE&G and Santee Cooper because they weren't due to be paid in full for several years. So they started looking for someone who'd pay them a lump sum upfront.
That's when Citi stepped up, on behalf of a group of hedge funds that were snapping up claims against Westinghouse.
The bank agreed in September to pay the utilities to assume the rights to sue Westinghouse and pursue claims in bankruptcy court. Citi pocketed $171 million so Santee Cooper and SCE&G could get their money up front and not have to wait. That's how Citi got in the business of litigating South Carolina's nuclear disaster.
The utilities say they stand by their decision — that they were taking the bird in the hand.
Santee Cooper spokeswoman Mollie Gore says the power provider had hired bankruptcy counsel, but it ultimately opted for the option with the "least risk, to offer the maximum benefit to our customers."
SCE&G echoed that argument. Utility spokeswoman Rhonda O'Banion said: "There is no guarantee the outcome would have been favorable, nor any guarantee SCE&G would have collected any money from Westinghouse."
Andrew Brown contributed to this report.