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Members of SCANA board lack nuclear expertise yet oversaw failed S.C. project while earning a combined $11M

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A sod grower from Orangeburg. A flooring business executive from Charleston. A financial adviser from Charlotte.

They're all well-respected members of a select and powerful club that pushed a multibillion-dollar energy deal that was to fulfill the future electricity needs for millions of South Carolinians for decades to come.

They're accustomed to success. But this time, they failed — on an epic scale.

This influential group is the board of SCANA Corp., considered one of the most elite and coveted business gigs in the state. And it pays well for a part-time position. Last year, the nine outside directors each took home more than $200,000 in stock and fees. 

Now, the prestigious panel is immersed in a full-blown legal and regulatory crisis amid the fallout of the scuttled V.C. Summer nuclear project. Its qualifications and decisions are being scrutinized.

Among the questionable actions: After an audit early last year raised serious concerns about the work at V.C. Summer, SCANA directors paid themselves more than $2 million in stock and cash for 2016 — a 12 percent raise from 2015. They also heaped extra financial rewards on the CEO and other senior executives. 

Not surprisingly, the board has hunkered down since the company walked away from the project July 31, a move that has triggered at least one shareholder lawsuit and investigations by state and federal law enforcement agencies. 

The directors have big responsibilities, overseeing business decisions on behalf of shareholders of a $4.23 billion-a-year Fortune 1000 company that operates in South Carolina, North Carolina and Georgia. But according to critics, SCANA is lacking in nuclear expertise at the board level, unlike its larger peers in neighboring states.

For now, all eyes are fixed on tiny Jenkinsville, north of Columbia, where SCANA was expanding the V.C. Summer Nuclear Station under a 55-45 partnership with state-run Santee Cooper. Work began in 2009 on what was a landmark project, given it had been about three decades since any new nuclear reactors were built in the U.S. About $9 billion went into the nearly decade-long effort to extend the life of the aging plant by the time lead contractor Westinghouse Electric filed for bankruptcy and work was halted, costing 5,000 workers their jobs.

While the project has been declared dead, SCANA continues to collect about $37 million a month, or a nearly a half-billion dollars annually, from ratepayers through its South Carolina Electric & Gas unit to pay for it, as allowed under state law. About 18 percent of each SCE&G customer’s monthly bill goes toward the debt. 

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scana board of directors

'A damn shame' 

Most of the tough questions about the collapse at V.C. Summer, so far, have been aimed at the senior management at SCANA and Santee Cooper.

The accountability of the boards became an issue earlier this month. While quizzing Santee Cooper CEO Lonnie Carter at a hearing, state Rep. Micah Caskey asked about the qualifications of the Moncks Corner-based utility's directors, who, unlike SCANA's, are political appointees. The lack of technical expertise in the electric utility business bothered the West Columbia Republican.

"There isn’t an engineer among them," he said.

After a few other remarks, Caskey wrapped up his inquiry by telling Carter: “I just think it’s a damn shame none of them know anything about building a nuclear plant.”

Lynn Teague took his point a step further through social media. The vice president for issues and action at the League of Women Voters of South Carolina, Teague was watching the hearing. In a Twitter post, she observed that SCANA, like Santee Cooper, also had no directors with any formal training in nuclear energy.

"Maybe just one member who understood would have helped?" Teague tweeted to her followers.

It's a question that's likely to come up again as multiple investigations continue into the nuclear project's costly demise.

While ratepayers and investors wait for answers, they might be asking whether SCANA's hand-picked board was up to the rigorous task at hand, whether it could provide the corporate and technical oversight required to stay on top of perhaps the largest and most complex construction project in state history.

Teague, for one, isn't so sure. 

"Looking at their online bios, I don’t see the kind of experience one needs to bring to this," she said last week. 

She's not alone.

“If you have a board that doesn’t have anybody with any experience in a $10 billion undertaking, I don’t think we can be surprised that it failed,” Caskey, the Midlands lawmaker, told The Post and Courier last week.

Rep. Peter McCoy, chairman of the S.C. House committee investigating the V.C. Summer meltdown, reviewed the professional backgrounds of SCANA's board members Thursday.

"I'm sure there are some nice folks on there," the Charleston Republican said. "They look like they're well-educated, and I think it's always good to bring a variety of backgrounds to a board. That's a plus. ... But I don't see a single person who has any past working experience with nuclear plants or nuclear projects. To me, it's problematic if they're asking the state and its citizens to be on the hook for billions of dollars for a project they told us they're not going to finish." 

SCANA said its board is more than fit to serve. 

"We believe the combined business and professional experience of our board of directors, and their various areas of expertise, make them well qualified for service on our board," it said in a statement Friday.

The lack of nuclear power know-how at the SCANA board starts at the top: CEO Kevin Marsh, who also is chairman, is a whiz with numbers who came up through the finance side of the company.

Leading the board's five-member Nuclear Oversight Committee, which deals only with the existing reactor at V.C. Summer, is James Roquemore, a respected agricultural entrepreneur who runs a Georgia seed company and Orangeburg-based Super-Sod/Carolina. 

SCANA's two closest investor-owned utility peers have taken a different approach. Charlotte-based Duke Energy has stocked its 13-member board with four directors who have real-world experience, including a former chief nuclear officer for New Orleans-based Entergy Corp.

Southern Co., the owner of Georgia Power, has recruited two outside nuclear experts to its inner circle. Among them is Dale Klein, a retired chairman of the Nuclear Regulatory Commission.

The dearth of technical experience at SCANA is just one of the perceived weaknesses within the company's boardroom, according to experts.

The proxy advisory firm Institutional Shareholder Services has raised concerns about Marsh, the CEO, also serving as chairman of SCANA. Investors at some publicly traded companies have demanded those top roles be split to keep one decision-maker from amassing too much power and influence.

Directors who stick around too long is another concern. Several SCANA board members have had a front-row seat at the utility owner's table for more than two decades, a red flag in the world of corporate governance.

Maceo Sloan, a Charlotte-based lawyer and investment manager, was first elected as a director in 1997. He was joined by James Bennett, a bank executive with First Citizens in Columbia, and Lynne M. Miller, an environmental consultant from Virginia. Maybank Hagood, CEO of Charleston-based Southern Diversified Distributors Inc., and William M. Bird and Co., has held his board seat for nearly as long, more than 18 years.

Well-compensated

Generally speaking, that kind of longevity among directors is "clearly an issue," said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

"You want to rotate people along to have a more diverse and active board," Elson said last week. "That's why in these situations ...  investors are pushing for ... limits on directors terms, and ... expertise, or some experience, in the area the company specializes in."

SCANA disagreed, saying longevity is an attribute its business because it allows directors to gain "considerable institutional knowledge about our company and its operations."

"Because our operations and business structure are extremely complex and highly regulated, continuity of service and the development and retention of institutional knowledge help make our board more efficient and effective," according to the company. "That said, we also believe a wide range of tenure, and periodically bringing new members onto the board, allows for consideration of new ideas and processes. We currently have three directors with less than five years’ experience serving on our board."

Marsh's dual role as CEO and chairman, combined with the lengthy board tenures, are two of the reasons that Institutional Shareholder Services assigned SCANA an overall 9 out of 10 — with 10 being the worst score — on its QualityScore rating, indicating what it called a "high governance risk."

Lucrative fees could be one reason behind the extended stays. Since 2009, when work began on the V.C. Summer project, current and former outside directors have earned a combined $11 million in stock and cash for their services, such as attending quarterly meetings and other required business gatherings, according to filings with the Securities and Exchange Commission.

Their latest raise took effect in mid-2016, after they bumped their annual retainer by $26,000, to $213,000, not including extra fees they can earn by attending special meetings and chairing committees.

At the same time, the board boosted the compensation for the five senior managers at SCANA, including base salaries and bonuses, by an average of 7 percent, to a total of $14 million last year. An increase in a subcategory called short-term incentive pay to Marsh and his top nuclear lieutenant, Steve Byrne, was based partly on their oversight of the company’s “nuclear construction activities.”

A board committee approved those increases in February 2016, the same month the so-called Bechtel report that SCANA had commissioned was completed. The secret 130-page independent audit of the V.C. Summer project, which Gov. Henry McMaster released last month, painted a picture of flawed building plans, faulty design work, poor management of contractors and high turnover. 

SCANA didn't respond to a written question about the raises, but it has said that it made improvements after the Bechtel report was finished.

At least one shareholder is seeking to claw back some of what he termed the "appalling, disturbing and galling" performance bonuses the board has paid management over past decade. 

Longtime government watchdog John Crangle, a self-described 40-year investor in SCANA's stock, is suing the company and its directors in Richland County. In his Sept. 26 complaint, he alleged the board "simply 'abandoned' its fiduciary obligations to hold the executives accountable for overseeing and managing the performance of contractors for the project."

Columbia attorney Scott Elliott, who represents large industrial power customers that belong to the S.C. Energy Users Alliance, said it's difficult to make snap judgments about the board's actions because it operates in such an "opaque" fashion. Unlike Santee Cooper, SCANA's board meeting are held in private, and the company isn't required to disclose many, if any, details about what its directors discuss. 

"I don't know what I don’t know. ...  The board, insofar as I can tell — we have no insight into the board's dealings with respect to this nuclear plant," he said.  

That leaves Elliott to "infer" based on information that's already been disclosed.

As he sees it, it's fairly cut and dry. Either outside board members were actively engaged in the oversight of the V.C. Summer project, as finance chief Jimmy Addison has testified. Or for some unknown reason they weren't.

“There’s not an explanation for this board that is helpful for them," Elliot said.

Contact John McDermott at 843-937-5572 or follow him on Twitter at @byjohnmcdermott