Charges against corporate officers
Public company executives can face charges of securities fraud if they make misleading statements about construction delays and cost overruns.
The US Securities and Exchange Commission sued the CEO and an executive vice president of SCANA Corp. and its subsidiary, South Carolina Electric & Gas, in federal district court in February for what it said was a pattern of misleading statements over several years about progress on construction of a nuclear power project in South Carolina that ended up being canceled on account of construction delays and cost overruns.
SCANA began working on adding two nuclear reactors to the existing Virgil C. Summer nuclear plant near Jenkinsville, South Carolina in 2008. SCANA owned two thirds of the plant, and the other third was owned by state-owned utility Santee Cooper.
Construction began in 2013 and was expected to cost $10 billion.
The economics of the project rested in part on qualifying for $1.4 billion in federal production tax credits. Such credits can be claimed under section 45J of the US tax code on up to 6,000 megawatts in new nuclear generating capacity put in service by the end of 2020. The credits run for eight years after a nuclear reactor is first put in service and are $18 per megawatt hour of electricity sold to third parties, but there are caps on how much can be claimed in credits in any year.
The SEC said that false statements about progress on the project helped keep the SCANA stock price higher than it would have been otherwise and helped the company raise $1 billion in the public debt market.
One of the two new reactors was originally supposed to be completed in 2016 and the other by 2019.
Westinghouse, the contractor, revised the schedule in 2015 to push back completion of unit 2 to June 2019 and unit 3 to June 2020, but the SEC said that SCANA senior management knew that the project was substantially behind even this revised schedule.
An internal memorandum written by one of the two executives said Westinghouse “has no credibility for developing a realistic schedule” and SCANA has “no confidence in [its] ability to complete Unit 3 by the end of 2020.” The same executive reported factually two days later, during a first-quarter earnings call, on the Westinghouse revisions to the construction schedule, but without expressing his doubts about the schedule, and he later told the Public Service Commission that regulates SDG&E that the revised schedule represents “the best and most definitive forecast of the anticipated costs and construction schedule required to complete this that is available . . . .”
While the statements were factually correct, the SEC says they were misleading.
SCANA retained Bechtel to give an independent assessment later in 2015. Bechtel reported that even under the best-case scenario, unit 2 would be completed sometime between December 2020 and August 2021 and unit 3 would be completed between June 2022 and June 2023.
The two executives gave a more optimistic assessment of the construction schedule when they testified before the PSC without mentioning the Bechtel report.
According to the SEC complaint, SCANA said publicly in October 2015 that it had signed a new agreement with Westinghouse that resolved most of the problems with the project. That agreement moved the completion dates for the new units back by just 60 days.
Westinghouse filed for bankruptcy in March 2017. By then, the cost estimate had increased to $18 billion. SCANA and Santee Cooper spent $9 billion on the project by the time they canceled it at the end of July 2017.
An internal email by a SCANA executive to a colleague said we “got on our jet airplanes and flew around the country showing the same damn construction pictures from different angles and played our fiddles while the whole mf [sic] was going up in flames.”
The SEC wants the court to order the company and possibly the executives to pay restitution and civil penalties “in an amount to be determined by the court.” It also wants the two executives banned from acting as officers or directors of any companies that issue securities for which SEC filings are required.