Nukegate scandal
The Nukegate scandal was a political and legal scandal that arose from the abandonment of the project to construct two additional nuclear reactors at the Virgil C. Summer Nuclear Generating Station in South Carolina in 2017. South Carolina Electric & Gas and the South Carolina Public Service Authority collectively invested $9 billion into the construction of two nuclear reactors in Fairfield County, South Carolina from 2008 until 2017. The utilities shifted the risk onto their customers using a state law that allowed utilities to raise consumers' electricity rates to pay for nuclear construction, which led to public outrage.
In 2008, the utilities contracted with Westinghouse to build two AP1000 nuclear reactors for an estimated cost of $9.8 billion. The AP1000 design was unique because it relied on pre-fabricated parts which allowed for modular construction. Construction began in 2013, however numerous delays occurred from 2014 to 2017 due to manufacturing errors and incompetence. In 2017, the estimated construction cost had grown to $25 billion. These cost overruns led Westinghouse, whose contracts required them to pay the construction costs of this expansion and their separate project to build two new reactors at Vogtle nuclear plant in Georgia, to file for Chapter 11 bankruptcy in March 2017. Several months later the project was abandoned by Santee Cooper and SCE&G's parent company, SCANA. Ratepayers continue to pay increased rates for the expansion despite its termination.
The economic losses and subsequent public outrage drastically altered the future of both utilities. The total cost paid by both utilities in legal settlements to ratepayers and shareholders exceeded a billion dollars. The stock of SCANA, the only Fortune 500 company based in South Carolina, dramatically fell. Both SCANA and SCE&G merged with Dominion Energy in 2019. Until the COVID-19 pandemic, the largest issue debated in the South Carolina General Assembly was whether or not to privatize Santee Cooper. In 2021, the General Assembly ultimately decided to reform the organization instead. Santee Cooper will remain under state ownership. However, its board will undergo change.
As a result of Nukegate, two SCANA executives, CEO Kevin Marsh, and Vice President Stephen Byrne, pleaded guilty for fraud after being charged by the U.S. Attorney's office. Their crimes centered around their efforts to hide the construction delays from shareholders and regulators. The construction of the two units needed to be finished by 2020 in order to qualify for over $2 billion in federal tax credits. The viability of the project relied on receiving the tax credits. However, both men admitted that they knew the project was not going to be completed in time to qualify for the credits and that they hid that information from regulators and shareholders. Both men have also been indicted by the U.S. Securities and Exchange Commission for securities fraud. In 2021, Marsh was sentenced to two years in prison and in 2023 Byrne was sentenced to fifteen months in prison. As of March 2023, two executives at Westinghouse have also been charged with crimes. However, due to Santee Cooper's limited involvement, no executives from that organization were charged with any crimes.
Construction
Troubled construction
In May, 2008, SCE&G and Santee Cooper announced that they had signed an engineering, procurement and construction contract with Westinghouse to build two AP1000 nuclear reactors. The CEO of Santee Cooper cited the state's projected growth as a determining factor for increasing the utility's energy capacity. Both utilities were joint owners in the project and shared operating costs. The two reactors, with an estimated cost of $9.8 billion, would be the first built in the United States in the last thirty years and were heralded by its proponents as leading the United States into a new nuclear renaissance.The AP1000 design was seen as novel because of its simplified structure and use of pre-fabricated nuclear reactor parts that allowed for modular construction. Construction began on the units in 2013 after the design was approved by the Nuclear Regulatory Commission. However, contractors lacked the requisite experience because the nuclear power construction industry had stagnated for thirty years. The stagnation also resulted in inadequate supply chains. Ultimately, Westinghouse had to take over the construction of the units itself, something the company was not qualified for.
Westinghouse's management of the construction proved to be calamitous. The construction site employed five thousand laborers, who built two new concrete plants on the site to continuously pour concrete as well as a seven-story-tall building to assemble structural modules. But the site lacked a fully-integrated construction schedule and the pre-fabricated nuclear reactor parts that arrived on-site had been manufactured incorrectly, which caused significant delays. In 2008, the initial cost estimate of the expansion was $9.8 billion, but by 2017 it had ballooned to $25 billion.
During the construction process, Westinghouse and other contractors at V. C. Summer violated state law by having unlicensed workers create mechanical and electrical blueprints without having a professional engineer sign off on them. SCANA received a memo from Westinghouse's deputy counsel which stated that the contractors did not have to follow South Carolina law because the company's federal license superseded the state's requirements. Executives at Santee Cooper claim they were not made aware of the Westinghouse memo. The legality of that memo is in question. Nonetheless, the blueprints were often faulty and resulted in incorrect parts, thousands of engineering changes, and billions of dollars in wasted money".
2015 audit
Santee Cooper and SCE&G hired Bechtel to audit the project in 2015. Bechtel's draft audit stated that the nuclear reactors would not be finished in time to collect the $2 billion in federal tax credits which the project relied on. However, in Bechtel's final report released in February 2016, the previous finding was removed from the audit at the request of an attorney working for both utilities. Relying on the impression that the reactors would qualify for the tax credits, the state Public Service Commission approved an $800 million increase in the project's budget as well as a fixed-price contract with Westinghouse.Westinghouse bankruptcy and the project's demise
On March 31, 2017, Westinghouse filed for Chapter 11 bankruptcy due to the costs incurred from both the V. C. Summer expansion as well as the construction of two additional units in Burke County, Georgia. The bankruptcy was seen as a huge blow for the nuclear energy industry. At the time, construction on both units was only 30 percent complete but the majority of the reactor parts were on-site. Santee Cooper decided to halt construction against SCANA's wishes. The utilities announced that the halt in construction was due in part to a change in the energy industry brought on by more energy efficient technology and the natural gas boom.In July 2017, the companies announced that they had made an agreement with Toshiba, Westinghouse's parent company, to release Westinghouse from its prior obligations for $2.2 billion. Further, in 2020, Santee Cooper and Westinghouse announced a separate agreement to sell the remaining reactor parts and to share in the profits.
At the point of termination, SCE&G and Santee Cooper had invested $9 billion into the project. The announcement sent SCANA's stock reeling. The project became known as the largest business failure in the state's history. The subsequent federal investigation of the failure led to it being nicknamed "Nukegate", a phrase derived from the Watergate scandal.
Base Load Review Act
The failure was made possible by the Base Load Review Act that was passed by the South Carolina General Assembly in April, 2007. The act made it easier for electric utilities to charge ratepayers for the construction of nuclear reactors. The bill, sponsored by state senator Glenn McConnell, essentially allowed the utilities to shift the risk of the construction to ratepayers. Utilities would be able to file a request with the Public Service Commission to raise rates for plant construction. If the commission found the application to be "prudent", the commission would issue a project development order allowing the utility to increase rates. However, the statute did not define what was or was not "prudent". Critics of the act argued that "any management decision by the utility that impact the cost and schedule of the project" essentially had to be "deemed prudent by the Public Service Commission if it advance the completion of the project", and that this resulted in "cost overruns and schedule delays a natural unintended consequence" of the act.Governor Mark Sanford refused to sign the bill but after a five-day moratorium, the bill became law on May 3, 2007. Sanford's chief of staff later said that the Base Load Review Act "was probably the clearest case could ever see of a special interest using all of its power and leverage to get something passed". From its inception to its enactment, the bill's legislative process was considered remarkably fast.
From 2008 to 2016, SCE&G sought and received nine utility rate hikes to pay for the nuclear expansion. By 2017, SCE&G ratepayers had paid an additional $1.4 billion due to the hikes. A typical SCE&G consumer paid an extra $27 per electricity bill for the expansion, and a typical Santee Cooper consumer paid an extra $6.50. By 2018, South Carolina utility prices were among the highest in the country. This was made easier because in 2004 the General Assembly had gotten rid of the state's consumer advocate.
The South Carolina Senate unanimously repealed the act on May 9, 2018. In June 2018, Governor Henry McMaster's veto of the repeal was overridden by the General Assembly.