Federal investment regulators appear to be investigating whether Santee Cooper did enough to warn lenders about troubles with its massive nuclear project, according to a subpoena obtained by The Post and Courier.
In a new line of questioning, Securities and Exchange Commission investigators in Atlanta asked how Santee Cooper, a state-owned utility, handled a highly critical audit years before they called off construction on a pair of nuclear reactors at the V.C. Summer Nuclear Station, near Columbia.
The secret bombshell report raised alarms as early as 2015 about the project's viability and whether it would be finished in time to claim billions in tax credits. Auditors from the construction giant Bechtel Corp. also warned that Santee Cooper and its partner, SCANA Corp., weren't managing the project well.
Documents reviewed by The Post and Courier show that Bechtel scrubbed concerns about the schedule and the project management from its final report, under pressure from SCANA's legal team.
In a subpoena served on Santee Cooper in March, the SEC asked for four years of documents, including anything "pertaining to the disclosure or non-disclosure of the Bechtel report, assessment and schedule."
Investigators also asked for drafts of Santee Cooper's reports to investors and a list of everyone who had a copy of the Bechtel report.
The SEC declined to comment on its investigation's focus. Santee Cooper spokeswoman Mollie Gore said the utility was "fully cooperating with the SEC its investigation of V.C. Summer issues" and declined to comment further.
Government agencies have to hand over detailed financial information when they sell bonds to borrow money, because their debt is traded publicly. The SEC appears to be focused in part on what Santee Cooper said after receiving the Bechtel report.
The subpoena asks about five times the utility stepped into the bond market in 2016. Over the course of the year, it raised nearly $1.5 billion, mostly to refinance old debt and pay for the nuclear project.
When it issued those bonds, it gave investors a few pages of information about the nuclear project. They include a warning that large construction projects can face delays and cost overruns because of things like "unforeseen engineering problems" and "performance by engineering, procurement or construction contractors."
Bechtel found that the reactors' engineering designs were problematic and the contractors weren't motivated to stay on schedule.
The SEC’s involvement in the failed V.C. Summer expansion first began last fall when investigators issued a subpoena to SCANA, a publicly traded company that owns South Carolina Electric & Gas. Shareholders have accused SCANA of hiding the Bechtel report and papering over the project's mounting problems.
SCANA still appears to be a focus of that investigation — the SEC’s file name is "in the matter of SCANA Corporation" — but Santee Cooper has come into its scope, too. Its subpoena was sent by an attorney advising the SEC's municipal bond unit in Atlanta.
Santee Cooper's records indicate that the utility was concerned about the disclosure issue once it got the Bechtel report. In an internal "action plan" memo, its staff asked how SCANA would disclose the report's findings to regulators and investors.
"This same concern applies to Santee Cooper," the undated memo reads. "Disclosures should be similar."
On the next line, it went on to say that SCANA's top officers and directors faced a personal legal risk: "Now that SCE&G is specifically aware of problems raised in report, failure to act may result in O&D liability."
The SEC's investigation parallels a probe by the U.S. Department of Justice and another by the State Law Enforcement Division, but so far, the inquiries have stayed out of the public eye. No one has been indicted because of the nuclear project, which was called off last summer after nine years of work that cost $9 billion.
Even so, they are pressing on. The FBI visited the V.C. Summer site earlier this month with as many as 19 agents, in one of the most visible shows yet of investigators' work. The Justice Department hadn't subpoenaed Santee Cooper since last fall.
And while investigators look into whether bond investors were warned about the project's problems, South Carolina still has to sort out how to repay them. The unfinished reactors account for nearly 5 percent of Santee Cooper's electricity rates, a number that's expected to rise in a few years.
At SCE&G, they eat up nearly a fifth of ratepayers' bills, $37 million a month in all. Lawmakers are considering legislation that could force investors to eat most of that sum.