A South Carolina circuit judge has closed the book on a lengthy class-action lawsuit against the utility owned by the state and an investor-owned power company over their failed nuclear reactor project.
On Tuesday, Acting Circuit Court Judge Jean Hoefer Toal issued
In a 39-page order, Toal granted the motion to approve the settlement on behalf of more than 1.65 million ratepayers and found that "its planned implementation is in all respects fair, adequate, and in the best interests of the class.
"The parties agreed to a settlement amount of $520 million, representing a 96% recovery of costs incurred by the customer class from full notice to proceed [with the twin nuclear project] through project abandonment," Toal wrote. "In addition, class counsel secured a four-year freeze on rate increases by Santee Cooper, the value of which is estimated to total roughly $510 million of additional benefit to the customer class."
Under settlement terms, Richmond, Virginia-based Dominion Energy, which now owns SCE&G, will pay $320 million, while Santee Cooper will pay $200 million in cash over three years, in addition to freezing rates over the next four years.
Cook's lead attorney, Daniel Speights, founding partner at Speights & Solomons LLC, didn't immediately respond to a request for comment about the settlement.
Mollie Gore, spokeswoman for Santee Cooper, said utility officials appreciated Toal's "swift decision," which was issued in writing Tuesday, after a hearing on Monday.
"This settlement is good for our customers, and Santee Cooper is taking the steps necessary to move forward," Gore said in a statement. "This includes a meeting of our board on July 31 to authorize management to comply with all components of the settlement."
Dominion Energy didn't immediately respond to a request for comment.
The class-action suit is just one of several lawsuits pending over the decision by Santee Cooper and SCE&G
Santee Cooper, formally the South Carolina Public Service Authority, owned 45% of the project. Its analysis in 2017 showed that completing the units would cost customers another 41% in rate increases by 2030, and another nearly $7 billion on top of the $4.5 billion that had already been spent on the project.
The utility issued about $4.2 billion of bonds to finance its obligations.
The decision to stop work followed a comprehensive project review spurred by the March 29, 2017 bankruptcy filing of the engineering, procurement and construction contractor, Westinghouse Electric Co.
In addition to approving the settlement Tuesday, Toal also granted the request by attorneys for the plaintiffs for 15% of the net present value of the $520 million common benefit fund as their fees, and another $1.54 million for the costs their firms incurred.
Toal said 78 class members opted out of the settlement, while three objections were filed, which she found to be without merit.
The judge said the plaintiffs developed an argument that the defendants should have ceased construction on the reactors in April 2012, instead of signing off on the full notice to proceed with the project.
During discovery plaintiff’s attorney’s estimated customers of both utilities were assessed $540 million in financing costs from the notice to proceed until construction ended.
“The record demonstrates the settlement was the product of good faith negotiations,” Toal wrote. “The resulting settlement represents a significant return of funds expended during the interim of the project to the customer class, as well as additional rate relief to benefit the class over the next four years.
“Given this court’s familiarity with the case and the nuanced procedural posture and substantive law, this court attests the settlement is not the product of collusion.” the judge said. “Rather, the settlement is a hard-fought resolution among competent adversaries dedicated to client advocacy.”
In finding the settlement to be fair, Toal also said there is no evidence that the settlement was “the product of anything other than arms’ length negotiations.”
While the Cook litigation has ended, a federal judge ordered discovery to begin in another proposed class-action lawsuit by an investor in Santee Cooper's mini-bond program, filed in the U.S. District Court of South Carolina’s Charleston Division on April 15, 2019.
Murray C. Turka, the lead plaintiff, filed the federal complaint against Santee Cooper and Lonnie Carter, the authority’s former chief executive officer, alleging violations of federal securities law anti-fraud provisions for failing to disclose pertinent information to investors about the nuclear project when the mini-bonds were sold.
During the period questioned in the lawsuit, Santee Cooper issued mini-bonds directly to residents of the state in 2014, 2015 and 2016 totaling $117.8 million. Turka certified that he purchased $15,000 of the bonds in 2014.
Gore, Santee Cooper's spokeswoman, said Tuesday that all of the utility’s mini-bonds were called Jan. 1, and the program has been closed.
On June 25, Federal Judge Richard Mark Gergel ordered the parties to begin discovery in preparation for a jury selection and trial on or after July 1, 2021, according to the latest scheduling order in the Turka litigation.
Both sides are due to file lists of expert witnesses by December of this year. Final motions pertaining to the case and pretrial briefs are due five days prior to jury selection.
Santee Cooper and Carter had filed a motion to dismiss the case, but Gergel rejected those requests on Feb. 25.
The judge found that Turka had standing to bring the case for himself and a class of investors like him, and that Turka "sufficiently alleged misstatements or material omissions" in bond documents and other communications about the nuclear project.
Official statements for the mini-bonds, however, represented that the project was "subject to generic financial risk factors," Gergel said. "Out of these allegations, the complaint generates a strong inference that Santee Cooper and Carter acted recklessly in that the danger of misleading mini-bond purchasers was so obvious that they must have been aware of it.
"Considering the totality of the circumstances alleged and giving 'the inferential weight warranted by context and common sense,' the court finds that plaintiff plausibly pled at least reckless scienter [or knowledge of wrongdoing] as to Santee Cooper and Carter," the judge said.
Gergel also found that Turka "plausibly pled" that he and the putative class suffered an economic loss as a result of the alleged misstatements and material omissions in official statements, and that they suffered damages by receiving artificially deflated interest payments on the mini-bonds.
The cost of Summer Nuclear Units 2 and 3 was originally estimated to be approximately $9.8 billion. Based on its 45% ownership interest, Santee Cooper's original cost to construct the two reactors was estimated to be approximately $4.4 billion.
As of Dec. 31, 2019, bonds issued for the ill-fated project were outstanding in the amount of $3.6 billion, according to Santee Cooper's 2019 comprehensive annual financial report.
