Jim Bernhard isn’t asking Lafayette residents to trust him. He said that more or less verbatim in making his company’s pitch to run Lafayette Utilities System during an appearance at the Lafayette Rotary Club last month.
“I’m not asking them to trust us. That’s not what I’m asking them to do,” is precisely what he said, replying to a jab from The Advertiser’s Claire Taylor. She had cast an aspersion at the proud and cocksure man — a man of Lafayette, he claimed in his remarks that day, who ate “Judice hamburgers” and drank margaritas underage at LaFonda. He bullied her down, specifically, for her questioning of his track record building nuclear power plants in Georgia and South Carolina in the late aughts. Those ventures, undertaken by Bernhard’s previous conglomerate, Shaw Group Inc., in 2009, went haywire according to some reports, soaring billions over time and over budget.
“That kind of flopped on y’all,” Taylor asserted.
“You’re incorrect,” Bernhard responded. “We exited long before those issues.” Shaw Group, he noted, had decided that nuclear wasn’t for them after the 2011 Fukushima reactor meltdown in Japan. Indeed, Bernhard sold Shaw Group to competitor Chicago Bridge & Iron in 2013 for $3 billion. Not long after, CB&I’s stock tanked.
Meanwhile, Bernhard boasts his stewardship of Shaw Group, at one time a massive engineering and construction conglomerate, as bona fides for his new firm’s play to buy the right to run LUS.
“What we do well is manage businesses,” Bernhard intoned to the Rotarians. “What do we well is grow businesses. That’s what we do.”
To his point, Bernhard grew Shaw Group from a tiny pipe-manufacturer into a manufacturer of nuclear reactors, a segment that plagued the company before he sold it. Deal by deal, he bought the company into new sectors, rivaling the largest engineering and construction firms in the world. By 2000, Shaw acquired Stone & Webster, an energy company with a history in nuclear power, but, reportedly, no one left on the payroll who knew how to build nuclear reactors.
At the beginning of the millennium, nuclear power was once again en vogue. Seen as a cleaner alternative to fossil fuel power generation, but long before the price of natural gas and new regulations fracked a hole under the coal industry, nuclear generation was primed for a revival. The United States hadn’t built nuclear reactors since Three Mile Island melted down in 1979, but reputed advances in parts manufacturing, introduced by Westinghouse Electric Corporation, promised to make building nuclear plants faster and cheaper. Westinghouse won contracts to construct four power plants: two in Georgia and two South Carolina. Owning 20 percent of Westinghouse, Shaw was tapped to manufacture the reactors.
In a 2017 exposé published in the industry journal Engineering News-Record, a former Shaw Nuclear procurement quality-assurance manager, Chris Hartz, describes an operational mess. Shoddy workmanship and absent quality control vexed the process nearly from inception. Poor communication between the Shaw-owned manufacturer in Lake Charles and the Westinghouse designers in North Carolina corroded trust among the parties.
“Pissing in the wind,” is how Hartz describes Shaw Nuclear’s early attempts to get into the business. There was no detail schedule, no basis of estimate, no list of vendors, he says. He couldn’t find anything documenting the number of audits he would need to perform for the vendors, or how many people would be doing inspections. “All that equals money, equals people,” he says. “You know, budget. Well, there was no such thing.”
That was 2009; the Fukushima disaster was in March 2011.
Shaw was undoubtedly moving into untested waters when it hoped to profit from what was being billed a “nuclear renaissance.” Rather than have all the work done at the nuclear-reactor construction sites, Westinghouse’s design concept called for dozens of types of modules to be built from submodules that were created at the Lake Charles plant and then shipped to the power plants where they would be fitted together in assembly buildings, according to the ENR story.
“So, when you start to do things for the first time, you better expect big problems, because you’ve never done this before,” Hartz says. “I mean, building modules for an offshore oil platform and building modules for nuclear power plant, although it may sound the same, it may even look the same, [but] one is done in a highly, highly regulated environment; the other is not.”
Additionally, there were studies and published reports from the Three Mile Island accident in Pennsylvania that could have guided Shaw through some of the process, Hartz maintains.
Instead, Hartz had to fight company pressure to keep things moving along, even as he ordered a work stoppage in 2010 to deal with inferior welds and untraceable weld filler material. Hartz had even discovered that welders were stamping welds they hadn’t made themselves, a violation that resulted in a Nuclear Regulatory Commission penalty.
When Hartz and one of the Lake Charles managers paid a courtesy call to the office of Shaw Modular’s most senior manager to let him know the audit team had voted 9-1 to stop the work, the senior manager threw books, smashed a chair and hurled a letter opener toward Hartz. “It missed my head by a foot,” he says. Visibly upset and shaking, Hartz went back to the team to report what had happened, eventually breaking down in tears. “A riot almost erupted in the audit team,” he recalls. “They wanted to call the NRC right away.”
The Westinghouse reactors that Hartz oversaw were designed to be built and installed in three years. The South Carolina reactors were cancelled in 2017 to nip ballooning costs. The two Georgia reactors are still years delayed and billions over budget.
In 2009, Shaw Group subsidiary Stone & Webster agreed to pay the federal government $6.2 million to end a contract fraud investigation related to work at Tennessee Valley Authority nuclear plants in east Tennessee and Alabama. The U.S. attorney’s office in Knoxville, Tenn., said in a press release that it resulted from a “comprehensive, ongoing parallel criminal and civil investigation” started by TVA in 2004 (Shaw bought Stone & Webster in 2000.) In order to support claims for safety-related performance fees from 2003 through 2006, according to the government, the contractor provided false reports to TVA that “misclassified and understated the number and severity of employee injuries.”
Hartz’s experience raises questions about the laurels Bernhard is resting on and the notion that Shaw’s foray into nuclear ended before problems erupted.
“Jim Bernhard knew every day what was going on in those projects,” Hartz, now 62 and retired, says of his time with Shaw Nuclear.
“[Jim Bernhard’s] talking about the fact that it’s a $10 billion-$12 billion project, and it was supposed to be a $5 billion project,” says Jeff Jenkins, who co-founded Bernhard Capital Partners, of Bernhard’s assertion that Shaw got out of nuclear before things got bad. “The problems are ongoing. That means it’s the big problems not kind of the whistleblower NRC-type stuff that went on all the time. There were some articles about the whistleblower and the inspection … relatively small compared to how big of a problem the whole thing is today.”
And unlike what happened with Shaw’s nuclear projects, when Shaw Nuclear used its sister company Shaw Modular as a subcontractor, Jenkins says BCP won’t be using any of the companies it controls for LUS upgrades and/or new transmission lines. “It’s a kind of agreement we would have between all parties just to have everything conflict-free,” he says, noting that the work would go out for bid.
The nuclear episode burned Chicago Bridge & Iron, which bought Shaw Group for $3 billion, and led to serious trouble for Japanese giant Toshiba. CB&I’s stock tanked. In 2016, a major CB&I investor called the Shaw deal a “complete and utter disaster” for shareholders. The inherited nuclear operations were sold at a multibillion-dollar loss, with costs to the company’s investors “continuing to this day,” the investor wrote.
CB&I later sold Shaw’s nuclear division to Japanese conglomerate Toshiba (which, incidentally, owns Westinghouse) for $229 million. Toshiba has since sued CB&I for inflating Shaw’s value. Westinghouse filed for bankruptcy in 2017, a direct result of the South Carolina and Georgia debacles.
Some economic observers have come around to view Bernhard’s sale of Shaw as an opportunistic offloading of a radioactive company — i.e., Bernhard got out while the getting was good.
The proceeds of that sale and Bernhard’s reputation as a profiteering deal maker won him a lucrative second act with BCP, a company that’s following a similar growth pattern to Shaw. Like Shaw, BCP has bought its way into expertise. This March, BCP acquired W.A. Chester, a transmission company out of Maryland. Back among Rotarians, Bernhard spot-lit LUS’s transmission lines for a $50 million upgrade, a measure he said would reduce operational costs. Such savings could be relayed to the ratepayers of Lafayette.
Caveat emptor, says Hartz, noting that Lafayette residents should question turning over their utility to a private equity firm with no background running a municipal system. “Tell us your past work experience doing this,” he says.
What Bernhard has prescribed for LUS is BCP’s growing stock and trade. New generators, a smart grid, cybersecurity and the aforementioned transmission upgrade are on the regimen, wrapped up in a package that includes a cash payment to Lafayette in excess of $200 million and a liquidation of LUS’s debts.
Bernhard plays the hard salesman. There’s another competitor out there for a headquarters for his new Fortune 500 company, he’s repeated. But Lafayette is his favorite. And indeed, he’s not wrong to say that Bernhard’s proposition is the only known pitch going to seat a multi-billion-dollar company in Lafayette. Whether he can make money for his investors, who have directed him to move on regulated utilities like LUS, is a fact born out in his cufflinks and his irritation with probing questions. But that’s a separate question from whether his track record proves he can run a company better than LUS is currently run, the essence of his claim.
“It’s your power and your choice,” he said with a grin, concluding his patience with the Rotarians.
Bernhard is not asking us to trust him; he’s giving us an opportunity to.
Additional reporting by Leslie Turk