When the Shaw Group announced it would create 1,400 jobs at a new nuclear manufacturing plant in Lake Charles in 2008, state officials likened the deal to landing a major auto assembly plant.
A decade later, the state is in a dispute with McDermott — the successor to Shaw after two ownership changes — over $350,000 in reimbursements for incentives from as far back as 2009 tied to an office building relocation and Shaw falling short of its hiring goals.
The project ran into a series of problems in recent years and a seismic shift in the global energy landscape that pummeled the once-promising nuclear industry.
The Lake Charles facility is still in operation, though it does not manufacture nuclear parts. Instead, Louisiana Economic Development said the facility builds parts for the petrochemical and liquefied natural gas industries, and employed an average of 250 people during the third quarter of this year. For the most recent project year, the site hit $27.1 million of its original $71 million payroll goal — or about 38 percent.
In pursuit of the high-profile facility — which also included a promise to keep Shaw’s headquarters in Baton Rouge — a $127.5 million incentive package was offered by the Jindal administration for the project, but then-Chairman, CEO and President Jim Bernhard made headlines by turning it down.
However, the company did ultimately benefit from some smaller tax incentives.
It took part in the Quality Jobs program, which rebates companies money for creating jobs. Shaw and Chicago Bridge and Iron, which bought Shaw in 2013, qualified for $8.7 million in payroll rebates through the program from 2009 to 2015 for the facility, said Economic Development spokesman Gary Perilloux. Those payments are not in dispute because they were awarded based on actual payroll the companies expended for those years.
The state agency also provided a $1.5 million incentive to the Lake Charles Harbor & Terminal District to offset costs for relocating an office building that affected access to a dock at the port, Perilloux said. That incentive is the center of the dispute between the state and McDermott, which merged with CB&I earlier this year.
The state agency said it is owed $350,000 in reimbursements not yet paid for underperformance against the $1.5 million incentive given to the Port of Lake Charles.
McDermott said it is only disputing $65,000 in interest payments, though the state agency maintains it is owed $350,000. The state already has received reimbursements totaling $116,867, Perilloux said.
From 2009 to 2011, the state agency “did not expend any of the $1.5 million in incentives previously agreed to in 2008 between LED and the Shaw Group,” which is why the company disputes that amount, McDermott spokeswoman Gentry Brann said.
As recently as last year, CB&I tried to negotiate with the state agency to change the terms of the deal with the state to include nonnuclear employees, Brann said.
“While we were not able to come to an agreement, we still hope to resolve the disputed payments and negotiate a positive outcome for both organizations,” she said.
Talks between the state agency and the company over disputed reimbursements began four years ago, Economic Development Secretary Don Pierson said. They have continued so long because “complex discussions require all parties to review contracts, ascertain payments, and perform appropriate due diligence.
“There is not an indication that these discussions have languished, rather there have been many events that have occurred, and for this reason, there is some added complexity that is present here.”
Perilloux said the Lake Charles project generated 450 construction jobs and a $26 million construction payroll. State records show the company hit its permanent job hiring target only one year — in 2014.
“Combining the capital investment, construction payroll, permanent payroll, indirect jobs and business spending in the Lake Charles economy, the modular solutions facility has created an economic impact in the hundreds of millions of dollars for the state of Louisiana and the southwest Louisiana region,” he said.
Adam McBride, the director of the Port of Lake Charles at the time of the deal, said it was the largest economic development deal he can remember at the port in terms of promised jobs.
McBride, who left his post in 2010, said the port merely acted as a landlord for the deal.
“From the port’s perspective, they’re paying the rent every year,” he said. “So that deal for the port continues to be satisfactory.”
The ownership of Shaw has changed twice since the beginning of the agreement, as has the landscape for the nuclear power industry.
After CB&I bought the Shaw Group in 2013, it left the nuclear business and began transitioning in 2015 to do other types of manufacturing at the facility, Brann said. That move came as the company divested its nuclear power business.
The Shaw Group and its successors adapted to a changing marketplace, Brann said. When the state and Shaw signed the deal in 2008, it was under the expectation that several new nuclear power plants would be built in the U.S. There were six nuclear units in the facility’s “potential pipeline” of work, she said.
A 2011 tsunami and nuclear plant disaster at Fukushima in Japan helped usher in a new energy landscape that left nuclear energy behind. At the same time, Brann said, the price of natural gas dropped, leading to a rush of new natural gas power plants.
Indeed, Shaw’s project came as nuclear energy was on the rise in the U.S., said David Dismukes, executive director of the Center for Energy Studies at LSU. A program at the Nuclear Regulatory Commission, along with federal incentives, aimed to make it easier to build nuclear power plants, an endeavor that historically has been one of the most highly regulated and difficult feats to accomplish. Concerns about climate change also were driving policymakers to embrace cleaner forms of power.
“It looked pretty rosy,” Dismukes said. “It was the best nuclear had looked in probably three decades.”
Then came Fukushima, the Great Recession and the revolution of shale-formation drilling that has in recent years made the U.S. a prolific oil and natural gas producer.
“They were all equally important in the quick demise of the nuclear renaissance,” Dismukes said.
The Shaw Group had purchased a 20 percent stake in Westinghouse Electric Co., which designed a new type of nuclear reactor design called the AP1000. Later, in 2012, Shaw exercised an option to sell its share in the firm to partner and majority owner Toshiba, which itself sold Westinghouse this year to rid itself of the nuclear business.
The Shaw facility in Lake Charles was to supply nuclear modules for plants in Georgia and North Carolina being built by Shaw and Westinghouse.
But market forces weren’t the only things that thwarted the company’s nuclear play.
The Nuclear Regulatory Commission conducted investigations at the facility for breaking quality control rules and other issues. CB&I later agreed to better train employees as part of a settlement with the agency. Westinghouse, the Shaw Group and other companies involved with nuclear power plants in Georgia and South Carolina became embroiled in various disputes over delays and cost overruns.
Bloomberg, in a lengthy story published last year, called the Westinghouse ordeal a “complex tale of blown deadlines and budgets” at the nuclear projects, in which Shaw played a major role. Toshiba reported a $6.3 billion dollar write-down on its nuclear division last year ahead of this year's Westinghouse sale.
A securities lawsuit against CB&I in New York also alleges the Lake Charles facility was the “number one reason” the nuclear projects had cost overruns.