Westinghouse, a dying US nuclear power hub

Westinghouse Electric Co, which helped drive the development of nuclear energy and the electric grid itself, filed for bankruptcy protection last week, casting a shadow over the global nuclear industry.

The filing comes as the company’s corporate parent, Toshiba of Japan, scrambles to stanch huge losses stemming from Westinghouse’s troubled nuclear construction projects in the American South. Now, the future of those projects, which once seemed to be on the leading edge of a renaissance for nuclear energy, is in doubt.

“This is a fairly big and consequential deal,” said Richard Nephew, a senior research scholar at the Centre on Global Energy Policy at Columbia University. “You’ve had some power companies and big utilities run into financial trouble, but this kind of thing hasn’t happened.”
Westinghouse, a once-proud name that in years past symbolised America’s supremacy in nuclear power, now illustrates its problems.

Many of the company’s injuries are self-inflicted, such as a disastrous deal for a construction business that was intended to control costs and instead precipitated the events that led to the filing. Overall, Toshiba has been widely criticised for overpaying for Westinghouse.

But some of what went wrong was beyond either company’s control. Slowing demand for electricity and tumbling prices for natural gas have eroded the economic rationale for nuclear power, which is extremely costly and technically challenging to develop. Alternative-energy sources like wind and solar power are rapidly maturing and coming down in price. The 2011 earthquake in Japan that led to the nuclear disaster at the Fukushima Dai-ichi plant renewed worries about safety.

Westinghouse’s problems are already reducing Japan’s footprint in nuclear power, an industry it has nurtured for decades in the name of energy security. Even before the filing, Toshiba had essentially retired Westinghouse from the business of building nuclear power plants. Executives said they would instead focus on maintaining existing reactors — a more stable and reliably profitable business — and developing reactor designs.

That has made the already small club of companies that take on the giant, expensive and complex task of nuclear-reactor building even smaller. General Electric, a pioneer in the field, has scaled back its nuclear operations, expressing doubt about their economic viability.

Areva, the French builder, is mired in losses and undergoing a large-scale restructuring.
Among the winners could be China, which has ambitions to turn its growing nuclear technical abilities into a major export. That has raised security concerns in some countries.

The shrinking field is a challenge for the future of nuclear power, and for Toshiba’s revival plans. Its executives have said they would like to sell all or part of Westinghouse to a competitor, but with a dwindling list of potential buyers, combined with Westinghouse’s history of financial calamity, that is a difficult task.

Toshiba still faces tough questions. The company is also divesting its profitable semiconductor business and plans to sell a stake to an outside investor to raise capital. Most of the companies seen as possible buyers are from outside Japan. Some Japanese business leaders have expressed fears that the sale will further erode Japan’s place in an industry it once dominated.

After writing down Westinghouse’s value, Toshiba said it expected to book a net loss of $9.9 billion for its current fiscal year.  “We have all but completely pulled out of the nuclear business overseas,” Toshiba’s president, Satoshi Tsunakawa, said at a news conference. Of the huge loss, he added, “I feel great responsibility.”

Bankruptcy will make it harder for Westinghouse’s business partners to collect money they are owed by the nuclear-plant maker. That mostly affects the American power companies for whom it is building reactors, analysts say. Now, it is unclear whether the company will be able to complete any of its projects, which in the US are about three years late and billions over budget.

No takers
The power companies — SCANA Energy and a consortium in Georgia led by Georgia Power, a unit of Southern Co — would face the possibility of new contract terms, long lawsuits and absorbing losses that Toshiba and Westinghouse could not cover, analysts say. The cost estimates are already running $1 billion to $1.3 billion higher than originally expected, according to a recent report from Morgan Stanley, and could eventually exceed $8 billion overall.

Dennis Pidherny, a managing director at Fitch Ratings who is sector head of the US public power group, said that it was possible that the company’s bankruptcy filing could terminate the contracts and that it could be difficult for the utilities to find another builder to take them over. “The biggest challenge there is quite simply finding another suitable contractor who can complete the contract and have it completed at a quote-unquote reasonable cost.” That is, if they are constructed at all. Stan Wise, chairman of the Georgia Public Service Commission, said the utilities developing the Alvin W. Vogtle generating station in the state would have to evaluate whether it made sense to continue.

“It’s a serious issue for us and for the companies involved,” Wise said. “If the company comes back to the commission asking for recertification, and at what cost, the commission evaluates that versus natural gas or renewables.”

Toshiba said Westinghouse and affiliated companies wee “working cooperatively” with the owners to arrange for construction to continue. The affected companies issued statements saying they were exploring their options, as did the Energy Department, which has authorised $8.3 billion in federal loan guarantees for the Georgia project.

Toshiba said Westinghouse had total debt of $9.8 billion. The Chapter 11 bankruptcy filing was made in US Bankruptcy Court for the Southern District of New York.
International New York Times