Westinghouse files for bankruptcy, in a blow to nuclear power industry

This is a 2006 artist rendering of a Westinghouse AP1000 Nuclear Plant. Duke Energy had planned to use Westinghouse for a nuclear power facility in Levy County, but that plan was indefinitely shelved.
[File rendering courtesy of Westinghouse Electric Co.]
This is a 2006 artist rendering of a Westinghouse AP1000 Nuclear Plant. Duke Energy had planned to use Westinghouse for a nuclear power facility in Levy County, but that plan was indefinitely shelved. [File rendering courtesy of Westinghouse Electric Co.]
Published March 29, 2017

WASHINGTON — Westinghouse, one of the most storied names in the nuclear energy business, filed for bankruptcy on Wednesday, dealing a blow to the future of the nuclear power industry and leaving question marks about the future of four reactors in South Carolina and Georgia currently under construction.

Plans for another two reactors that were supposed to be built by Westinghouse in Levy County, north of the Tampa Bay market, were shelved in 2014 by owner Duke Energy after early construction delays and massive run-ups in the anticipated price tag that approached $25 billion to complete the nuclear power plants.

As approved by state legislators and regulators, Duke Energy is able to charge its Florida ratepayers for about $1.5 billion in early construction costs for the Levy plant even though it will probably never be built. Duke Energy spent just enough on the plant site to receive a federal license last fall to proceed with the Levy facility, though the odds of restarting its construction appear slim and will further fade in time.

Florida Power & Light, a giant utility which serves most of southern Florida, has also delayed its planned Westinghouse nuclear expansion at its Turkey Point site near Miami.

Wednesday's bankruptcy filing brings to an end the marriage of Westinghouse and Toshiba. When the Japanese giant — maker of everything from medical devices to home appliances — bought the Westinghouse nuclear business in October 2006, it declared "the dawn of a new era for nuclear energy." Together the companies would make a "powerful combination," Toshiba said.

A decade later, that combination has melted down. Toshiba has written off more than $6 billion in losses connected to its U.S. nuclear business, citing accounting problems, delays and cost overruns. And it has pulled back from new nuclear projects under discussion in India and Britain.

The bankruptcy filing Wednesday will trigger a host of legal questions about whether Toshiba remains responsible for losses at Westinghouse and whether the utilities that own the reactors under construction will have to eat more of the cost of completing them. That could mean higher rates for consumers in those areas. In seeking protection under chapter 11 of the bankruptcy act, Westinghouse could still finish building those plants.

Westinghouse said it has arranged $800 million in debtor-in-possession financing so that it can continue to service customers while restructuring its business.

The collapse of Westinghouse also reverberates through the global nuclear business. Westinghouse supplied the world's first commercial pressurized water reactor 60 years ago and half the world's 430 nuclear power reactors have Westinghouse technology.

Moreover, Westinghouse had claimed that its new AP1000 model reactor had passive technology and modular design that was safer, cheaper and faster to build. Many U.S. lawmakers and nuclear industry officials say the AP1000 could augur in a "nuclear renaissance" in the United States.

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Westinghouse is currently in charge of construction of four of these new model reactors at two different sites. The first two are being built by SCANA at the Virgil C. Summer Nuclear Generating Station, a site about 20 miles northwest of Columbia, S.C. The other two, backed by Energy Department loan guarantees, are being built at the site of Southern Co.'s existing Vogtle facility.

Yet Westinghouse ran into trouble on both sites. Though the AP1000 was supposed to be a standard design, changes were made in South Carolina. Moreover, Westinghouse plans included modules built in Lake Charles, La. that were supposed to fit together "like pieces of Lego," said a former regulator. But Nuclear Regulatory Commission files say that the Lake Charles plant was shipping faulty modules, forcing Westinghouse to reweld them at the reactor sites. An entire extra building was erected to do the welding because there was so much of it, according to one person familiar with the construction.

Angry over the delays and cost overruns, the owners of the nuclear plants filed claims against Westinghouse. A settlement was reached, but now the legal battles will begin again.

Both South Carolina and Georgia allow utilities to charge ratepayers for power plant construction still in progress. In most states ratepayers don't pay until they're getting some of the benefits. But the utilities must still get approval from their public service commissions, which have forced the utilities to absorb some of the costs.

Southern Co.'s subsidiary Georgia Power, one of the co-owners of the Vogtle reactors, said it has been preparing for a Westinghouse bankruptcy and that it was "working with Westinghouse to maintain momentum at the site." It said it was still assessing the impact of the bankruptcy and would consult with the Georgia Public Service Commission and its partners "to determine the best path forward." It added that it would seek to hold Toshiba and Westinghouse accountable.

There are only a handful of nuclear construction contractors worldwide, and many are state-owned firms. Many are struggling; shares of the French firm Areva, for example, have tumbled 84 percent over the past five years.

The United States relies on nuclear energy to provide about 20 percent of U.S. electricity needs. Yet, the reactors, with an average age of 35, are getting old by the standards of the nuclear business.

Duke Energy Florida, for example, opted to prematurely close and decommission its sole nuclear power plant in Citrus County after a botched repair made the cost of fixing it prohibitive. Had the repair been successful, Duke intended to seek a 20-year extension on the nuclear plant's original 40-year life.

"As these units get decommissioned, to stay at that percentage you need more units," said Dan Aschenbach, a senior vice president at Moody's. "But you can't get there if you cannot construct it."

The Westinghouse bankruptcy also ends a chapter of nuclear energy diplomacy. The U.S.-based Westinghouse, though owned by Toshiba, has won political backing in the United States in its efforts to win contracts abroad. Both the Bush and Obama administrations pressed the Indian government to buy reactors made by Toshiba-Westinghouse or Hitachi-General Electric. India was negotiating to buy half a dozen AP1000s.

But questions of liability in the event of an accident have blocked negotiations in India. And while Westinghouse is near completion of four reactors in China, it had hoped to capture a bigger share of the Chinese market. In China too, Westinghouse has struggled with alterations in its design, delays and cost overruns.

Toshiba has been trying to find a buyer for Westinghouse, but there are few companies able or willing to swallow Westinghouse. One possibility is Korea Electric Power Co., which already has a nuclear engineering subsidiary. The Chinese nuclear construction company might also be interested in the technology.

But KEPCO already builds its own brand of nuclear plant, and China has its own CAP 1000. Moreover, the U.S. government would have to approve any sale to another foreign company.

"There is a lot of value in that design going forward and a lot of the challenges are being dealt with right now," said Jeffrey Merrifield, a former member of the Nuclear Regulatory Commission now at the law firm Pillsbury Winthrop Shaw Pittman. He said there were "a variety of coalitions forming" of U.S. companies that might be interested in purchasing Westinghouse. But those firms might only want certain pieces of Westinghouse, which designs a variety of reactor parts.

Another wrinkle in the Westinghouse saga is that the Energy Department provided more than $8 billion in loan guarantees to help finance the Vogtle pair of reactors. Those guarantees were given to the utilities, so the U.S. government and taxpayers should not be liable for any losses.