Westinghouse Bankruptcy: The End of Nuclear Power?

An age of innovation may be coming to an end for nuclear giant Westinghouse. On Wednesday, the company that designed those conical AP1000s that have become emblematic of U.S. nuclear plants is seeking Chapter 11 bankruptcy protection.

The move was approved by its parent corporation, Toshiba Corp., as part of an effort to ensure Westinghouse’s financial problems would not endanger the Japanese electronics manufacturer.

In its 109-page filing, the company said that requirements put in place by the Nuclear Regulatory Commission following the September 11 attacks resulted in unforeseen design specifications and licensing costs.

“These new  requirements and safety measures created additional, unanticipated engineering challenges that resulted in increased costs and delays on the U.S. AP1000 projects and  other AP1000 projects  worldwide,” Westinghouse wrote in its bankruptcy filing.

The company said repeated changes in requirements continued to complicate its efforts to complete two key projects, the Georgia-based Vogtle plant and the VC Summer plant in South Carolina. But as Forbes writer James Conca reported last week, both projects were rife with organizational problems that ultimately spelled the demise of Westinghouse.

Critics also don’t agree whether the bankruptcy, which will likely spell the end of Westinghouse’s role in building reactors, will sound the death knell for nuclear energy in the U.S. Motley Fool writer Travis Hoium said he did the math and noted that while it was, as he put it, “missteps” that led to the bankruptcy, the gains from nuclear may no longer add up when paired against renewable giants like wind and solar,.

“[If] we assume an 8 percent internal rate of return on the $22 billion investment in Vogtle, a 30-year life, and energy production 100 percent of the time, the capital cost alone is 10 cents per kWh. And that doesn't include any operational cost, fuel, or financing,” Hoium wrote last week.

Conca, on the other hand, pointed to the company’s convoluted dealings with contractors for why it ultimately hemorrhaged.

“The cause of this latest problem seems to have nothing to do with nuclear power and everything to do with incompetent business practices, particularly Toshiba’s construction contractor,” Conca wrote.

In fact, the tale of how the company, a leader in nuclear power construction, resulted in a $7 billion write-down for Toshiba may become as storied as Westinghouse’s name itself.

“If you want to understand why Toshiba Corp. is about to report a multi-billion dollar write-down on its nuclear reactor business, the story begins and ends with a one-time pipe manufacturer with roots in the swamp country of Louisiana,” explained Bloomberg writers Jason Clenfield and Yuji Nakamura.

Repeated “blown deadlines” and cost overruns by Louisiana contractor Shaw Group were significant in leading up to the demise of Westinghouse, Clenfield and Nakamura reported. Increased scrutiny by the NRC after if found faulty construction slowed down the projects further. And issues that suggest nuclear power construction isn't Shaw's expertise contributed as well, they argued. Shaw's assets and contracts were eventually sold to Chicago Bridge & Iron.

In 2012, realizing it had made a mistake, CB&I sold the contracts to Toshiba for $229 million to get out from under them.

The problems didn’t end there for Toshiba, which has since found that its losses will actually exceed the $5.6 billion it paid for Westinghouse a decade ago.

But Westinghouse seems to have found a tentative path out of the mess. The company accepted financing from Apollo Investment Group, which offered an $800 million debtor-in-possession financing deal, with Toshiba investing about $200 million. The courts still have to approve the deal.

The restructuring would allow Westinghouse to ultimately concentrate on design, service and fueling of nuclear power plants and step out of the construction business, reported Anya Litvak, who has been following the story from Westinghouse’s home turf in Pennsylvania for the Pittsburgh Post-Gazette.

Litvak pointed out that while the debacle will have a defining impact on Westinghouse’s future, Pennsylvanians are still holding tight to the hope that the company will be able maintain the volume of its operations as is. Westinghouse employs more than 11,000 workers around the world, with 4,500 in Pittsburgh and 358 in its home town, Cranberry.

Still, the future of nuclear power in the U.S. is largely uncertain. While Westinghouse still plans to finish the two projects and must also sort out legal issues with CB&I (with which it is embroiled in a suit), its restructuring paints far from a rosy picture for the  global nuclear power industry. General Electric has begun to ramp back plant construction, and the French nuclear company Areva -- once a leader in the industry -- is also in the process of restructuring, also as a fuel supplier.

With wind energy still developing at a formidable pace and solar projecting positive gains, it will be interesting to see how Westinghouse and its nuclear competitors fare in the coming years.

Wikimedia/Nuclear Regulatory Commission (Public Domain)