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Westinghouse bankruptcy casts shadow over US nuclear projects

SNL Image

Construction continues on units 3 and 4 at the Vogtle nuclear plant.

Source: Georgia Power Co.

Toshiba Corp.'s U.S.-based nuclear construction arm Westinghouse Electric Co. LLC has filed for Chapter 11 bankruptcy protection from creditors, formalizing a major blow to the U.S. nuclear industry.

Buckling under the weight of $6.3 billion of cost overruns from building four AP1000 nuclear reactors in Georgia and South Carolina, Westinghouse filed for bankruptcy on March 29 with the U.S. Bankruptcy Court for the Southern District of New York in New York City. That outcome has been anticipated since Toshiba first delayed in February its audited earnings for the fiscal third quarter of 2016. The firm's debt obligations total $9.8 billion as of Dec. 31, 2016.

"Today, we have taken action to put Westinghouse on a path to resolve our AP1000 financial challenges while protecting our core businesses," José Emeterio Gutiérrez, Westinghouse interim president and CEO, said in the announcement. "We are focused on developing a plan of reorganization to emerge from Chapter 11 as a stronger company while continuing to be a global nuclear technology leader."

As part of the proceedings, Westinghouse has obtained $800 million of debtor-in-possession financing from a third-party lender to support its core operations as it undertakes restructuring, with $200 million as a backstop guarantee. Agreements were also reached with the owners of the Alvin W. Vogtle and V.C. Summer nuclear plants for Westinghouse to continue building new reactors during an initial assessment period. The company's troubles stem mostly from the December 2015 acquisition of CB&I Stone & Webster, the construction contractor of the expansion projects at Vogtle near Waynesboro, Ga., and at the Summer nuclear plant in Jenkinsville, S.C.

In an optimistic note, Westinghouse committed itself to its AP1000 technology and continuing existing projects in China, as well as pursuing other possible projects in the future. In February, Toshiba put a halt to Westinghouse taking on any new nuclear projects.

Westinghouse said it anticipates approval of its motions by the bankruptcy court. The firm's operations in Asia, Europe, Middle East and Africa will not be affected by the U.S. filing, the firm said.

“Toshiba is scrambling to find a buyer to take the Westinghouse anvil from around its neck," opined Ai Kashiwagi, a Greenpeace activist in Japan, in a news release. "That is unlikely given the enormous uncertainties of future costs and likely multi-year lawsuits."

It was hoped by many industry insiders that South Korea's Korea Electric Power Corp., or KEPCO, would buy the Japanese conglomerate's majority stake in Westinghouse. However, as reported by The Financial Times, KEPCO signaled it would not.

The future that never was

As the builder of the only active nuclear projects under construction in the U.S., Westinghouse's bankruptcy filing complicates the future of the U.S. nuclear industry. Billed as the sharp edge of a longed-for nuclear boom, the firm's untested AP1000 design was the outcome of a push by utilities in the 1970s and 1980s for standardization so plants could be assembled on-site with mass-produced modular parts and the same regulatory-approved reactor design.

"It didn't turn out that way," wrote Michael Shellenberger, director of the pro-nuclear Environmental Progress advocacy group, in a recent online post. "There were significant delays in both construction of the basic foundation, and in manufacturing the modules."

Inexperience in actually building nuclear plants a result of a more than 30-year construction lull, spurred by post-Three Mile Island public fears and anti-nuclear activism, contributed to delays and cost overruns for the projects, Shellenberger said.

"A very costly door has closed on the so-called nuclear renaissance," said Sara Barczak, the high-risk energy choices director for the Southern Alliance for Clean Energy. The anti-nuclear group wants regulators to cancel the Vogtle and Summer projects, which are billions over budget, some three-to-four years behind schedule and only about one-third of the way through their construction.

"And for any utilities that somehow still have new nuclear power aspirations, the public and their regulators need to demand cancellation of those proposals," added Barczak, noting that NextEra Energy Inc. utility Florida Power & Light Co. intends to use AP1000 reactors in its planned expansion of the Turkey Point nuclear plant near Miami, Fla.

However, the setback has not dampened the industry's steadfast support for Summer and Vogtle. "Building a nuclear plant is a complex enterprise, and historically, such projects have seen changes in mid-stream including companies entering bankruptcy," said John Keeley, a spokesman with the Nuclear Energy Institute, a Washington, D.C.-based industry lobbying group. "Even when these events occur, projects can go forward."

Southbound risks

Amid speculation of rate increases to recover costs and contingency plans of finding new contractors to finish the projects, both nuclear plants' owners have filed interim agreements with Westinghouse to conduct full-scale schedule and cost-to-complete assessments during a transition and evaluation period. The utilities were already reviewing Westinghouse's previously revised forecast in-service dates of December 2019 and September 2020 for the two Vogtle units and April 2020 and December 2020 for the two Summer units. Any changes are subject to approval by the states' public service commissions.

Southern Co. utility Georgia Power Co.'s Vogtle project partners include Oglethorpe Power Corp., the Municipal Electric Authority of Georgia and the city of Dalton, Ga. V.C. Summer co-owners are SCANA Corp. utility South Carolina Electric & Gas Co., or SCE&G, and the state government-owned utility Santee Cooper, legally known as the South Carolina Public Service Authority.

"We will work with the Georgia Public Service Commission and the co-owners to determine the best path forward," said Jacob Hawkins, a Georgia Power spokesman, in a statement. "We will continue to take every action available to us to hold Westinghouse and Toshiba accountable for their financial responsibilities under the engineering, procurement and construction (EPC) agreement and the parent guarantee."

Both projects have a fixed-price EPC contract with guaranteed completion dates and liquidated damage provisions in place for risks of future cost overruns and delays. A recent Moody's research note cautioned, however, that those guarantees would diminish if Toshiba's finances worsen. Analysts' forecasts on the impact of the bankruptcy on Vogtle and Summer range from minimal to abandonment.

Kevin Marsh, CEO and chairman of SCANA, during an analyst call said SCANA will provide funding to continue work on the project during a 30-day review of additional estimated costs that Westinghouse has provided on top of previous agreed-to costs.

"It's pretty clear I believe from their filings that they're [Westinghouse] looking for us to take over these projects," said Marsh. "Before we commit to doing that, we just got to understand the details behind it, the breakdowns of the costs that they've got included in their estimates so we can compare that to the parental guarantee and find out what the total impact will be on our company and our customers."

Marsh emphasized that his "preferred" and cost-efficient option is to finish the project and that the "least preferred" option is abandoning one or both units, as allowed by the state's Base Load Review Act.

As part of the interim agreement, Fluor Corp. will also remain as construction manager of the V.C. Summer project.