Why Its Big Bet On Westinghouse Nuclear Is Bankrupting Toshiba

Tyler Durden's picture

Submitted by Michael Shellenberger via EnvironmentProgress.org,

Toshiba, the venerable 80 year old Japanese electronics giant, appears to be going bankrupt.

Toshiba was supposed to have announced at least $6.3 billion in losses during an earnings call yesterday. Instead, it cancelled the report, saying "it was not able to immediately secure the approval of its auditor."

Financial Times reports that "The delay to publication of Toshiba’s earnings came as the company said lawyers were examining claims by a whistleblower in the US that Westinghouse mishandled its takeover of Stone & Webster."

Toshiba's losses stem from its construction of new nuclear plants in the United States.

The collapse of Toshiba will result in the halting of all new nuclear power plant construction by its US-based subsidiary, Westinghouse.

Toshiba's failure also raises the question of what happens to the Vogtle plants if Toshiba fails? Does it open two southeastern U.S. utilities — Southern and SCANA — up to exposure to Toshiba shareholder lawsuits? And who will build future U.S. nuclear plants?

How Bad Is It?

The loss estimate is already $2.6 billion higher than the estimate Toshiba gave in December, and could go higher.

The reason it could go higher is that nobody knows how long it will take to finish the U.S. plants, which are three years behind schedule and billions over budget.

Toshiba as recently as last June had as its goal the construction of 45 nuclear reactors around the world, including two in the UK, six in India, and possibly two more in Georgia, all using Westinghouse’s design, the AP-1000. Future Westinghouse reactors will either be built by some other company or not at all.

Toshiba's last auditor, Ernst and Young, was fined $17.5 million in 2015 after failing to blow the whistle on an accounting scandal. In January, Japanese prosecutors charged that Toshiba executives exaggerated profits by $339 million over three years.

The announcement comes less than two years after the $5.3 billion bail-out by the French government of Areva, its state-owned nuclear company, currently undergoing a massive reorganization.

Nuclear energy is, simply, in a rapidly accelerating crisis:

·      Demand for nuclear energy globally is low, and the new reactors being built may not keep up with the closure of nuclear plants around the world. Half of all U.S. nuclear plants are at risk of closure over the next 13 years.

·      Japan has only opened two of its 42 shuttered nuclear reactors, six years after Fukushima. Most experts estimated it would have two-thirds open by now. The reason is simple: low public acceptance.

·      While some still see India as a sure-thing for nuclear, the nation has not resolved key obstacles to building new plants, and is likely to add just 16 GW of nuclear by 2030, not the 63 GW that was anticipated.

·      Vietnam had worked patiently for 20 years to build public support for a major nuclear build-out before abruptly scrapping those plans in response to rising public fears and costs last year. Vietnam now intends to build coal plants.

·      Last month Entergy, a major nuclear operator, announced it was getting out of the nuclear generation business in states where electricity has been de-regulated, including New York where it operates the highly lucrative Indian Point.

With the French nuclear industry crippled and Toshiba-Westinghouse out of the nuclear construction business, the West is effectively ceding the future of nuclear energy to China, Korea and Russia.

What Happened to Standardization?

The AP-1000 is a “Generation III+” design like the European Pressurized Reactor (EPR). The EPR, like the AP-1000, has experienced construction delays — only far more extreme. Construction began on its FOAK Finland in 2005 and was supposed to have finished in 2009. It now says it will open in 2019.

The conventional wisdom among nuclear experts had been that the AP-1000 was superior to the over-built EPR with its ostentatious double containment dome. The AP-1000 would be built faster and more cheaply than the EPR, many thought. 

While the EPR’s delays will likely be longer, and while Toshiba and Areva will restructure their nuclear businesses differently, it is notable that both companies bet -- and lost --- big on radically new designs.

Why did Westinghouse push forward with a new and untested design -- the AP-1000 -- in the first place, instead of building more of the same reactors it had in the past? 

Already by the early 1970s, U.S. nuclear plant operators were seeking to standardize nuclear plant design to reduce the time and cost of licensing and construction.

In the 1980s, a utility coalition came up with a Utility Requirements Document to identify the things utilities wanted in a reactor to come up with a standard design, rather than plants unique to each site. AP-1000 was the outcome of that process of seeking standardization.

With the AP-1000, the idea was that the Nuclear Regulatory Commission (NRC) would license the plant and reactor design just once, giving its owners the security of moving forward with construction plans without fear that their design would be rejected by NRC.

Standardization was expected to also be important in mass-manufacturing modules that could then be assembled on site.

It didn't turn out that way. There were significant delays in both construction of the basic foundation, and in manufacturing the modules. 

In the U.S. and China, AP-1000 plants are three years behind schedule.

Toshiba’s losses stem from Westinghouse’s purchase of CB&I’s Stone and Webster, one of the main construction companies building the AP-1000 in Georgia and South Carolina.  

Stone and Webster had been bought earlier by Shaw Group. 

None of them had had any experience building nuclear plants. 

Westinghouse made the purchase to settle the lawsuit against it by CB&I and by Southern and Scana, and because it thought it could do a better job than Stone and Webster.

All parties had sued Westinghouse saying they had been misled into believing the design was done. “Westinghouse’s response was effectively don’t blame us and you should have known better,” a person close to the situation told me.

China made similar complaints years earlier. “People felt we paid full price for a half-completed design,” a Chinese nuclear engineer told me in 2015. The result was three years of delay, higher costs, and deteriorating relationship between China and Westinghouse.

How Construction Failed

Construction began in China and in the US before all of the performance testing had been completed. There was less “learning-by-doing,” the American source told me, than there should have been since the Chinese and American projects were overlapping instead of sequential.

As part of its settlement, Toshiba reaffirmed its fixed price guarantee, even though it did not have a good handle on how much was left to do.

The American side was inexperienced. "Although an experienced nuclear engineer, [Westinghouse's] Mr. Benjamin had never actually overseen construction of a new nuclear-power plant," noted Brian Spegele of Wall Street Journal in December.

The things that caused delays were often mundane: simply laying concrete and re-bar in accordance with the drawings. “The plant’s containment and cooling towers are done,” a different source told me. “It’s all the re-bar and concrete work that’s taking time.”

Vogtle’s builders struggled to create the special materials required for the plant as well as with documentation to meet NRC’s stringent standards.

That didn’t always work. I was told that a dispute between an on-site NRC inspector and project manager over whether a 1973 or 1990 standard should be used delayed construction for six months. The area in question was just 20 cubic yards in a 2,000 cubic yard foundation.

The Georgia PSC and Georgia Power have tried to streamline regulations to reduce conflicts over change orders, but it’s not clear how much of it has worked.

One of the problems was that NRC imposed new regulations on the AP-1000 after it had already approved the Westinghouse design in 2006. The first was the Aircraft rule and the second were rules created after Fukushima.

“The design revisions required to meet the Aircraft Rule changes involved at least three more design revisions that did not get final approval until Jan 2012,” noted Rod Adams. “Completely different construction techniques needed to be invented, tested, litigated and approved.”

However, I was also told that Westinghouse sought an alternative construction technique for the shield building, and that the company could have stayed with its standard construction and not experienced delays.

How Lack of Demand and Over-Regulation Slowed Construction

Deliberate foot-dragging to raise costs by US plant builders and module manufacturers appears to have been a significant factor in addition to poor management and inexperience.

Once it became clear to suppliers and contractors there would not be any more AP-1000 nuclear power plant builds in the US thanks to low natural gas prices and the absence of subsidies that make building wind and solar attractive, suppliers had no incentive to perform their work quickly.

“If he could get cement change orders,” one person told me, “all the better for adding cost. And there’s no downside to being embarrassed because of slow or poor work since there’s no future market.”

NRC in 2013 took action against CB&I to fix its workplace culture, and NRC inspectors are at CB&I’s Louisiana site.

Disincentives for operating efficiently combined with lack of experience and over-regulation to result in delays. When managers would complain about the slow pace and seek to speed things up, some workers would say that any effort to make the process faster would compromise on safety. That would often be enough to make managers under the watchful eyes of NRC inspectors err on the side of slowness.

“The cost overrun situation is driven by a near-perfect storm of societal risk-aversion to nuclear causing ultra-restrictive regulatory requirements, construction complexity, and lack of nuclear construction experience by the industry,” Lake Barrett, a former official at the U.S. Nuclear Regulatory Commission, told Japan Times.

The NRC had turned down requests by anti-nuclear groups to impose Aircraft rule in 1982, 1985 and again in 1994. After 9/11, the NRC caved in to demands, even as it declared point blank that the Aircraft Rule would not improve safety, and that it would only apply the rule to new plants — including non-light water reactors.

Nuclear power’s worst accidents cause less harm than the normal operation of fossil power plants and yet the latter, unburdened by debates over how to pour 20 cubic feet of cement, can be constructed far more quickly.

There is unlikely to be higher demand and lower costs for nuclear without higher social acceptance, and there is unlikely to be higher social acceptance without overcoming the fears.

Nations are unlikely to buy nuclear from nations like the US, France and Japan that are closing (or not opening) their nuclear power plants. 

“They hear the Japanese telling potential customers, ‘Nuclear is safe enough for you, but not for me,’” a source close to Toshiba told me. "That's not going to work."

Why Korea Won

Korea is winning the global competition to build new nuclear plants against China and Russia despite being a fraction of the size, at just 50 million people, and energy-poor.

It has done so through focus: standard design, standard construction of plants, standard operation and standard regulation. Korea's nuclear plants are plug-and-play.

Studies show that standardized designs, multiple reactors on one site, and a vertically integrated builder were the keys to declines in the cost of building nuclear power plants in France and Korea.

It’s easy to understand why. New designs interrupt the process of learning-by-doing and continuous improvement that allow things to move more quickly.

Standardization is especially important to nuclear because so many people and institutions — the designer, the builder and many subcontractors, and the regulator — are needed to work in synchrony to do anything. Any single actor can slow the process down.

Realizing the benefits of standardization requires repetition. Because it takes so long to build a nuclear plant — between two and ten years on average — a senior construction manager will only have a limited amount of experience building before retiring.

Korean nuclear construction managers are promoted as they go from project to project, their careers as well-planned as the projects themselves.

What’s true for construction is also true for operation. After Three Mile Island meltdown in 1979, nuclear operators organized to improve safety and performance.

Increasing nuclear power plant efficiency from 1980 to today came from two areas: first, improvements to how operators re-fuel reactors, and keep plants and their workers safe; second, increasing the heat and electrical generation of plants through “up-rates.”

Both required greatly improved training systems and industry cooperation. So-called “soft” factors like safety culture, regular training, and the constant re-writing of procedure manuals proved crucial.

Since then, U.S. nuclear plants have gone from producing power about half the time to producing power 92 percent of the time.

AP-1000 was a radical innovation. Based on a plant that had never existed — the AP-600 — the plant was, like Areva's European Pressurized Reactor (EPR), a radical break from the past.

Everybody who has an innovative design to sell promises that their design will triumph over all others, and become the industry standard. A few years later, someone else has a better design to sell.

Radical breaks from past designs sometimes work in industries that require little up-front capital, like Internet companies.

It's now clear that they are deadly when it comes to nuclear.

 

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cossack55's picture

Wait till the dopes see what the decommisioning costs are.

mtl4's picture

Those will be taxpayer funded so no worries there.

847328_3527's picture

Can they build an ice wall around Toshiba?

JRobby's picture

"You fucked up, you trusted us!"

claytonmoore50's picture

Too many Union Goobs on the projects.

That always makes projects take much longer and costs to get out of control

BlindMonkey's picture

Doesn't that only apply to fueled reactors?  They should be able to abandon the partially built ones without any difficulty, yes?

HRClinton's picture

Of course the Koreans are beating the Chinese and Russians!

As a Jewish family friend told me, "Koreans are the Jews of Asia."

JimmyRainbow's picture

that is paid by the sheeple, no point to even mention it

buzzsaw99's picture

i feel so much better now. thanks. /s

SillySalesmanQuestion's picture

I worked with Babcock & Wilcox on a project for a downscaled "mini-reactor." Toshiba was the main competition.
The big difference between the two was, B&W had already gotten a preapproved design and license from the NRC to build, operate and own, while Toshiba hadn't...end of story.
If you snooze, you'll lose.

SmittyinLA's picture

Mexicans are major nuclear power plant component makers, scary huh ?

SmittyinLA's picture

Mexicans are major nuclear power plant component makers, scary huh ?

Miss Expectations's picture

Nuclear power is one hell of a way to boil waterAlbert Einstein .

Layoffs reported at GE Hitachi in Wilmington

http://www.wect.com/story/34525792/layoffs-reported-at-ge-hitachi-in-wil...

Cluster_Frak's picture

nice Americans are fucking yet another foreign company. I bet a private equity firm is waiting in the shadows.

aliens is here's picture

Man, I love Toshiba. The laptop I am using now is 6 years old and still works like brand new. 

ThanksIwillHaveAnother's picture

Whenever the gov gets involved in demanding design changes via changing specs you will get a boondoggle.   See F-35.

Miss Expectations's picture

Exactly.
In the middle of construction: Make sure that it can withstand being hit by a 747. OK? Back to work everybody.

HenryHall's picture

747?

No, a big airplane - the A380.

lordbaldric's picture

Is there something in the water here in America that prevents companies from making incremental upgrades based on sound fully functional designs? Every time they choose to go for the most expensive bleeding edge untried options. Meanwhile Rosatom is doing just fine...

RayKu's picture

Top heavy ineffective management coupled with application of 6 sigma lean lean static process on a large capital 'dynamic' project.

Get er done has become milk it for all its worth.

Omni Consumer Product's picture

In a nutshell?

Requirements creep, every time.

Look at some of the massive recent failures in the MIC for textbook examples:

* F-35 Joint Strike Fighter
* DDG-1000 Zumwalt-class
* CVN-78 Gerald R. Ford-class
* LCS Littoral Combat Ship
* BMD/MDA: Ballistic Missile Defense
* SSN-21 Seawolf-class

ThanksIwillHaveAnother's picture

Central Banking caused costs to skyrocket in every industry.

gatorengineer's picture

Sorry this was a story about bad management not bad technology......

Well designed, and located modern Nuke is still the way to go......

dlweld's picture

So who are the super-humans who will provide perfect mamangement and flawless deisgns? Sounds like a nuclear fantasy to me.

Miss Expectations's picture

In other energy news, an Oroville Dam Update...and people are now calling  California Governor Jerry Brown a Dam Fool.

National Guard Re-Evacuation of Oroville Dam, General Denies but 8 Inches of Rain Falling

https://www.youtube.com/watch?v=WDylWEyAtHA

just the tip's picture

i'm glad you clarified that 8 inches was rain.

rogerthat's picture

It's too cheap to meter

rejected's picture

45 more possible Fukushima's. yea,,, yea,,, that's just what we need.

Haven't worked for any corporation in my lifetime (67 years) that did not cut,,, put off,,, eliminate maintenance to "save money" (code for bigger bonuses).

The last one has the plaster falling off the walls of a six story building it owns,,, windows appear to be almost falling out, etc. I was reasonably sure they stopped the maintenance when they threw all the building blueprints away. No it's not a nuke plant but it symbolizes American corporations / companies and their disdain for maintenance. 

The Fukushima nuke failed due to no or very little maintenance of backup generators and piss poor to un-freaking-believable site location. At present it is killing much life in the Pacific which will probably work its way around the planet. They have no idea as to how to eliminate spent fuel rods so they just accumulate.The core is emitting up to 600 sievert's,,, 10 will kill you in a few minutes.They don't have a clue on how to stop it. MSM isn't mentioning hoping it will go away. Don't want to frighten the plebs who will likely die by these monsters.

Pure unadulterated insanity. The nutcake environmentalists love them because they don't add Co2 to the atmosphere. Dying from cancer due to eating radiated fish and wildlife or breathing the dust the wind picks up and blows around the world doesn't seem a problem to them.

 

gatorengineer's picture

If you are 67 years old then you most certainly remember at time when corporations were a hell of alot different?  Remember the thanksgiving Turkeys and the Easter Hams?.  Maybe when the big dog made 5x-10x the recent college grad?  or the ratio was that or less between the new hire and plant manager was 3x?

Watch Bird 1's picture

yet this quote from the article:  

"Nuclear power’s worst accidents cause less harm than the normal operation of fossil power plants..."

WTF??!!

Hillarys Server's picture

He's including the harm the fossilization process caused the dinosaurs. Including that.

TuPhat's picture

That is one of the few facts he got right.

Dominus Ludificatio's picture

Pick your poison. Will it be mercury or radiation?

Flankspeed60's picture

Not aware of "it is killing much life in the Pacific" - what is source here?

I am only aware of ONE environmentalist who does NOT oppose nukes. (The nutcake environmentalists love them because they don't add Co2 to the atmosphere.) The environmental movement on THIS planet rabidly opposes nukes. So, dunno where your info comes from.

3-Mile Island was this country's worst nuke incident. The 'post mortem' analysis conducted by a pool of the top health organizations (CDC, NIH, et al) could not find a single illness-or death- related to the accident - not one - even though their original premise was based on an absolute certainty that there would be.

roddy6667's picture

In Fukushima they built a nuclear power plant on an earthquake fault AND in a tsunami zone. Only the top of an active volcano would be a worse location.

In that part of Japan are stone monuments over 400 years old with writing carved into them. They warn against living or building any closer to the sea because of tsunamis. Nobody paid any attention to them.

css1971's picture

Blood in the streets in the nuclear industry.

It'll soon be time to invest there. I've been watching for several years now and I think a few more should do it.

People don't take radical decisions till they have to, and the current generations of nuclear based on pressurised water as heat transfer fluid are fucking insane from a safety point of view. But still being built. for now. Nuclear is going to be built passively safe or not at all. Look for that feature.

gatorengineer's picture

what they built was passively safe, just with poor management in China......  Had friends work that job.

desertboy's picture

More thorium and Gen IV snake-oil.

Vardaman's picture

Wait, what?  Wasn't gerbilization supposed to make everyone everywhere benefit from the positive experiences of, in this case, the Koreans?  That didn't happen?  Well, knock me over with a feather!

TuPhat's picture

I can only take so much bull before I stop reading.  Toshibas financial problems are mostly due to Fukushima and the shutdown of their other reactors in Japan.  The statement that there is no demand for nuclear power is patently false.  The place where I work sells all the power we generate.  People who use the power don't care if it's nuclear or coal or whatever.  The demand for electricity is low right now that is true, but that is not specifically a nuclear thing.  Many companies will fail when the economy takes another turn for the worse and some of them will be nuclear power plants but without nuclear power there is no future for this country or the world.  Until we get fusion power the atom splitting kind is the only thing going.  Coal, oil, Hydro, wind and solar have limited potential and limited usefulness.  We must move forward and continue to seek even better technology or go back to the dark ages.

desertboy's picture

You can keep chanting to your idol  -- but nuclear, the most subsidized energy source, can not pay it's way when even solar is selling Power Purchase Agreements at less than $0.005/kW-hr.   It's a simpe historical fact.

Sledge-hammer's picture
Sledge-hammer (not verified) Feb 20, 2017 5:46 PM

Great, we have lost the capability and know-how to build nuke plants just as we can no longer build cathedrals e.g. Notre Dame.  The Jew Matrix did not want us building nuke plants to keep us wholly dependent on oil, so we would be tied up in and at the mercy of the Middle East.  In other words, so we would be in the Middle East to look after Israel's interests.  Great plan jews.  The U.S. is in fact sliding to a hi-tech Dark Ages.  No, that is not an oxymoron.

cit1991's picture

What about all the money they made selling classified milling machines to the soviets so they could mill quiet submarine propellers? Is that money all gone too?

StreetObserver's picture

Nuclear power is suicide, financial, economic, and healthwise for any nation foolish enought to use it.

Eating any food imported from Japan is suicide as what they can't sell there, our USDA allows to be imported and sold here. There is no safe exposure to radiation.

If nuclear is so safe, why are we taxpayers subsidizing it since no insurance company will dare commit to touching it?

Google "Price Anderson Act" for a sickening breakdown of how much we've wasted.

All these clowns ranting about "technological advances", "thorium", "conspiracies to deny us nuclear" are a bunch of shills for the nuclear power and weapons industry.

Boycott all Japanese food unless you enjoy stomach cancer. Tuna from the Pacific is deadly.

http://www.fairewinds.org/

Ben A Drill's picture

Anyone ever ask where the USA fleet of nuclear powered ships and subs dump their nuclear waste? I know, do you?

SmedleyButlersGhost's picture

Off of Fukushima because no one will notice?  

just the tip's picture

by nuclear waste, do you mean spent fuel?  i would guess some shipyard in connecticutt.

if not, what are you referring to as nuclear waste?  and if you know, why not give us a link or inform us?  are you referring to accounts of the general dumping that took place before yucca mountain was built?

why not tell us WTF you are talking about, then answer your own fucking question?

Flankspeed60's picture

Ben Drilled is an absolute moron and not worth the courtesy you extended to respond.