What A Westinghouse Bankruptcy Could Mean For U.S. Utilities

Tyler Durden's picture

Authored by Leonard Hyman & William Tilles via OilPrice.com,

International news services now report that Japan’s Toshiba Corporation (9502.T) is preparing to make a chapter 11 bankruptcy filing for its Westinghouse Electric subsidiary as soon as today. For most of our readers this news evokes little surprise. This is merely another chapter of a slow moving financial and accounting train wreck involving nuclear design and construction firm Westinghouse and its troubled Japanese parent, Toshiba. But like an old, leaky garbage scow there is much to clean up in its wake.

The two U.S. utilities with the most at risk are Southern Company and SCANA Corp. Westinghouse is presently constructing two unit, AP 1000 nuclear power stations for each utility. These projects are over-budget and behind schedule. It appears that Westinghouse offered both utilities a fixed price contract for these new nuclear plants. Our best guess is that this fixed price construction guarantee has doomed Westinghouse and prevented other potentially willing buyers from stepping in. No one it seems is willing to take on this seemingly open-ended nuclear construction liability.

What does this mean for the two domestic utilities embroiled in this international financial quagmire?

First, we expect that they will complete both nuclear construction projects. The bulk of heavy capital expenditures for both utilities seem to be in the 2017-2019 period.

Second, it is in all interest of all potential litigants to see these plants completed. Westinghouse/Toshiba, for one, would at least get to showcase the AP 1000 design and its successor entity could advocate for additional sales of this reactor design. A working design has value. (What happens in the UK is another matter where Toshiba hoped to build several plants). The utilities, which need new power stations, get large, rate based, non-fossil base load power generating resources for the next 40-60 years.

The worst case scenario for utility investors would be if the utilities had to cancel the projects and take big write offs. But we assign a very low probability to this scenario.

Perhaps, more likely, a Westinghouse bankruptcy means abrogation of the fixed price contracts signed with Southern and SCANA. News reports this week indicated that both utilities had hired bankruptcy counsel.

As these plants are brought on line, presumably in the 2020-2021 time frame, the matter will go before the state utility commissions of Georgia and South Carolina. Both commissions approved these nuclear projects. It’s just that the plants will cost more than expected.

Unfortunately for investors, they will have to live with uncertainty until the regulators make their decisions. There are no clear precedents for the decisions, other than that commissions typically allocate or split unexpected financial burdens like these between shareholders and consumers. And that the amounts at risk won’t be modest given the size of the projects.

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ejmoosa's picture

Every month I am being charged for this nuclear plant in Georgia.

It's a screwed up system when the consumer is forced to pay for the construction in advance.

 

Meanwhile the investors take on little risk and get a guaranteed return.

 

By the way, the franchise fee below is a tax, and I have to pay sales tax on that tax to boot.

 

Current Service $ 54.63

Environmental Compliance Cost 5.03

Nuclear Construction Cost Recovery 3.84

Municipal Franchise Fee 1.90

Sales Tax 4.57

Total Current Electric Service $ 69.97

Logan 5's picture
Logan 5 (not verified) ejmoosa Mar 28, 2017 1:18 PM

Fukushima might melt down! ~ Oh Wait!

Joe Davola's picture

Westinghouse HQ not far from the Davola estate.  Heard there have been layoffs with more to come.

Haus-Targaryen's picture

They made great TVs back in the day.  I loved the Westinghouse LCDs because they were cheap, easy to use and they always worked.  

 

Logan 5's picture
Logan 5 (not verified) Haus-Targaryen Mar 28, 2017 1:33 PM

Who needs a TV when all the unemployed Westinghouse workers can come to your neighborhood and do 'puppet shows' (for food)...

knukles's picture

Getting a head start on medieval times.

Not Too Important's picture

Especially the 'plague' part.

Logan 5's picture

Well, until, then, at least you could FEAST on some 'DINNER & TOURNAMENT' action...

 

right knuck?

Logan 5's picture

More like this:

 

https://www.youtube.com/watch?v=xNHWr3LA38M

 

I can't think about WESTINGHOUSE without thinking about this...

 

ht/Jim Croce

BuddyEffed's picture

Opportunity for TEPCO to come to the rescue? /s

Antifaschistische's picture

I'm glad we live in this Central Bank funded mega merger dominated conglomerate corporate environment where risk in a single sector will take out an entire company like Westinghouse.    Make America great again...end CB Fiat Debt induced aquisition parties that line the pockets of the .01% (billionaire boys club).   Ending the CB fiat debt party would immediately trigger divestment as the mega-corps look to raise cash to pay off their mountaings of debt.

Lumberjack's picture

IBEW milking the reactor job.

Not Too Important's picture

I heard when they built San Onofre back in the day, everyone on site was sky high. Welders, pipe fitters, boilermakers, even the inspectors.

Makes me uncomfortable to think the place was built by a bunch of stoners and coke-heads.

Oh, well, add it to the list.

mkkby's picture

Yep, glad none of this shit is anywhere in my state. 

Error prone and lazy/greedy humans cannot be trusted with such dangerous tech.  Over a 60 year lifetime, the odds of something bad happening is a near certainty.  Just takes one hung over Homer Simpson.

Then for the next 10,000 years they will have rusting barrels of toxic waste sitting out in the elements.  What could go wrong?

Like giving a chimp matches and letting it play at a gas station.

In Ze No's picture

Same rumors when the  Seabrook reactors in NH was being built. Stories you didn't want to hear about machines where a safety slip up could change your life.  I heard them from many, many unrelated sources.

Not Too Important's picture

One thought was it was a problem with tactical nukes in Ukraine.

The fact that no one wants to discuss it anymore is very troubling in itself. If it was a problem with Russia, it would be front page news.

Joe Davola's picture

...this story had a short half lie...

Hah!

Raffie's picture

Everything is FINE. Stop worrying and throw all your mohey in the stawk mockets so you to can be a millionaire.

Everything going as planned.

GunnerySgtHartman's picture

I feel for you.  FirstEnergy is also screwing over its ratepayers, although it is with existing power stations.

FirstEnergy, which was an advocate of a competitive market for electrical generation, has found that it is too big and hoary to be a player in the competitive electrical generation market.  So what is it doing?  The company is forcing its regulated subsidiaries to buy power plants from its unregulated subsidiary at prices hundreds of millions of dollars more than the actual value of those plants - which makes the parent company look like it is making money, although it is essentially an overinflated balance sheet transfer.  In other cases, FirstEnergy has been trying to force its distribution companies to buy power from its unregulated plants, locking in higher rates and forcing ratepayers to subsidize money-losing plants.  FirstEnergy has been on a downward financial performance trajectory for several years, despite the fact that it has shut down many power stations, sold others, and gotten rid of a lot of employees, and it has resorted to financial tricks to make itself look healthier than it actually is.  And the state public service commissions are going right along with it ... to hell with the ratepayers!

Essentially, FE wants government-approved ratepayer-funded bailouts for a business it is otherwise incapable of running in a successful manner.

FirstEnergy is a sh*t company ... and the state public service commissions are FirstEnergy's lackeys.

Not Too Important's picture

Everyone in the C-suite has read 'Enron for Dummies'.

Hell, Enron fucked the entire state of California. Hundreds of billions of dollars lost because of energy losses, while a dozen brand-new power plants sat idle.

When any legislature votes unanimously on anything, like Cali did on Enron energy, you know you're going to get fucked.

jerry_theking_lawler's picture

SC is really taking a beating with Project Management (or lack thereof). First the Kemper lignite plant, which is a $7BILLION dollar disaster. Now a vendor backing out on its contract due to price overruns. Looks like SC managment may be in hot water soon. Guess this is what you get when bean counters, HR folks, and marketers run an ENGINEERING business.

HowdyDoody's picture

Westinghouse is also trying to cram its design of reactor rods into USSR-designed nuclear power plants in Ukraine. What could possibly go wrong?

http://www.westinghousenuclear.com/About/News/View/Westinghouse-Signific...

Bigly's picture

I pay double that for a non-mansion in the northeast on avg. That was my bill in the early 90s

silvercity's picture

Here in Illinois it cost more than your total bill merely to keep the lights on.

Erek's picture

Where were you when the lights went out?

https://www.youtube.com/watch?v=8JHic4HzF5s

Atomizer's picture

It was the entire agenda with Japan and Iran. Give me a moment to look up North Korea. 

biker's picture
biker (not verified) Mar 28, 2017 1:22 PM

Nuclear is not profitable, dangerous as FUCK and completely depends on federal subsidies.

Idiots will have no place in the world to live after they spread this shit waste everywhere. Dumbass physics and industry faggots.

Posa's picture

Wrong. Nuclear is the safest way to generate low-cost electric power. A deliberate strategy in the 70s-80s to tie down the industry with lawsuits causing projects to fall behind. Then the economny fell into depressed conditions for decades... so very little new capacity was installed, crushing the industry... as a resulty the US has a decrepit generating and distribution grid.

FoggyWorld's picture

Have you added on the cost of decommissioning and the cost of removing to an unknown place, the irradiated spare rods?

Posa's picture

Yes. Decommissioning is baked into the rate structure... Recycling nuclear waste would greatly reduce the waste storage issue...but Carter closed the only US plant.

FoggyWorld's picture

Have you added on the cost of decommissioning and the cost of removing to an unknown place, the irradiated spare rods?

earleflorida's picture

the spent uranium can be used as fuel in a proto-type 'thorium reactor'

no melt down!

thorium reactors will be modified in the near future into portable modules capable of generating enough energy for a  small town with a pop. of ~ 250K

Note: breeder reactors set back thorium decades because of an easy 'Plutonium' resource for our (their?) thermonuclear nukes.

Solio's picture

Check enenews articles from w/i the past few weeks. An experimental thorium reactor did apparently suffer meltdown in Norway. I will later look to post the article. Nuclear- big screw up.

earleflorida's picture

great article, thankyou.

my only question being what type of reactor?

#1) Liquid Fluoride Thorium Reactor (LFTR) > breeding Thorium [Th-232] into Uranium [*U-233]

*half life of 2,653 minutes

#2) Molten Salt -fueled Reactors  (MSRs) supposedly converts thorium into nuclear fuel *** this the type reactor that converts & recycles spent fuel

this is my guess.

very interesting :: please imform my opinion if have tyme

Ps. think industrial satotage has anything to do with it?

thanks again

Solio's picture

I do not have enough knowledge to answer your question(s.)

tmosley's picture

Using solid fuel setup. Thorium proponents call for an intrinsically safe liquid fuel design. Something that is already a liquid can't melt, so it can't melt down.

https://www.youtube.com/watch?v=uK367T7h6ZY

Arnold's picture

Tell that to liquid sodium.

daveO's picture

I've said it before and will say it again. The EPA was created to protect the oil industry.
Also, notice the release date of The China Syndrome on 3/16/79(http://www.imdb.com/title/tt0078966/) to the Three Mile Island incident on 3/28/79(https://en.wikipedia.org/wiki/Three_Mile_Island_accident). It was industrial sabotage and Rockefeller's stooge, Carter(a former Navy Nuke for Pete's sake!), performed flawlessly.

Posa's picture

The uncanny coincidence of the "China Syndrome" and the weird TMI valve issue has been noted by many people... does seem like a false flag type deal.

In any case the "catastrophe" of TMI resulted in 0 deaths and 0 injuries.. no energy system can boast the same record.

Dominus Ludificatio's picture

Toshiba was a sucker for buying Westinghouse and believing you can have a preapproved one size fits all nuclear mentality.

Not Too Important's picture

The new nuclear plants in India aren't working out so well:

“Massive leak” at Indian nuclear plant after reactors contract “small pox” — Stunning Discovery: Contagion has spread all over critical structures — Multiple large cracks found — Experts befuddled… Literally a plot similar to a movie thriller'

"Scientists Probing How 2 Nuclear Reactors Contracted ‘Small Pox’ — In a highly guarded Indian nuclear reactor complex, toughened radiation resistant pipes have contracted ‘small pox’. As a consequence, literally in a plot similar to a Bollywood thriller Indian scientists are burning the midnight oil to unravel the mysterious nuclear leak at the Kakrapar Nuclear Power Plant… they are working over-time to find out the real cause of the cryptic leaks… Nuclear experts say pipes, made from a rare alloy, have contracted what seems like ‘small pox’ and this contagion has spread all over the critical tubes… [T]he teams of scientists really do not understand what has gone wrong. It was on the morning of March 11, 2016… [the] nuclear plant suffered a heavy water leak in its primary coolant channel and a plant emergency was declared… [An] initial probe using a specially designed tool revealed that four big cracks had formed on a coolant tube which led to the massive leak. The discovery of the crack was only the beginning of the mystery, further efforts to find the root cause established that the outside of the tube, the part which was not exposed to high temperature heavy water, was also for some unexplained reason “corroded”. This was a stunning discovery… [The AERB] discovered that the contagion of the “nodular corrosion” or what in layman’s language can also be described as “small pox-like” was very widespread in many of the 306 tubes… A further postmortem revealed that the Unit-2… had also been affected by a similar leak… almost ten months before the Unit 1 had a sudden appalling failure in March 2016… This literally back-to-back failure of two fully functional nuclear reactors befuddled the engineers… The international community is as much at a loss in explaining the failures…"

http://enenews.com/massive-leak-at-nuclear-plant-after-reactors-contract...

The new ones are worse than the old ones.

Then there are the new MOX reprocessing plants in Japan and Savannah, GA that cost billions and don't work, either.

'Fuck 'em, kill 'em all, let Marx sort 'em out' - NWO motto

earleflorida's picture

a good chemist and a mettalurgist is all that's needed swapping out two-three contaiminated pipes.

probably bought the shit from china

land_of_the_few's picture

Msybe so, but it's India, not Finland, literally anything is possible.

They have GDP PPP per capita considerably less than Morocco? And about 1/3 that of the poorest states in the EU - Bulgaria and Romania. Or, about 1/10th of Ireland's...