After billions in losses, Westinghouse unit will focus on
selling reactor designs
By Russell Gold and Takashi Mochizuki
Toshiba Corp. plans to stop building nuclear power plants after
incurring billions of dollars in losses trying to complete
long-delayed projects in the U.S., a move that could have
widespread ramifications for the future of the nuclear-power
industry.
The Japanese industrial conglomerate is set to announce plans to
exit nuclear construction by the middle of February, according to a
Toshiba executive familiar with the matter. The executive also said
Toshiba's chairman, Shigenori Shiga, and Danny Roderick, a Toshiba
executive and the former head of its Pittsburgh-based nuclear power
unit, Westinghouse Electric Co., are expected to step down.
Toshiba's decision deals a fatal blow to its ambitions to become
a major player in the nuclear construction business. The company
has bet aggressively on Westinghouse's AP1000 reactor design, which
it hoped would anchor a new generation of nuclear power plants that
were supposed to be easier to build and to deliver on time. But
signs emerged that the AP1000 wasn't as easy to build as hoped, and
yet Toshiba remained confident and took on added financial risk,
according to legal filings and interviews with people involved with
the construction process.
Toshiba declined to comment. The company previously said it
would disclose the size of Westinghouse's losses on Feb. 14. In
December, it said it was likely to take a write-down of several
billion dollars, and people familiar with the situation say the
losses could approach $6 billion -- plunging the company into a new
crisis just as it was seeking to move away from an earlier
accounting scandal.
Westinghouse will continue to design nuclear reactors, the
Toshiba executive said, and is expected to complete construction
work at two U.S. nuclear facilities it is still in the process of
building -- in Georgia and South Carolina, commissioned by
utilities Southern Co. and Scana Corp., respectively.
Toshiba's future involvement with nuclear plants will be limited
to selling its designs; it will let other companies handle the risk
of building the facilities, an approach it already takes in
China.
"We are closely monitoring [Westinghouse's] financial status, as
well as that of Toshiba," a Scana spokeswoman said.
Southern officials said they are confident shareholders and
customers are protected through a $920 million letter of credit
from Westinghouse and a fixed-price contract which transfers
responsibility for cost overruns to Westinghouse.
In October 2015, as Toshiba faced a very public accounting
scandal centered on its computer business, it was quietly dealing
with another crisis in nuclear power-plant construction -- and made
a series of bold moves in an attempt to fix it.
The company bought out a partner in a nuclear-construction
consortium, settled lawsuits and renegotiated contracts with
Southern and Scana, which put Toshiba overwhelmingly on the hook if
the two construction projects continued to run over budget.
Toshiba's decision to exit the nuclear construction business
could have widespread ramifications. Nuclear power appears to be
"too big, too expensive, and most of all, too slow to compete
effectively in what is an increasingly ferocious competition," said
Mycle Schneider, a nuclear expert based in Paris.
The nuclear construction business, led by a General Electric
Co.-Hitachi Ltd. venture and France's Areva SA, has been under
pressure since the 2011 Fukushima nuclear-plant meltdowns in
Japan.
Toshiba plunged into the business in 2006, when it won a bidding
war to acquire Westinghouse. Analysts worried at the time that it
had overbid. But within a couple of years the bet appeared to be
paying off: Southern chose Westinghouse's design for the first new
nuclear plant to be built in the U.S. in 30 years, and the next
month Scana also chose the AP1000 for a plant in South
Carolina.
The U.S. government approved the designs in early 2012 and work
began. Within a few months, legal disputes arose between
Westinghouse, its construction consortium partner, Stone &
Webster, and Southern over who would pay for unexpected costs
resulting from post-Fukushima tougher safety standards, according
to filings.
Relations between Westinghouse and Stone & Webster's owner,
Chicago Bridge & Iron NV, broke down by 2015, according to
filings. William Jacobs, the independent construction monitor for
the plant Southern is building, said Westinghouse and CB&I were
"incurring very large costs beyond those being publicly reported"
due in part to having so many employees for a project that was
years behind schedule.
In March 2015, CB&I broached a possible sale of Stone &
Webster to Toshiba. As the talks intensified, Toshiba became mired
in the accounting scandal, prompting it to acknowledge it padded
profits in its personal computer and other businesses.
Toshiba worried that if the lawsuits with Southern and CB&I
over the Fukushima-related safety-cost overruns continued, Toshiba
might have had to acknowledge that Westinghouse faced big
liabilities, according to company executives. A large write-down at
that stage threatened to wipe out the company's capital.
To end the litigation, Toshiba made several deals in October
2015. It acquired Stone & Webster for $229 million in deferred
payments and became the only guarantor on the engineering contract,
releasing CB&I. Scana agreed to push back the completion date
for the South Carolina plant, but negotiated a deal where it would
pay Toshiba $505 million in exchange for switching to a fixed-price
contract. Toshiba agreed.
Southern faced up to $1.5 billion in liability in the lawsuits
over post-Fukushima safety-cost overruns, and settled for about
$350 million in October 2015. The deal restricted Westinghouse's
ability to "seek further increases in the contract price," Southern
said -- meaning that if the nuclear plant couldn't be completed in
a timely manner, Toshiba would shoulder the costs.
As problems continued, Westinghouse and CB&I last year sued
each other in a dispute over the Stone & Webster sale. Then
Toshiba said it might need to take a write-down of several billion
dollars related to the value of Stone & Webster, caused by cost
overruns.
While Southern said it is insulated from cost overruns, it is
unclear if the $920 million line of credit from Westinghouse would
be sufficient to complete its two generating units if
Westinghouse's financial problems prevent it from fulfilling its
contract.
"I don't see how Southern and Scana are confident they won't be
responsible for any further cost increases," said Sara Barczak, a
critic of the projects who works for the Southern Alliance for
Clean Energy, a nonpartisan advocacy group.
Write to Russell Gold at russell.gold@wsj.com and Takashi
Mochizuki at takashi.mochizuki@wsj.com
(END) Dow Jones Newswires
February 01, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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