Why is Westinghouse declaring bankruptcy?
Nuclear-reactor manufacturer Westinghouse Electric Co. filed for Chapter 11 bankruptcy on Wednesday.
Its parent company, the Tokyo-based Toshiba Corp., reported that Westinghouse had amassed $9.8 billion in liabilities by the end of last year.
The company hopes that a Chapter 11 restructuring can bring it back to financial health. Meanwhile, Toshiba president Satoshi Tsunakawa said the decision was geared toward "shutting out risks from the overseas nuclear business."
The “risks” that Westinghouse’s financial woes present specifically for Toshiba come amid a bigger downturn in the international nuclear sector.
The Japanese conglomerate had acquired the Pittsburgh-based nuclear company – a remnant of a much larger industrial firm – for $5.4 billion in early 2006, 27 years after a partial meltdown at Pennsylvania’s Three Mile Island plant.
At that time, nuclear power seemed poised for a revival, thanks to high oil and gas prices, concerns about climate change, and new reactor designs – including Westinghouse’s AP1000. Then, in 2009, when regulators in both Georgia and South Carolina approved the construction of new AP1000 reactors, it looked like Toshiba’s investment would pay off.
Eight years later, construction on those plants is still under way. But according to The New York Times, “The cost estimates are already running $1 billion to $1.3 billion higher than originally expected, according to a recent report from Morgan Stanley, and could eventually exceed $8 billion over all.”
Meanwhile, bigger scares have cast doubt over the nuclear sector’s long-term future. The earthquake and tsunami that hit Japan in March 2011 touched off a series of meltdowns at the country’s Fukushima Daiichi plant. The incident soured public attitudes toward nuclear power around the world, including in the United States, where officials have since moved toward decommissioning aging plants in New York, California, and Illinois.
The AP1000 was billed for its safety in earthquakes and other natural disasters. But at the same time politicians were turning against nuclear power out of safety concerns, a flood of cheap natural gas, wind, and solar power has eaten away at its economic advantages.
Last December, Duke Energy won a Nuclear Regulatory Commission license to operate two AP1000 reactors at its William States Lee III plant in Gaffney, S.C.. But, in a sign of the industry’s downturn, “The Lee decision is further complicated by several factors: Whether prices for a competing fuel, natural gas, stay low; the impact of environmental regulations such as President Obama’s carbon-cutting plan, now on hold; and whether federal regulators will let Duke extend the operating licenses of its current nuclear fleet,” according to The Charlotte Observer.
Westinghouse has faced other, more specific challenges. For years, Toshiba has been stained by accounting scandals in what Satoshi Ogasawara, who has written a book about the conglomerate systematically falsifying financial results, called “a dubious corporate culture."
But observers are now casting Westinghouse’s Chapter 11 filing as the biggest sign yet of nuclear power’s rapid rise and fall. “This is a fairly big and consequential deal,” Richard Nephew, a senior research scholar at the Center on Global Energy Policy at Columbia University, told The New York Times.
“You’ve had some power companies and big utilities run into financial trouble, but this kind of thing hasn’t happened.”
This report contains material from Reuters and the Associated Press.
