How an American Tech Icon Bet on Nuclear -- and Lost

From
  • Westinghouse struggled with the cost of building reactors
  • Even with Toshiba’s backing, company files for bankruptcy

Westinghouse Electric Co., once synonymous with America’s industrial might, wagered its future on nuclear power -- and lost.

Now a unit of Japanese technology giant Toshiba Corp., Westinghouse on Wednesday filed for Chapter 11 bankruptcy-court protection, citing as much as $10 billion in debt. The company will continue operating while it comes up with a plan to repay at least part of what it owes.

The move marks a potential end to a troubled era, which began in the late 1990s, when the company made a series of sales that left it with only the nuclear business. Since then, atomic power has failed to take off in part because of cost overruns, cheaper alternatives and the fallout from an accident in Japan.

“They placed a big bet on this hallucination of a nuclear renaissance,” said Peter A. Bradford, a former Nuclear Regulatory Commission member who now teaches at Vermont Law School. “Toshiba seemed to believe that all the nuclear plants were actually going to get built.”

In earlier iterations, Westinghouse, based in Cranberry Township, a suburb of Pittsburgh, was an innovator on par with today’s Microsoft Corp. and Apple Inc. George Westinghouse, a prolific inventor and rival of Thomas Edison, founded the company in 1886. Its technological breakthroughs included the commercializing of alternating current generators and transformers. In no small measure, Westinghouse helped electrify the world.

First Reactor

Westinghouse supplied the world’s first commercial pressurized water reactor more than half a century ago in Pennsylvania. There are currently more than 430 nuclear power stations globally, with about half based on Westinghouse technology.

Westinghouse tried many strategies to stay relevant with changing times. Like one-time rival General Electric Co., the company diversified. In the 1980s, it offered financial services, suffering heavy losses. Westinghouse went into broadcasting when it bought CBS in 1995 and took its name two years later.

But it never found its footing. By the time CBS sold itself to Viacom Inc. in 2000, there was little left of Westinghouse but the nuclear business. (As CBS, the company started licensing the Westinghouse brand to makers of everything from microwave ovens to solar panels.)

Energy Revolution?

About ten years ago, Westinghouse came up with an approach it hoped would revolutionize nuclear power: a simplified modular design that could be sold to more than a dozen utilities at a lower cost. It had the less-than-catchy name of the AP1000.

“The AP1000 was supposed to open a new era of reactors with a generic design that can be sold or licensed,” said Mycle Schneider, a Paris-based nuclear energy consultant. “What they did was move the problems to the factory from the construction site, where you’re dealing with a labor force that hasn’t built reactors in decade. And they used extremely optimistic cost and construction estimates.”

Toshiba bought Westinghouse for $5.4 billion in 2006. The company foresaw a golden age for nuclear power in the U.S., U.K. and China. Instead, natural gas became cheaper and the 2011 nuclear disaster in Fukushima, Japan, further soured the public on nuclear.

The conglomerate has already lost $6 billion on the purchase and said Thursday its full-year net loss could more than double to 1.01 trillion yen, from 390 billion yen forecast last month, following the Westinghouse bankruptcy filing.

In the U.S., only four of 30 applications for nuclear reactors using Westinghouse technology have moved forward, and even those are now at risk. Westinghouse has fallen behind on projects for U.S. utility companies Southern Co. and Scana Corp.

Cost Overruns

Scana and Southern could end up dealing with billions of dollars in additional cost overruns from the power plants they hired Westinghouse to build, according to analysts at Morgan Stanley. Scana faces as much as $5.2 billion in higher costs while Southern’s extra bills could reach $3.3 billion, Morgan Stanley has said.

Both utility owners said Wednesday that Westinghouse contractors would continue work on the four reactors while they determine how and when they will be completed. Westinghouse said it has lined up $800 million in financing to fund work during the restructuring.

Toshiba Chief Executive Officer Satoshi Tsunakawa said there is no risk of additional losses to the company from overseas nuclear projects.

“Today’s filing by Westinghouse is an important step toward recovery,” he said. “It is also in-line with our goal of limiting risk from overseas nuclear operations.”

David Rubenstein, an analyst at Shared Research Inc. in Tokyo, was skeptical of the atomic focus ever since he started covering Toshiba in 2007, just a year after the Westinghouse acquisition.

“From the start I had a negative impression of the nuclear business,” Rubenstein said. “The purchase price didn’t make sense. It looked like a huge risk and that was without Fukushima.”

(Corrects name of nuclear consultant in 10th paragraph of story that ran March 29.)
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