Southern CEO Flew to Tokyo to Look Toshiba CEO in the EyeBy and
Southern, Scana both say they want to finish nuclear projects
Contractor Westinghouse has filed for bankruptcy protection
The head of U.S. utility-owner Southern Co. says he flew to Tokyo for one primary reason: “To look the CEO of Toshiba in the eye” and remind him of the company’s “moral commitment” to getting a nuclear project in Georgia done.
In a Bloomberg Television interview, Southern CEO Thomas Fanning said he crossed an ocean to meet Toshiba Corp. CEO Satoshi Tsunakawa “business person-to-business person” to hammer out a plan on getting two nuclear reactors finished at its Vogtle plant after years of delays and billions in cost overruns. Fanning’s remarks came less than 24 hours after Toshiba’s Westinghouse Electric unit, which is contracted to build the reactors, filed for bankruptcy.
Such is the conviction that both Southern and Scana Corp. have in finishing U.S. nuclear projects they hired Westinghouse Electric to build, despite the contractor seeking bankruptcy protection and investors questioning the economics of their plans. Banks including Morgan Stanley have warned of billions of dollars in additional cost overruns.
Just hours after Westinghouse filed for Chapter 11, Scana Chief Executive Officer Kevin Marsh told investors in a call that the company would continue with the construction of its own two reactors at the V.C. Summer plant in South Carolina while considering all options. When Ashar Khan of Visium Asset Management LP asked why it wouldn’t make sense for Scana to just abandon the project, Marsh called it the “least preferred option.”
Southern’s Fanning made similar comments in his interview with Bloomberg Television, adding that both Toshiba and Westinghouse made “moral commitments” to finish the Vogtle project. He also described Vogtle as “the foundational project” in efforts between the U.S. and Japan to cooperate on energy and infrastructure and said it serves as “the greatest example” of President Donald Trump’s promise to create jobs and promote investments in the U.S.
Toshiba spokeswoman Yuu Takase wasn’t immediately available for comment.
Banks and ratings agencies including Moody’s Investors Service have meanwhile warned that Westinghouse’s bankruptcy throws the fate of both Southern’s and Scana’s nuclear projects, the only ones actively being built in the U.S., into question. Citigroup Global Markets Inc. said in a note this week that Southern may be forced to abandon the Vogtle project should regulators decide it’s “not prudent anymore.”
Walking away from the V.C. Summer project would mean failing to meet the commitment Scana made to state regulators “to provide for the needs of South Carolina for the next 60 years,” Marsh said. “So we’ve got to do the evaluation” of all options, he said.
Scana slid as much as 2.9 percent on Wednesday, the most since Feb. 17, closing at $65.66 in New York on Wednesday after Westinghouse filed for Chapter 11. Southern fell as much as 1.1 percent before paring losses, settling at $49.95.
For his part, Stan Wise, chairman of Georgia’s public service commission, said by phone Tuesday that the agency is still “most interested” in seeing the reactors completed and believes Southern has “appropriate levels of parental guarantees” from Toshiba to finish them.
Westinghouse’s bankruptcy follows delays and cost overruns at both the Vogtle and V.C. Summer projects. Parent Toshiba said its annual loss could more than double to a record 1.01 trillion yen ($9.1 billion).
Fanning said Southern has discussed its project with the Trump administration, including U.S. Energy Secretary Rick Perry and Commerce Secretary Wilbur Ross. “This is strategically important to the U.S. government,” he said. “It is important for the U.S. to get a good outcome.’’
Here’s what analysts have said about the outlook for Southern and Scana from Westinghouse’s bankruptcy:
- “Westinghouse’s Chapter 11 bankruptcy filing and Toshiba’s ongoing financial weakness have raised new questions over their ability and willingness” to complete the reactors under terms of fixed-price contracts, “placing additional financial pressure” on the project owners, Michael Haggerty, associate managing director at Moody’s Investors Service, said Wednesday
- About $800 million in bankruptcy financing should allow Westinghouse to continue to work with Scana and Southern during any transition period, Daniel Ford, an analyst for Barclays, wrote in research Wednesday
- Barclays expects both Southern and Scana to pull the letters of credit related to the event -- $920 million and up to $100 million, respectively, for the whole projects -- and potentially seek damages during the bankruptcy process
- Citigroup Inc. analysts forecast in note on March 27 that Westinghouse would be “unlikely” to continue work on Southern’s reactors after a bankruptcy filing
- UBS analysts said in a note that they didn’t see Westinghouse walking away from contracts nor stopping work since Toshiba has a “clear incentive” to limit incurring immediate liquidity needed to address $6 billion in parental guarantees
— With assistance by Mark Chediak, Betty Liu, Yvonne Man, Stephen Stapczynski, and Pavel Alpeyev