Toshiba board approves action

Westinghouse to file for bankruptcy

Westinghouse Electric Co., the Cranberry-based nuclear power firm that has endangered the viability of its Japanese parent company, will seek bankruptcy protection under Chapter 11, according to the Japanese news agency Nikkei.

The move, which received Toshiba board approval in Tokyo on Wednesday morning, is intended to wall off Toshiba against mounting losses stemming from Westinghouse’s troubled projects to build nuclear power plants for utilities in South Carolina and Georgia. These multibillion-dollar ventures represent the first new nuclear construction in the U.S. in more than three decades.

Already, Toshiba has said it will need to write down more than $6 billion associated with the projects. It is possible the number will be higher, Toshiba’s officials have said in the past few weeks, as Westinghouse accrues liquidated damages from missing milestones or possibly breaching its contracts with U.S. utilities.

One major question is, what will happen to those contracts in bankruptcy court? Both Scana Corp. and Southern Co., the parents of the utilities, have hired bankruptcy lawyers in preparation for Westinghouse’s filing.

And Westinghouse last month brought in a turnaround specialist, Lisa Donahue of New Yorkbased Alix Partners, to serve as the nuclear company’s chief transition and development officer.

Westinghouse has 12,000 employees globally, including 4,500 in the Pittsburgh region.

Scana and Southern are expected to be Westinghouse’s largest creditors in the bankruptcy filing.

In 2015, when work on four new AP1000 reactors in South Carolina and Georgia was already years behind schedule and billions of dollars over budget, Westinghouse struck a deal to buy the nuclear construction firm that had been its contractor in the field. At the time, Westinghouse and the contractor, CB&I Stone & Webster, were suing each other to determine who should be held responsible for the delays and their associated cost increases. Meanwhile, the utilities that commissioned the projects were suing Westinghouse for the same thing.

Westinghouse’s agreement to buy Stone & Webster from CB&I was supposed to give the nuclear firm control over the construction schedule and performance, but its major draw was an agreement with the utilities to drop all the lawsuits.

The delays at both projects have resulted from a number of factors, including new regulations that required adjustments to the design of the plants, problems with fabrication of some of the components, understaffing and poor project management.

According to Stephen Byrne, COO at Scana’s South Carolina Electric & Gas Co., Toshiba assumed that taking control of Stone & Webster in 2015 would improve productivity at both U.S. construction sites by a third. But that did not happen.

Meanwhile, Westinghouse and CB&I became embroiled in a battle over post-closing costs. CB&I’s calculations showed that Westinghouse owed it $428 million for working capital associated with the two nuclear construction projects. Westinghouse’s math swung drastically in the opposite direction; it was CB&I that owed Westinghouse money, the nuclear firm claimed, to the tune of $2 billion. That dispute continues. Scana told investors this week that it is evaluating several options “in the event that Toshiba and (Westinghouse) are unable or unwilling to complete the project.” The options include hiring another contractor to do the work or even stopping the project.

In the past few months, Scana started collecting intellectual property and software related to the AP1000 design in case it needs to complete the project without Westinghouse, the company said.

In addition to the two U.S. utilities, the bankruptcy is likely to corral a number of other high-profile stakeholders, including the U.S. government, which issued $8.3 billion in loan guarantees to the utility building the AP1000 plants in Georgia.

The U.S. government is also likely to be interested in who would take over Westinghouse in the event that Toshiba succeeds in selling its majority stake, as it is seeking to do.

Besides the obvious national security concerns around nuclear technology, previous American administrations have also used Westinghouse as a diplomatic tool to lessen Russia’s grip over energy supplies in Europe.

Reuters and Japanese media have reported that Toshiba reached out to the Korean Electric Power Corp. to sponsor its bankruptcy. The Korean company demurred on the possibility, but it has expressed interested in buying Toshiba out of its equity stake in a project to build three nuclear reactors in the United Kingdom. Toshiba has a 60 percent interest in the venture, which is slated to use AP1000 reactors, and is looking to unload that stake.

What’s unclear is if Westinghouse technology will still be the reactor of choice for a project that no longer has Westinghouse’s parent as an owner.