On March 29, Westinghouse Electric Company filed for Chapter 11 bankruptcy to restructure after facing costly issues at power plants currently under construction. ((James Conca, Westinghouse Bankruptcy Shakes The Nuclear World, Forbes (Mar. 31, 2017), https://www.forbes.com/sites/jamesconca/2017/03/31/westinghouse-bankruptcy-shakes-the-nuclear-world/#6a3b48912688.)) The filing comes slightly more than 10 years after Japanese conglomerate Toshiba acquired the company for $5.4 billion. ((See Toshiba Buys Westinghouse for $5.4 billion, CNET (Mar. 8, 2006), https://www.cnet.com/news/toshiba-buys-westinghouse-for-5-4-billion/.)) Westinghouse has been known as one of the United States’ most dominant nuclear power companies, and the bankruptcy leaves the company’s current projects in the South in jeopardy. ((Diane Cardwell & Jonathan Soble, Westinghouse Files for Bankruptcy, in Blow to Nuclear Power, New York Times (Mar. 29, 2017), https://www.nytimes.com/2017/03/29/business/westinghouse-toshiba-nuclear-bankruptcy.html.)) This post will explore some of Westinghouse and Toshiba’s troubles in the nuclear business and detail some of the legal issues that will come into play during the reorganization.
Although one may find the bankruptcy concerning for the American nuclear energy industry in general, Westinghouse’s troubles have more to do with specific investments in the States. Its projects in Georgia and South Carolina, which would become the first new U.S. nuclear power plants in three decades if completed, have been the driving force behind Westinghouse’s bankruptcy. ((Tom Hals, Huge Nuclear Cost Overruns Push Toshiba’s Westinghouse into Bankruptcy, Reuters (Mar. 30, 2017), http://www.reuters.com/article/us-toshiba-accounting-board-idUSKBN17006K.)) The projects have been plagued with cost overruns stemming from regulatory demands and higher than anticipated costs for labor, equipment, and components. ((Id.)) Many of these overruns have been attributed to the Shaw Group, a relatively unestablished contractor that was hired to construct the plants. ((Jason Clenfield & Yuji Nakamura, Toshiba’s Nuclear Reactor Mess Winds Back to a Louisiana Swamp, Bloomberg Technology (Feb. 13, 2017), https://www.bloomberg.com/news/articles/2017-02-13/toshiba-s-nuclear-reactor-mess-winds-back-to-a-louisiana-swamp.)) These burgeoning costs have caused Toshiba to write off over $6 billion to date. ((Jonathan Soble, Toshiba’s Chairman Resigns as Its Nuclear Power Losses Mount, New York Times (Feb. 14, 2017), https://www.nytimes.com/2017/02/14/business/toshiba-chairman-nuclear-loss.html.)) More recently, the utilities that hired Westinghouse to construct the plants stated that they will assess the viability of their projects by April 28, 2017. ((Tom Hals, U.S. Judge Clears Toshiba’s Westinghouse to Tap Bankruptcy Loan, WSAU (Mar. 30, 2017), http://wsau.com/news/articles/2017/mar/30/us-judge-clears-toshibas-westinghouse-to-tap-bankruptcy-loan/.)) Given the high amounts by which the projects have gone over budget, the future of these plants is arguably rather grim.
Outside of Westinghouse’s troubles in its domestic projects, the company’s overseas nuclear projects have seen mixed results. On the bright side, the company is still constructing plants in China and has recently won approval from British regulators for its reactor design. ((Id.)) China’s State Power Investment Corp, one of the country’s state-owned power corporations, announced that the Westinghouse bankruptcy will not substantially impact construction and that the plants are expected to be completed on schedule. ((China says Westinghouse bankruptcy won’t have big impact on nuclear plans, CNBC (Mar. 30, 2017), http://www.cnbc.com/2017/03/30/reuters-america-china-says-westinghouse-bankruptcy-wont-have-big-impact-on-nuclear-plans.html.)) Still, its Moorside project in the UK faces uncertainty after Toshiba was forced to buy out a French utility company’s 40% stake in the project. ((Angela Monaghan, Toshiba Warns Over its Survival as it Forecasts £7bn Losses, The Guardian (Apr. 7, 2017), https://www.theguardian.com/business/2017/apr/11/toshiba-losses-uk-moorside-nuclear-plant-westinghouse.)) Furthermore, Westinghouse’s contract to build a nuclear plant in Bulgaria has been stalled for three years as neither the client nor the vendor have been able to find funding for the project. ((Kenneth Rapoza, A Bankruptcy That Wrecked Global Prospects Of American Nuclear Energy, Forbes (Apr. 13, 2017), https://www.forbes.com/sites/kenrapoza/2017/04/13/a-bankruptcy-that-wrecked-global-prospects-of-american-nuclear-energy/#4c53302217a1.)) Thus, Westinghouse faces troubles with its overseas projects in addition to the ones at home, albeit the former are comparatively minor.
Given this rather bleak outlook of Westinghouse’s nuclear business, it is important to consider some key topics that will play out now that the company has filed for bankruptcy. The Chapter 11 filing invokes some legal issues that will be decided in the course of the reorganization process—for instance, the questions of whether Toshiba will remain responsible for Westinghouse’s losses and whether the utilities that hired Westinghouse will have to spend more to complete the plants. ((Steve Mufson, Westinghouse Files for Bankruptcy, in a Blow to Nuclear Power Industry, Washington Post (Mar. 29, 2017), https://www.washingtonpost.com/business/economy/westinghouse-files-for-bankruptcy-in-a-blow-to-nuclear-power-industry/2017/03/29/4a64b6f2-1338-11e7-833c-503e1f6394c9_story.html.)) Analysts have said that Toshiba may remain accountable for $7 billion in contingent liabilities even under Chapter 11, since it had previously guaranteed Westinghouse’s contractual commitments (a common agreement in the nuclear industry). ((Toshiba Asks Law Firm to Advise on Potential Westinghouse Bankruptcy Cost: sources, Reuters (Mar. 1, 2017), http://www.reuters.com/article/us-toshiba-westinghouse-idUSKBN1684B8)). However, the liability may be slightly offset because the Chapter 11 filing removes Westinghouse from Toshiba’s consolidated accounts. ((Id.)) Furthermore, there is a chance that the U.S. government may step in as the Department of Energy has provided an $8.3 billion loan guarantee to the utility companies. ((David Fickling, Westinghouse Bankruptcy Won’t Save Toshiba, Bloomberg (Mar. 29, 2017), https://www.bloomberg.com/gadfly/articles/2017-03-29/a-westinghouse-bankruptcy-won-t-save-toshiba.)) All in all, there are numerous factors that will come into consideration during the reorganization. Time will tell which ones will become relevant to the future of Westinghouse and Toshiba.
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