Westinghouse Electric Co. filed for chapter 11 bankruptcy protection Wednesday, setting off a showdown between the nuclear power company’s Japanese parent and a major U.S. utility, and threatening to drive a wedge between governments of two countries over the fate of industries each considers vital.
Westinghouse had incurred billions in cost overruns related to four nuclear reactors it is building in the southeastern U.S. The runaway costs from the half-finished reactors threatened the viability of its Japanese parent company, Toshiba Corp., whose precarious finances have attracted the attention of Japan’s government. “This is a de facto withdrawal from the overseas nuclear business for us. Therefore, we don’t see any more risk,” Toshiba Chief Executive Satoshi Tsunakawa said on Wednesday.
But Toshiba now faces an angry customer in Tom Fanning, the CEO of Southern Co., the Atlanta power company and primary owner of two of the reactors being built in Georgia.
Mr. Fanning on Wednesday characterized the completion of the reactors as an international political issue, calling it a test of Prime Minister Shinzo Abe’s commitments with President Donald Trump at a summit in February to help create American jobs.
In an interview in Tokyo, Mr. Fanning said that Toshiba’s commitments “are not just financial and operational, but there are moral commitments as well.” He was in Japan, after the filing, to lobby for a resolution to the mounting dispute.
Mr. Fanning has said there are 5,000 jobs at stake at the two Georgia reactors that could be lost if Toshiba doesn’t commit to paying billions in future costs to finish the reactors. Westinghouse designed the reactors and is building them for Southern, and contractually had agreed to shoulder cost overruns.
Scana Corp.—the company for which Westinghouse is building the other two reactors in South Carolina—said Wednesday for the first time that it would consider abandoning them if costs changed dramatically.
Trump administration officials were largely quiet on the bankruptcy Wednesday. The Energy Department, which has provided an $8 billion loan guarantee for the Georgia reactors, said it was in discussions with the companies involved. “We are keenly interested in the bankruptcy proceedings and what they mean for taxpayers and the nation,” said Lindsey Geisler, an agency spokeswoman.
A Japanese government official said the U.S. hadn’t raised Mr. Fanning’s complaints with the Abe administration and that there had been no request for help to keep the projects alive.
“This is a private company’s business and operation,” the person said.
Based on a new Westinghouse design, the reactors, the first to be constructed in the U.S. in nearly four decades, were supposed to be an answer to cost overruns and delays that have dogged the nuclear power industry.
But already these plants are years behind schedule and have caused huge losses for Toshiba. Toshiba said it expected to suffer losses of about $9 billion in the fiscal year ending March 31, largely because it guaranteed nearly $6 billion in Westinghouse’s obligations to Southern and Scana.
After the bankruptcy filing, Southern and Scana separately said they would finance continued construction of the reactors for 30 days, but the companies weren’t clear where construction funding would come from after that time.
Mr. Fanning, who said he has spoken to Vice President Mike Pence, Commerce Secretary Wilbur Ross and Energy Secretary Rick Perry about the importance of completing the reactors, argued that more was at stake economically than the direct future of the facilities. “Westinghouse declaring bankruptcy has national security implications,” Mr. Fanning said.
Related Video: Toshiba’s Woes at Nuclear Subsidiary Westinghouse
He said the estimated cost of the entire project was roughly $16 billion but cautioned that Southern was unsure of how much more was needed to finish the partially built reactors. The current target dates for completion of the Georgia reactors are 2019 and 2020, three years behind the original schedule.
Richard Nephew, a fellow at the Center on Global Energy Policy at Columbia University, said Mr. Fanning appeared to be using to his advantage the Trump administration’s reputation for defending U.S. jobs and taking a tough stance even with allies.
“This is someone who knows what the triggers are for this administration,” Mr. Nephew said of the CEO. “Everyone now has a sense of what the president’s triggers are and I wouldn’t be surprised if a lot of companies use those triggers to gain an advantage in negotiations with foreign companies.”
The bankruptcy filing will likely cast a pall over future nuclear projects.
Mycle Schneider, a Paris-based independent consultant on nuclear and energy policy, noted that Westinghouse is just the latest global nuclear builder to pull back or run into deep problems. He pointed to Siemens AG’s decision to abandon the industry, Areva SA’s financial and safety problems, the falling market value of China General Nuclear Power Group and the junk-bond status of Russia’s Atomenergoprom as evidence of turmoil in the business.
In bankruptcy filings, Westinghouse said it obtained $800 million in debtor-in-possession financing, allowing it to continue operations.
“I don’t see how this can mean anything but even greater cost growth for the plants under construction and an unacceptable risk for any that are under consideration,” said Fred Beach, assistant director of the Energy Institute at the University of Texas at Austin.
Westinghouse was one of the originators of the nuclear power age, building the world’s first commercial nuclear reactor 60 years ago. Its pressurized water reactor design is in 430 power plants and accounts for 10% of electricity generated in the world. Westinghouse hopes to emerge from bankruptcy proceedings as a company focused on servicing existing reactors, selling fuel rods and decommissioning retired plants. The bankruptcy filing referred to these businesses as “very profitable.
A person familiar with Toshiba’s planning said earlier this week, before the bankruptcy filing, that Toshiba hoped Korea Electric Power Corp., known as Kepco, which is building a reactor in the United Arab Emirates, could emerge as an interested buyer. A Kepco spokesman said: “We have received no official offer from Toshiba. If any offer comes, we will put it under careful review.”
The potential for nurturing a nuclear industry, fed by a renaissance of new plants, is dimming.
Edwin Lyman, who tracks the nuclear industry for the Union of Concerned Scientists, a nuclear-energy watchdog, said a government interested in pollution-free power could still build nuclear plants, but no one should assume it can be done more cheaply than other power sources or underestimate the potential problems that can occur.
“If a government wants nuclear power, it is going to have to pay for it,” he said.
—Matt Jarzemsky and Peg Brickley contributed to this article.
Write to Russell Gold at firstname.lastname@example.org and Mayumi Negishi at email@example.com
Appeared in the Mar. 30, 2017, print edition as ‘Westinghouse Seeks Bankruptcy.’