Elio Ohep: The end of the U.S. nuclear plants contruction
business. The Toshiba's $6.3bn nuclear meltdown
Southern Company's Vogtle site, with two reactors under construction
Westinghouse an old company with an outstanding history, they called themselves "the world's leading supplier of safe and innovative nuclear technology." but not for long. The underperformance with the newest nuclear under construction plant is having the company leaving the profit area into below the red line. The Wall Street Journal wrote back in 2016. " Toshiba was looking to profit from a global nuclear power revival when it paid $5.4 billion for Westinghouse Electric in 2006. Instead, cost overruns and missed deadlines threaten to sink the Japanese conglomerate."
It looks at this stage that the U.S. nuclear construction business is at an end.
According to Westinghouse internet site, the company has eight new plants currently under construction in the U.S. and China base on the advanced pressurized water reactor (PWR) systems, where the AP1000, the nuclear power plant most advanced PWR available is the core of the system.
In February 2017, Toshiba's majority owner of US-based Westinghouse nuclear construction subsidiary revealed unaudited details of a 390 billion yen ($3.4 billion) corporate wide loss, mainly arising from its majority-owned US-based Westinghouse nuclear construction subsidiary which was written down by 712 billion yen ($6.3 billion). On 14 February 2017 Toshiba delayed filing financial results, and chairman Shigenori Shiga, formerly chairman of Westinghouse, resigned, reported the media.
The following story from Financial Time can give us a pretty close picture of the woes that affect Toshiba Inc. due to the mismanagement of the under-construction nuclear facilities Vogtle units 3 and 4 in Waynesboro, Georgia and VC Summer units 2 and 3 in South Carolina, that put the whole U.S. nuclear construction business in jeopardy.
By Elio Ohep / firstname.lastname@example.orgToshiba brought to its knees by two US nuclear plants
February 17, 2017
Westinghouse subsidiary runs up losses on reactors' construction
Waynesboro, Georgia, population 5,942, advertises itself as “the bird dog capital of the world”.
It seems scarcely believable that anything in this quiet US rural town, about 30 miles south of Augusta, could have brought one of Japan's greatest industrial companies to its knees.
But the reactors under construction at Plant Vogtle just outside Waynesboro are at the heart of the greatest crisis in the 141-year history of Toshiba.
Westinghouse, Toshiba's US-based nuclear engineering subsidiary, is building at Vogtle two of its new AP1000 reactors, a “generation III plus” design that was intended to be the flagship of its expansion into markets around the world. Two more are being built about a hundred miles away in South Carolina at a plant called VC Summer.
At both sites, the new plants are taking shape. In December, a 1,100-tonne steel ring 40 metres in diameter that forms part of the reactor containment vessel was lowered into place for the first new unit at Vogtle. The equivalent component at Summer was also lowered into place last weekend.
Yet all this progress is too little, too late. The projects are already more than three years behind schedule and, on a combined basis, more than $10bn over their original budgets. This week the timetable for the Summer project was pushed back again, and there were warnings that construction at Vogtle could also slip further.
It is these problems that lie behind Toshiba's announcement on Tuesday that it is planning to book a $6.3bn writedown on its US nuclear business, which will propel the group to a net loss of ¥390bn for the year to March 31, although there is still uncertainty about these figures, partly because they have not been audited.
Gregory Jaczko, who was chairman in 2009-12 of the Nuclear Regulatory Commission, the US federal regulator, opposed the decision to allow the Vogtle and Summer projects to go ahead. He says it is still possible they could be stopped.
“At some point they have to have an assessment about pulling the plug,” he adds. “They cannot just continue pouring money into these uncapped projects.”
With so many billions of dollars already spent, and so much steel and concrete already in the ground, it seems unlikely that the projects will be stopped. Westinghouse has this week reiterated its commitment to see them through.
Toshiba said on Tuesday that chairman Shigenori Shiga would resign following problems at its US nuclear business © Reuters
But filings to utility regulators and court cases paint pictures of projects that were in difficulty right from the start.
The contracts for the new reactors were signed in 2008 by the plants' owners, led by Southern Company for Vogtle, and Scana for Summer.
A consortium of Westinghouse and Shaw Group, the engineering company, was the lead contractor on both projects. A key player in this consortium was Stone & Webster, Shaw's nuclear construction business.
Mike Garrett, chief executive of Georgia Power, the Southern Company subsidiary that runs Vogtle, said in 2008 the new reactors would be a “cost-effective power source” and preserving nuclear power was “a prudent business decision”.
But it was always clear the two projects were highly ambitious. They were the first new reactors to be licensed for construction in the US since 1978, and would be the first to enter service since 1996.
No one involved seemed to fully appreciate just how difficult it would be to build new reactors, especially the AP1000 — a “first of a kind” design — when much of the industry's experience and capability for managing such large nuclear projects had been lost.
Some of the earliest problems the projects encountered were with the Nuclear Regulatory Commission.
It wrote to Westinghouse in 2009 warning that the shield building that protected the reactor was not strong enough, and pushed for increased reinforcement to withstand aircraft crashes, to comply with guidelines that followed the 9/11 attacks.
Westinghouse was forced to make numerous revisions to the AP1000 design, which it estimated in a later court case had cost an additional $1.5bn at Vogtle alone.
Pressure from the regulator was far from the projects' only problem, however.
The AP1000 has a modular design intended to simplify construction, with components intended to be built off-site and then assembled like a model kit.
But construction was delayed by persistent quality problems with the components. As early as 2010, William Jacobs, a consultant working for the staff of the Georgia Public Service Commission, the utility regulator, warned of “repeated delays with the start of module fabrication”.
In 2014, he and Steven Roetger, another member of the regulator's staff, highlighted “late delivery and poor quality of sub-modules that required significant rework” and “ineffective quality-assurance programmes” as among the principal reasons for construction delays.
As the projects' challenges mounted, the owners and the contractors headed for court. Georgia Power sued and was counter-sued by Westinghouse and Shaw, which also started to argue with each other over responsibility for cost overruns. Chicago Bridge & Iron, the engineering and construction group, inherited the contracts and all their problems when it bought Shaw for $3bn in 2013.
A set of agreements was reached in October 2015 that was intended to resolve those disputes.
This involved Westinghouse buying Stone & Webster from Chicago Bridge & Iron for $229m. Meanwhile, Southern and Scana agreed to extended completion dates for the two projects, plus increased contract payments, in return for fixed prices for the remaining work.
Toshiba hoped the deals would resolve both current and future legal disputes over the additional costs, and aimed to increase the efficiency of its work by 30 per cent by integrating Stone & Webster into Westinghouse.
The peace was shortlived, with a new dispute emerging between Westinghouse and Chicago Bridge & Iron. Separately, Toshiba revealed on Tuesday that its lawyers were examining whether management at Westinghouse had exerted “improper pressure” over the $229m takeover price.
The hoped-for improvements in efficiency also failed to materialise. Fluor, another engineering group, was hired to work on construction, and hundreds more staff workers were recruited at the two sites
1. Jan 2006: Agrees to buy US nuclear company Westinghouse
2. Apr/May 2008: Westinghouse signs deals on Vogtle and VC Summer plants
4. Apr 2016: Records $2.3bn writedown on Westinghouse
5. Feb 2017: Reveals $6.3bn writedown on its US nuclear business
The biggest shock, though, came when Toshiba executives realised that the costs of building the four US reactors would exceed its initial estimate by $6.1bn, of which $3.7bn was blamed on labour expenses and $1.8bn on equipment spending.
The original contracts signed in 2008 had some flexibility to adjust for cost overruns, but the revised agreements reached in 2015 crucially locked Westinghouse into fixed prices for completing the plants.
Ominously for Toshiba, the schedules at both plants are showing signs of further slippage. Scana said on Tuesday that it now expected the first new reactor at Summer to be in service in 2020, not 2019 as it had previously planned.
At Vogtle, the plan to start the first new reactor in 2019 looks “extremely challenging”, Mr Jacobs and Mr Roetger warned on Monday, as a result of a “lack of construction progress” since their previous report last August.
If construction continues to fall behind schedule, Westinghouse's losses on the two contracts could grow even larger.
Mr Jaczko says the problems of Vogtle and Summer have probably stopped any new nuclear development in the US for a generation.
“These projects are killing construction, because nobody can finance new reactors,” he says. “It may be 20 or 30 years before investors will be interested again.”
Could consumers end up footing much of the bill for nuclear projects?
As the problems at Vogtle and VC Summer have hit Toshiba, the US utilities that are the largest shareholders in the two projects have gone from strength to strength.
Since the spring of 2008, when the contracts with Westinghouse were signed, shares in Southern Company, which owns 46 per cent of Vogtle and operates the existing nuclear power station at the site, have risen 33 per cent. Shares in Scana, which owns 55 per cent of Summer and runs the nuclear plant there, are up 87 per cent. Both have outperformed the Fidelity US utility sector exchange-traded fund.
As the construction costs of the new reactors have soared past initial estimates, the plant owners have been able to leave some of the financial burden with Westinghouse, and pass some on to their customers.
Mamoru Hatazawa, Toshiba's executive officer in charge of its nuclear business, said the company could seek the assistance of Southern and Scana, but admitted sharing the costs would be difficult.
Georgia Power said in a statement that its “firm and fixed” contract with Westinghouse “continues to protect our customers” and it expected Toshiba to “employ all possible means to meet the current schedule targets” for delivering the first new reactor at Vogtle in 2019, and the second in 2020.
It added that it would always hold Toshiba and Westinghouse, “accountable for their responsibilities under our agreement”.
If the financial position at Westinghouse and Toshiba continues to deteriorate, it could throw into doubt the outlook for completing the plants. Sara Barczak of the Southern Alliance for Clean Energy, a group that campaigned against the new reactors at Vogtle, suggests the electricity consumers of Georgia and South Carolina may end up footing the bill.
“The public service commissioners are very weak,” she says.
“If Westinghouse says ‘We can't finishing building these plants unless you pay us more,' then it is quite possible the commissioners will give them what they want.”
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