The Death of Westinghouse

With quite some joy, I just penned the following wikipedia update under Westinghouse Electric Company LLC:

On March 24, 2017, parent company Toshiba announced Westinghouse Electric Company was filing for bankruptcy because of US$6 billion in losses from nuclear reactor construction projects. The nuclear projects responsible for this loss are mostly the Vogtle reactors in Georgia and the Summer reactors in South Carolina. ^[4]

fade

This bankruptcy might halt the construction of every reactor being built in the US at the moment, at least for some period of time. Without a bailout from a likely reluctant Trump administration, these reactors might never be completed though over $10 billion has been spent on them. Before you doubt these projects might be abandoned, remember that half of the reactor projects started in the US were abandoned, many because of cost overruns.  

Despite having followed this story intensely for some weeks now, I am still surprised at this result. I thought the Koreans would want to buy this reactor company for both its contracts and its technologies. Westinghouse has active construction projects and solid leads in many countries including the 4 nearly complete reactors in China. Russia and China were never serious suitors because they are unlikely to be approved by the US federal government for the sale of this sensitive technology.

My first anti-nuclear protest was at the Westinghouse reactors at Diablo Canyon in 1981. I fought Westinghouse at the Temelin reactors in the Czech Republic through the 1990s. Westinghouse developed the first 3rd generation reactors including the AP 1000 which is currently under construction in more locations than any other Gen 3 western design.

Temelin Protests 1995

What went wrong? There is a pretty standard formula for building nuclear power plants in the US. The reactor vendor comes in and underbids the contract, while still seeking a huge amount of money. The regulators accept this low bid on behalf of the state. Not long into construction inevitable delays and cost overruns begin. The nuclear construction company turns to the utility and says, “Please pass these extra costs on to your rate payers (or in some states the tax payers.)” Historically, the regulator has obliged. This way the frequently exploding costs of nuclear construction, typically over 200% the initial contracted price in the US, do not bankrupt the construction company. But even this formula was not good enough to restart nuclear construction in the US.

Beyond this the AP 1000 was Westinghouse’s new design.  It was simpler, more safe, better simulated and tested than any other reactor Westinghouse had ever built.  And it was testing the future of reactor construction: Modularity.  Historically, reactors are built on site.  There are too many custom pieces, many of which are huge, to be built in a factory.  But Westinghouse was a forward thinking company.  They knew they need to change the ways reactors were built to keep costs down.  They presumed, as did many in the industry, that standardizing designs and building components in factories like giant legos, which were then fastened together onsite would make it easier and less expensive.  Turn out reactors are not like legos, and this modular strategy was central to Westinhouse failure at Summer and Vogtle.

The Bush/Cheney administration attempted to boot strap the “nuclear Renaissance” with a generous aid package, which included:

• Government-preferred equity investment facilities
• $18 billion of subsidized federal loans
• Tax-exempt financing
• Federal power purchase agreements at above-market rates
• Taxpayer-backed insurance

Bush in control?

Despite this generous program, only 4 reactors began construction, two in Georgia at Vogtle and two is South Carolina at Summer. A disappointing yield for an industry that at its high point (2009) had 30 applications in for new reactors.

To land these 4 contracts, Westinghouse (which was acting as the general contractor) had to require that the construction subcontractors bid fixed price contracts. Chicago Bridge and Iron (CBI) was working on the Vogtle reactors and ran into serious difficulties working with Westinghouse and sued them. Counter-suits which further delayed construction followed. Ultimately, Westinghouse would purchase CBI for $229 million to avoid going to court for $1.5 billion.

But once Westinghouse owned most of the construction responsibilities for these reactors there became no way to pass on the cost overruns. The nuclear utilities had protected themselves from this old trick by requiring fixed-cost contracts. It is telling that once the cost overruns could not be passed on, this scam no longer worked, and it promptly bankrupted the nation’s largest nuclear construction firm.

I’ve been fighting Westinghouse my entire adult life, and I did not expect to outlive it. There will be some hard won celebrations by clean energy advocates across the land this week.