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. 
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.
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
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.
4 responses to “The Death of Westinghouse”
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- April 24, 2017 -
Congratulations to you and may I say “thank you” from the planet earth!
On Sat, Mar 25, 2017 at 7:25 AM, your passport to complaining wrote:
> paxus posted: “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 nu” >
I am a big fan of renewable energy but it is hard to see how we can get enough reliable energy from them given all the amount of power that we need to switch from all carbon energy sources for all uses. I would refer you to David MacKay’s book “Sustainable Energy -without the hot air” It is a position free engineering analysis of what is realistically obtainable. If you are really serious about controlling global warming you should spend the time reading it and understanding the challenges – not the hype or what we would like to be true, but what is actually possible.
(Please don’t take this to be an uncritical endorsement of how nuclear power has been implemented, far from it but I am afraid that nuclear is going to needed to be in the mix if we’re going to hit the carbon budgets that we need to. Westinghouse going bankrupt does not in the long run help the planet)
The problem is there are no reactor designs which can actually solve the climate problem. The AP 1000 is now dead. The EPR has basically the same terrible economics. The Chinese have no safety authority which is why they are so cheap (until you hit an accident). What model are you thinking of (the wrong answer is SMRs and Thorium).