What does Toshiba’s financial meltdown mean for new nuclear reactor projects in U.S.?

This is first in a series of blogs about Toshiba’s financial meltdown and the implications this is having on new nuclear power plant projects. Today’s blog serves as an overview. 

Coverage of the still-unfolding financial meltdown of Japanese tech-mogul Toshiba has been growing since late December when the massive financial losses were first divulged. Toshiba’s much anticipated earnings report call yesterday, which was expected to shed light on the situation, was delayed with permission from Japanese regulators until March 14. Toshiba still reported extremely bad news, much larger losses than earlier predicted and the selling-off of key Toshiba assets, as the images below convey.

Toshiba Provisional Outlook FY2016 3Q, Slide 6. At http://www.toshiba.co.jp/about/ir/en/pr/pdf/tpr20170214.pdf.

 

 

Why does this matter to new nuclear reactor projects here in the U.S.? Toshiba owns Westinghouse, which is the designer and builder of the AP1000 reactor design, and Westinghouse’s nuclear losses are the cause of Toshiba’s woes. In fact, the four AP1000 reactors under construction here in the southeast — two at Georgia Power’s Plant Vogtle in Georgia (subsidiary of Southern Company) and two at SCE&G’s V.C. Summer (subsidiary of SCANA) nuclear plant in South Carolina — account for the over $6 billion in losses. In advance of SCANA’s earnings call tomorrow, the utility issued a press release announcing an additional 8-month delay to the project; estimated completion has shifted from August 2019 to April 2020 for Unit 2 and December 2020 for Unit 3. Originally the first new reactors for Vogtle and Summer were to be online by April 1, 2016 (April Fool’s Day) and the second ones by this April!

Other utilities in our region hoping to pursue building new AP1000 reactors one day were also dealt a harsh blow when Toshiba said Westinghouse was exiting the nuclear construction business. So FPL’s plans for more AP1000 reactors at their Turkey Point site near Miami, or Duke’s possible new reactors in South Carolina at the William States Lee site and the Levy County site in Florida, and Southern’s Stewart County site in Georgia are, in all practicality, no more. There is no longer a builder for these projects so even if those utilities still harbor nuclear aspirations, they’ll need to find someone else to build them.

Given the economic fallout of Toshiba’s demise due to new nuclear construction projects, those utilities will have to admit that the estimated costs of new reactors will be far, far costlier than they initially proposed to regulators and their customers. There is no way new nuclear reactors will be considered economical in comparison to other, lower cost, less risky alternatives. We outlined this in our final brief filed Monday with the Georgia Public Service Commission (PSC) in the 15th semi-annual Vogtle Construction Monitoring period, recommending the PSC investigate the Toshiba situation and alternatively, to halt the Vogtle project and consider lower cost alternatives.

Bloomberg Interview / Click the image to watch the video interview.

What does this mean for the under construction AP1000 projects in Georgia and South Carolina? One clear take away is that this is not good news for either projects; as stated above, SCANA already announced an additional 8-month delay to the V.C. Summer expansion. More information is needed to really know what the full implications are; hence our request for the Georgia PSC to investigate the impacts to the Vogtle expansion. SCANA’s earnings call on February 16 and Southern’s on February 22 should provide more insight; but given Toshiba’s earnings report delay until March 14 and stated need to further investigate Westinghouse’s nuclear operations, there will likely be no clear answers in the very near term.

Right now, Toshiba seems committed to completing those projects but their ability to do so seems hinged on whether they can avoid a complete implosion of the company by selling off very lucrative portions of their business. As Yuki Nakamura reported in for Bloomberg (photo to the left), “Toshiba will be a shell of itself.”

The many recent headlines don’t convey a pleasant road ahead: Chaotic day as Toshiba details losses, $6.3 billion nuclear holeToshiba woes include Georgia nuke project: If the company’s troubles lead to further delays, Georgia Power or its customers could bear the costWestinghouse uncertainty has officials ‘holding their breath’Toshiba’s Nuclear Reactor Mess Winds Back to a Louisiana SwampRisky projects a cloud over Southern Co.; and Contractor woes delay completion of South Carolina nuclear project.

We have already heard regulators in those states voice concerns while reiterating claims that renegotiated contracts protect the utilities they regulate and the customers they are tasked with protecting. But these are the same regulators who have watched these projects derail from Day One, which is now over seven years ago, and let delay after delay and cost increase after cost increase continue under their watch. And supposed “fixed price” contracts do not guarantee economically-sound projects, especially for the nuclear industry. If there were clear answers, we’d have learned of them by now. There are too many unanswered “if’s” for anyone to think these projects are in the clear. A key one being: what if Toshiba’s fixes don’t work and they file for bankruptcy? That could easily lead to the courts and possibly a decision allowing Westinghouse to go back and renegotiate their contracts with Southern Company and SCANA, which ultimately would bring those utilities right back to their regulators at the PSC. As reported by E&E News in EnergyWire:

One analyst said his biggest concern is how South Carolina regulators decide to handle the issue going forward.

“Regulators are going to be the ones to decide whether shareholders have to bear some of the extra costs for the project,” said Travis Miller, a utility analyst with Morningstar Inc. “Regulators set the rates, and [SCE&G] is always subject to regulatory review.”

Given the free pass regulators have given those utilities for years now on projects still plagued with serious problems, that is not at all reassuring for utility customers.

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