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American tech icon Westinghouse bet on nuclear, and lost

by

Bloomberg

Westinghouse Electric Co., once synonymous with America’s industrial might, wagered its future on nuclear power — and lost.

Now a unit of Japanese technology giant Toshiba Corp., Westinghouse filed for bankruptcy-court protection, citing as much as $10 billion in debt.

The move marks the end of a troubled era, which began in 1999, when the company ditched its other businesses to focus on reactors. Since then, nuclear power has failed to catch on because of the cost of building reactors in communities that often oppose them and declining costs for competing technologies.

“They placed a big bet on this hallucination of a nuclear renaissance,” said Peter A Bradford, a former Nuclear Regulatory Commission member who now teaches at Vermont Law School. “Toshiba seemed to believe that all the nuclear plants were actually going to get built. Nuclear power in the last round was a financial disaster, and it is in this one too.”

In earlier iterations, Westinghouse, based in Cranberry Township, a suburb of Pittsburgh, was an innovator on par with today’s Microsoft Corp. and Apple Inc. George Westinghouse, a prolific inventor and rival of Thomas Edison, founded the company in 1886. Its technological breakthroughs included air breaks for trains and alternating current, which commercialized power and electrified the world.

Westinghouse supplied the world’s first commercial pressurized water reactor more than half a century ago in Pennsylvania. There are currently more than 430 nuclear power stations globally, with about half based on Westinghouse technology.

Westinghouse tried many strategies to stay relevant with changing times. Like one-time rival General Electric Co., the company diversified. In the 1980s, it offered financial services, suffering heavy losses. Westinghouse went into broadcasting when it bought CBS in 1995 and took its name two years later.

But it never found its footing. As CBS, the company started licensing the Westinghouse brand to makers of everything from microwave ovens to solar panels. By the time CBS sold itself to Viacom Inc. in 2000, there was little left of Westinghouse but the nuclear business.

About 10 years ago, Westinghouse came up with an approach it hoped would revolutionize nuclear power: a simplified modular design that could be sold to more than a dozen utilities at a lower cost. It had the less-than-catchy name of the AP1000.

“The AP1000 was supposed to open a new era of reactors with a generic design that can be sold or licensed,” said Mykel Schneider, a Paris based nuclear energy consultant. “What they did was move the problems from the factory to the construction site, where you’re dealing with a labor force that hasn’t built reactors in decade. And they used extremely optimistic cost and construction estimates.”

Toshiba bought Westinghouse for $5.4 billion in 2006. The company foresaw a golden age for nuclear power in the U.S., U.K. and China. Instead, natural gas became cheaper and the 2011 nuclear disaster in Fukushima further soured the public on nuclear.

The conglomerate has already lost $6 billion on the purchase and said Thursday its full-year net loss could more than double to ¥1.01 trillion, from ¥390 billion forecast last month, following the Westinghouse bankruptcy filing.

In the U.S., only 4 of 30 applications for nuclear reactors using Westinghouse technology have moved forward, and even those are now at risk. Westinghouse has fallen behind on projects for U.S. utility companies Southern Co. and Scana Corp.

Scana and Southern could end up dealing with billions of dollars in additional cost overruns from the power plants they hired Westinghouse to build, according to analysts at Morgan Stanley. Scana faces as much as $5.2 billion in higher costs while Southern’s extra bills could reach $3.3 billion, Morgan Stanley has said.

Toshiba probably paid too much for the remains of Westinghouse and its supply agreements, according David Rubenstein, an analyst at Shared Research Inc. in Tokyo. He started covering Toshiba in 2007, just a year after the Westinghouse acquisition.

“From the start I had a negative impression of the nuclear business,” Rubenstein said. “The purchase price didn’t make sense. It looked like a huge risk and that was without Fukushima.”