• 391 days Could Crypto Overtake Traditional Investment?
  • 396 days Americans Still Quitting Jobs At Record Pace
  • 398 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 401 days Is The Dollar Too Strong?
  • 401 days Big Tech Disappoints Investors on Earnings Calls
  • 402 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 404 days China Is Quietly Trying To Distance Itself From Russia
  • 404 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 408 days Crypto Investors Won Big In 2021
  • 408 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 409 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 411 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 412 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 415 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 416 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 416 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 418 days Are NFTs About To Take Over Gaming?
  • 419 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 422 days What’s Causing Inflation In The United States?
  • 423 days Intel Joins Russian Exodus as Chip Shortage Digs In
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

Oilprice.com

Oilprice.com

Writer, OilPrice.com

Information/Articles and Prices on a wide range of commodities: We have assembled a team of experienced writers to provide you with information on Crude Oil,…

Contact Author

  1. Home
  2. Markets
  3. Other

What A Westinghouse Bankruptcy Could Mean For U.S. Utilities

International news services now report that Japan's Toshiba Corporation (9502.T) is preparing to make a chapter 11 bankruptcy filing for its Westinghouse Electric subsidiary as soon as this Monday, March 27. For most of our readers this news evokes little surprise. This is merely another chapter of a slow moving financial and accounting train wreck involving nuclear design and construction firm Westinghouse and its troubled Japanese parent, Toshiba. But like an old, leaky garbage scow there is much to clean up in its wake.

The two U.S. utilities with the most at risk are Southern Company and SCANA Corp. Westinghouse is presently constructing two unit, AP 1000 nuclear power stations for each utility. These projects are over-budget and behind schedule. It appears that Westinghouse offered both utilities a fixed price contract for these new nuclear plants. Our best guess is that this fixed price construction guarantee has doomed Westinghouse and prevented other potentially willing buyers from stepping in. No one it seems is willing to take on this seemingly open-ended nuclear construction liability.

What does this mean for the two domestic utilities embroiled in this international financial quagmire?

First, we expect that they will complete both nuclear construction projects. The bulk of heavy capital expenditures for both utilities seem to be in the 2017-2019 period.

Second, it is in all interest of all potential litigants to see these plants completed. Westinghouse/Toshiba, for one, would at least get to showcase the AP 1000 design and its successor entity could advocate for additional sales of this reactor design. A working design has value. (What happens in the UK is another matter where Toshiba hoped to build several plants). The utilities, which need new power stations, get large, rate based, non-fossil base load power generating resources for the next 40-60 years.

The worst case scenario for utility investors would be if the utilities had to cancel the projects and take big write offs. But we assign a very low probability to this scenario.

Perhaps, more likely, a Westinghouse bankruptcy means abrogation of the fixed price contracts signed with Southern and SCANA. News reports this week indicated that both utilities had hired bankruptcy counsel.

As these plants are brought on line, presumably in the 2020-2021 time frame, the matter will go before the state utility commissions of Georgia and South Carolina. Both commissions approved these nuclear projects. It's just that the plants will cost more than expected.

Unfortunately for investors, they will have to live with uncertainty until the regulators make their decisions. There are no clear precedents for the decisions, other than that commissions typically allocate or split unexpected financial burdens like these between shareholders and consumers. And that the amounts at risk won't be modest given the size of the projects.

 


Link to original article: http://oilprice.com/Latest-Energy-News/World-News/What-A-Westinghouse-Bankruptcy-Could-Mean-For-US-Utilities5507.html

By Leonard Hyman and Bill Tilles for Oilprice.com

 

Back to homepage

Leave a comment

Leave a comment