Sunday, April 2, 2017

Westinghouse Bankruptcy:

What Happened?

In the wake of the announcement this past week that Westinghouse filed for Chapter 11 Bankruptcy as a result of the losses incurred in the construction of four AP1000 units in Georgia and South Carolina, everyone is trying to figure out what happened.

Westinghouse, after all, certainly has long and extensive experience in the nuclear power design and construction business.  They have been in the nuclear business since the 1950s, and were responsible for the Shippingport reactor, one of the first commercial power reactors in the world.  The Westinghouse website states that, "Our technology is the basis for nearly 50 percent of the world's operating commercial nuclear power plants." 

And, after all, NRC had put in place a rule, Part 52, that was designed to make the licensing process more efficient and predictable than the old process (Part 50) had been.

So, what could have gone wrong?

In just the few days since the announcement, I have read several analyses that come to very different conclusions about the cause of the bankruptcy.  I am still sorting out all the views, but in the meantime, I thought it might be helpful to start tracking the various opinions and thinking about them.  I thought some of what I have been finding might be useful to share.

Regulatory requirement 

One of the first analyses I read, by Rod Adams, focuses on regulatory requirements that were imposed on these four units at a late stage in their design.  In particular, he points to changes in 2009 in NRC's requirements regarding aircraft impacts.  He notes that the NRC exempted current plants, and plants for which a construction license had already been granted.  Although the Summer and Vogtle units did not yet have construction permits and the detailed design was not yet complete, the design as it existed at that point had been sufficient to serve as the basis for a cost estimate and a firm price.  The subsequent redesign effort led to delays and resulted in a significant impact on the facility structure.  

Business decision

Another early analysis, by Jim Conca, attributes Westinghouse's problems to bad business decisions.  Conca points out that Westinghouse chose the Shaw Group to manage the construction of the four units at the two sites.  Shaw had no direct experience building nuclear power plants, but it had bought Stone and Webster out of bankruptcy.  Stone and Webster was an old nuclear company and had been responsible for building a number of nuclear power plants between the 1950s and the 1970s.  This gave Shaw the credibility to win the contract.  However, Stone and Webster no longer had any real nuclear expertise or staff, and the project experience significant delays and cost overruns.  Conca details further transactions, including to Chicago Bridge and Iron, which was a large engineering firm, but also had no nuclear experience.

Erosion of Expertise

Still another view is espoused by Paul Dickman, who previously worked at the NRC.  He points to the loss of the skilled workforce.  Of interest, he attributes lack of experience as a factor on all sides, not only on the construction side.

Scale of Project

One argument I haven't seen offered yet for the particular case of the Westinghouse bankruptcy, but that I have seen mentioned before for large-scale projects like nuclear power plants is the fact that many, if not most, large-scale projects seem prone to significant cost overruns.  Much has been made about this in the case of recent projects to build facilities for the Olympics, but many of the articles on the cost overruns for the Olympic facilities also mention other "megaprojects," such as bridges, highways, railways, and power stations.

All of the above?

My own guess is that several of these factors, perhaps even all of them, may be contributing elements.  For any one element, perhaps one could argue that Westinghouse should have anticipated some problems and built in some margin in its estimates or incorporated some flexibility in their contracts, but perhaps the combination of all these factors was a "perfect storm." 

The only thing we can be sure of at the moment is that there is likely to be a lot more evaluation of all the circumstances leading up to this bankruptcy, and a lot more guessing about what Westinghouse should have done.  Or, perhaps of more relevance, about what vendors should do in the future.   


1 comment:

  1. I want to thank a reader who wishes to remain anonymous for pointing out that the description of Chicago Bridge and Iron is misleading:

    "CB&I may have been out of the nuclear business for some time (I haven't kept track), but saying the company lacks nuclear experience is certainly untrue. CB&I was involved in the construction of the "BONUS" reactor, in Puerto Rico, and (I believe) the Dresden I plant in Illinois. (See"