By Tom Hals and Jessica DiNapoli
WILMINGTON, Del./NEW YORK (Reuters) - Japanese conglomerate Toshiba Corp is considering putting its Westinghouse Electric Co unit into U.S. Chapter 11 bankruptcy as soon as Tuesday due to runaway costs at two U.S. nuclear power plant projects, sources have told Reuters.
The following is a look at the fall-out from a possible Westinghouse bankruptcy filing.
Possible strategies in bankruptcy:
Renegotiate the U.S. projects: Toshiba<6502.T> has guaranteed that Westinghouse will complete four nuclear power plants in Georgia and South Carolina - the first nuclear plants to be built in three decades in the United States.
The projects are being overseen by utilities Southern Co and SCANA Corp and are years behind schedule and billions of dollars over budget.
Bankruptcy could give Toshiba leverage to renegotiate the fixed-cost contracts and shift some of the overruns to the utilities. Toshiba has said bankruptcy would allow it to limit its exposure to further cost overruns at the projects. The company has estimated it has contingent liabilities and guarantees of 793.5 billion yen (about $7 billion), nearly 90 percent of which are for the U.S. projects.
Southern Co and SCANA Corp likely would seek damages for breaking the contract.
Sale of Westinghouse:
Toshiba may seek a deal with other nuclear power developers to take over Westinghouse, which also operates a nuclear maintenance and design business. Pittsburgh-based Westinghouse has been foreign-owned since 1999, when it was acquired by British Nuclear Fuels Ltd. Toshiba outbid General Electric Co in 2006 to acquire Westinghouse.
South Korea's KEPCO <015760.KS>, the likeliest suitor for Westinghouse, is holding off from making an approach because of questions about the scale of damage at the unit and political uncertainty in both South Korea and the United States, people with direct knowledge of the matter say.
Another company takes over U.S. projects:
Southern Co and SCANA could look to another contractor to finish the work.
SCANA Corp, the parent of South Carolina Electric & Gas, has said in regulatory filings that it is taking steps that would allow it to transfer Westinghouse's intellectual property and software to a new construction team if needed. SCANA also said it could step in and take on the role of general contractor, replacing Westinghouse.
SCANA said in a statement on Monday it is preparing for a variety of outcomes.
Southern said it would hold Westinghouse and Toshiba to their responsibilities under their original agreement.
"It's important to note that the parent company of Westinghouse, Toshiba, has guaranteed the responsibilities of Westinghouse," Southern Co said in a prepared statement. "This remains under a Westinghouse bankruptcy."
Westinghouse declined to comment.
Abandonment by the utilities of one or both projects:
SCANA has said in regulatory filings it could seek to abandon the South Carolina project. In both Georgia and South Carolina, the law allows the utilities to recover their costs through rate increases imposed on power users if abandoning the project is deemed prudent.
Westinghouse is constructing two nuclear projects, Vogtle units 3 and 4 in Waynesboro, Georgia, and two units at the V.C. Summer Nuclear Power Station in Fairfield County, South Carolina. Both projects will produce about 2,234 megawatts of electricity.
The plants are expected to be the first in the country to use Westinghouse's AP1000 advanced pressured water reactor technology. The design has been promoted as safer, less expensive to build and requires less space.
The two Georgia units were originally expected to start operations in 2016 and 2017 and the South Carolina units in 2016 and 2019. The projects are now expected to be online by the end of 2020, although Scana has said there is "substantial uncertainty" given Westinghouse's performance.
The Vogtle construction was about 36 percent complete in September, according to testimony before Georgia's Public Service Commission. Construction at V.C. Summer is about 31 percent complete, according to Dec. 31 regulatory filing by SCANA.
If Westinghouse misses the deadlines, both utility consortiums would lose federal production tax credits.
Public Service Commissions in both states have approved costs of around $14 billion for each project but the final bill last week estimated V.C. Summer will ultimately cost around $22 billion and Vogtle will cost around $19 billion.
The plant owners:
Vogtle is jointly owned by Southern Co's Georgia Power (45.7 percent), Oglethorpe Power Corp [OGPWR.UL](30 percent), Municipal Electric Authority of Georgia (22.7 percent) and Dalton Utilities (1.6 percent).
V.C. Summer is owned 55 percent by SCANA Corp's South Carolina Electric & Gas, or SCE&G, and Santee Cooper, South Carolina's state-owned utility.
Customers served by these utilities companies will help pay for the project.
U.S. Department of Energy Guarantees:
The U.S. Department of Energy issued $8.3 billion in loan guarantees to backstop the funding from the utilities who commissioned the Vogtle projects, it said in a 2015 press release. SCANA did not receive federal loan guarantees for the V.C. Summer plants.
Ratepayers in Georgia and South Carolina already have been paying for the financing costs of the unfinished nuclear power plants and will foot the bill for the capital costs when the projects are completed. In Georgia, that will mean rate hikes of 6 percent to 8 percent. In South Carolina, 18 percent of residential users' bills are attributed to the cost of the V.C. Summer plant, according to a regulatory filing.
South Carolina regulators reached a deal with SCANA last year that prevents the utility company from requesting future electricity rate increases, unless certain circumstances are met.
Toshiba acquired the majority of Westinghouse in 2006 and owns 87 percent. Kazatomprom of Kazakhstan owns 10 percent and IHI Corp <7013.T> of Japan has 3 percent. In February, Toshiba said IHI was exercising its put option to sell its stake to Toshiba for $157 million.
Westinghouse has four AP1000 projects in Sanmen and Haiyang in China that are expected to begin operations this year, and expects to build a series of the reactors in the country. Westinghouse also provides nuclear equipment in Korea and services in Japan and also is trying to salvage a deal to build six AP1000 reactors in southern India.
Toshiba's woes also have raised doubts about the Moorside nuclear project in the United Kingdom, which Toshiba is developing with France's Engie .
(Additional reporting by Scott DiSavino in New York; Editing by Carmel Crimmins and Bill Trott)