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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--When Westinghouse Electric Corporation LLC (Cranberry Township, Pennsylvania) filed for Chapter 11 bankruptcy protection March 29, it triggered a cascading series of problems and uncertainties affecting suppliers of goods and services, including labor, to the two new nuclear units being built at the Alvin W. Vogtle Nuclear Power Station in Waynesboro, Georgia, and beyond.
One of these uncertainties is whether and when suppliers of labor and other services will be paid. In a letter sent to suppliers in early April, Westinghouse Interim President and CEO Jose Gutierrez wrote, "For goods and services provided by suppliers to Westinghouse's U.S. operations ... prior to March 29, 2017, we regret that Westinghouse cannot render payment for outstanding invoices at this time."
"When a bankruptcy case is filed, it gives Westinghouse the right to cancel their contract," Zane Leiden, a veteran bankruptcy attorney working in Augusta, told WRDW-TV 12 on April 12. "That's the main reason why we see a Chapter 11 filing. If that contract is canceled, that money is not going to be paid for whoever that employer will be. Some of them may be able to move on to other projects, but there's probably a significant number that may not be able to survive."
A Chapter 11 filing allows companies to renegotiate or break contracts in order to restore its financial health, subject to the approval of a bankruptcy court judge. Following Westinghouse's bankruptcy filing March 29, local and trade media have carried stories about the financial impact of workers, suppliers and shopkeepers potentially not getting paid for their goods or services.
In a report last week, the Congressional Research Service (CRS) (Washington, D.C.), the non-partisan research agency serving Congress, said Westinhgouse's Chapter 11 filing "raised fundamental questions about the future of the U.S. nuclear power industry, and particularly whether four new reactors that Westinghouse is constructing for electric utilities in Georgia and South Carolina will be completed."
The CRS report added, "In a statement on the bankruptcy, Westinghouse said it would continue building the Vogtle and Summer nuclear units 'during an initial assessment period,' reported to be through April 28, 2017. Whether construction will continue beyond that date depends on decisions by the project owners, state regulators, and possibly the federal government. Whether construction will continue beyond that date depends on decisions by the project owners, state regulators, and possibly the federal government."
CRS analyst Mark Holt also raised the possibility that Westinhgouse may be replaced as contractor. He also noted the Vogtle project has received about $5.3 billion of its $8.3 federal loan guarantee. The Summer project did not receive any federal loan guarantees. If the project is cancelled, the recipients have five years to repay the loan guarantees, though the Secretary of Energy has the power to modify the terms of the loan guarantees. "Congressional concern has arisen that the Westinghouse bankruptcy could place taxpayers at risk for the DOE-guaranteed loans that have been issued to date," Holt wrote in his April 19 report, titled, "Westinghouse Bankruptcy Filing Could Put New U.S. Nuclear Projects at Risk."
Georgia Power Company (Atlanta, Georgia), the principal owner of the new additions at Vogtle, is trying to choose between a set of bad options. At one extreme, it could continue building the two new units, now about 60% complete. To do that, it may have to guarantee payroll for all of the suppliers to Westinghouse, an enormous unplanned burden, even for a utility of Georgia Power's size. At the other end of the spectrum, the utility could decide to suspend or cancel further construction work at Vogtle. That second option would free thousands of skilled craft laborers, many of whom traveled to the Vogtle site from other labor markets. Either option, and a host of other alternatives in between those extremes, likely will keep bankruptcy lawyers working full time for years, filing and litigating claims and cross-claims for damages.
Nearly 6,000 skilled craft workers are on the Vogtle jobsite, according to Georgia Power spokesman John Kraft. The price tag for adding two new units at Vogtle is about $16.2 billion. Georgia Power is a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia).
Jacob Hawkins, another Georgia Power spokesman, told Industrial Info that it has "an interim assessment agreement with Westinghouse under which the utility is obligated to pay, on behalf of the Vogtle co-owners, all costs accrued by Westinghouse for subcontractors and vendors for services performed or goods provided during the interim assessment period, which began March 29, 2017 with the potential to run through April 28, 2017."
What could happen after April 28 is anyone's guess. Procurement managers and supply-chain estimators in the Southeastern U.S. are reassessing how the turbulent situation at Vogtle could affect their projects' cost estimates and delivery dates. "We're seeing a huge labor supply-chain disruption rippling out from Waynesboro, Georgia, across the entire Southeastern U.S.," commented Tony Salemme, vice president of Industrial Info's Craft Labor Group.
In an emailed statement, Hawkins added: "Work is continuing at the (Vogtle) site during the assessment period. While we are working with Westinghouse to maintain momentum at the site, we are also currently conducting a full-scale schedule and cost-to-complete assessment to determine what impact Westinghouse's bankruptcy will have on the project and we will work with the Georgia Public Service Commission and the (Vogtle) co-owners to determine the best path forward. We will continue to take every action available to us to hold Westinghouse and Toshiba accountable for their financial responsibilities under the engineering, procurement and construction (EPC) agreement and the parent guarantee."
Georgia Power recently backed away from preliminary plans to build a new nuclear plant in Stewart County, Georgia. For more on that, see April 17, 2017, article - Georgia Power Pulls Plug on Potential New Nuclear Generation.
Vogtle-related uncertainties and problems threaten to ripple outward, potentially affecting other industrial projects being developed in the Southeastern U.S. The supply-chain disruptions could threaten the nation's other nuclear construction project, in Jenkinsville, South Carolina, as well as Power, Oil & Gas Terminals and Pulp, Paper & Wood projects throughout the Southeastern U.S.
Construction of the two new units at Vogtle drove up demand for skilled craft labor across the entire Southeast region, according to Industrial Info's Labor Forecast Analyzer. Demand for labor across the region jumped by nearly 10 million hours per year in 2012, the year construction of the two new units began, to 92 million hours per year in 2012 from 80 million hours the year before. All of that new demand came from Georgia. Within the Peach State, that entire surge in demand came from Zone 3, the greater Augusta area, the analyzer showed.
In 2011, the year before construction of Vogtle units 3 and 4 began, the greater Augusta area required 5.6 million hours of skilled craft labor. But In 2012, the year construction of the two new nuclear units began, annual demand surged 182%, to about 15.8 million hours. The next year, 2013, demand rose still higher, to 17.2 million hours, before falling back to 15 million hours in 2014. Demand perked back up in 2015 and 2016, to 16.2 million hours and 16.3 million hours in those years, respectively.
Further proof of the outsized impact the Vogtle construction project is having on the state's and region's labor markets can be seen in 2020, when construction of the two new nuclear units is scheduled to be complete. That year, demand for skilled craft labor in the greater Augusta area is forecast to drop by approximately 73% - to about 4 million hours from 14.5 million hours in 2019. Demand for labor in Georgia is forecast to drop by about 10 million hours between 2019 and 2020, to about 20.5 million hours from about 29.9 million hours. Over that same two year period, demand for labor across the Southeast region is expected to fall by a little over 5 million hours, to 95.6 million hours from 100.8 million hours.
"Adding two new units to the Vogtle nuclear plant has been a two-edged sword for labor," Salemme remarked. "The demand for electricians, welders, boilermakers, pipefitters and other skilled crafts at Vogtle so far outstripped the availability locally and across the state that Vogtle's contractors had to rely heavily on traveling labor to meet demand and keep construction moving forward."
"No laborer was complaining when demand was skyrocketing," he continued. "But Westinghouse's bankruptcy filing, and uncertainty about if and when laborers and vendors would be paid, have roiled the region's labor market. When demand surged for labor at the Vogtle plant, other developers and asset owners had to pay more to get laborers to travel to their projects. Now, if construction at Vogtle is suspended, skilled craftsmen would flood back to their local markets, which could lower the cost to build power plants or chemical processing facilities. But if construction continues, the costs and construction schedules of those other projects would be affected."
"For labor organizations and vendors, the Westinghouse-Vogtle situation is an incredibly complex 'lady or the tiger?' dilemma," Salemme said.
This is the third in a series of articles on the demand for and the supply of skilled craft labor in various markets around the U.S. Our first article in this series, Expected Shortfall of Some Skilled Craft Labor Hangs Over Planned Industrial Projects in Los Angeles, ran March 22, 2017. Our second article, Labor Demand: Going to San Francisco? Better Bring Some Boilermakers and Millwrights!, was posted April 10, 2017.
Salemme will be a featured speaker at the upcoming Northeast U.S. Petrochemical Construction conference, to be held June 19-20 at the Sheraton Pittsburgh Hotel at Station Square, Pittsburgh. Industrial Info is a sponsor of that event, and we will exhibit at the conference. FC Business Intelligence Limited (London, United Kingdom), is producing that event.
Industrial Info will hold its 2017 Industrial Market Outlook, on May 11 in Valley Forge, Pennsylvania. Join Industrial Info's subject-matter experts in the Power, Chemical Processing, Oil & Gas, Food & Beverage and Pharmaceutical & Biotech industries. Registration to the event is complimentary, but advance registration is required. Register here!
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
One of these uncertainties is whether and when suppliers of labor and other services will be paid. In a letter sent to suppliers in early April, Westinghouse Interim President and CEO Jose Gutierrez wrote, "For goods and services provided by suppliers to Westinghouse's U.S. operations ... prior to March 29, 2017, we regret that Westinghouse cannot render payment for outstanding invoices at this time."
"When a bankruptcy case is filed, it gives Westinghouse the right to cancel their contract," Zane Leiden, a veteran bankruptcy attorney working in Augusta, told WRDW-TV 12 on April 12. "That's the main reason why we see a Chapter 11 filing. If that contract is canceled, that money is not going to be paid for whoever that employer will be. Some of them may be able to move on to other projects, but there's probably a significant number that may not be able to survive."
A Chapter 11 filing allows companies to renegotiate or break contracts in order to restore its financial health, subject to the approval of a bankruptcy court judge. Following Westinghouse's bankruptcy filing March 29, local and trade media have carried stories about the financial impact of workers, suppliers and shopkeepers potentially not getting paid for their goods or services.
In a report last week, the Congressional Research Service (CRS) (Washington, D.C.), the non-partisan research agency serving Congress, said Westinhgouse's Chapter 11 filing "raised fundamental questions about the future of the U.S. nuclear power industry, and particularly whether four new reactors that Westinghouse is constructing for electric utilities in Georgia and South Carolina will be completed."
The CRS report added, "In a statement on the bankruptcy, Westinghouse said it would continue building the Vogtle and Summer nuclear units 'during an initial assessment period,' reported to be through April 28, 2017. Whether construction will continue beyond that date depends on decisions by the project owners, state regulators, and possibly the federal government. Whether construction will continue beyond that date depends on decisions by the project owners, state regulators, and possibly the federal government."
CRS analyst Mark Holt also raised the possibility that Westinhgouse may be replaced as contractor. He also noted the Vogtle project has received about $5.3 billion of its $8.3 federal loan guarantee. The Summer project did not receive any federal loan guarantees. If the project is cancelled, the recipients have five years to repay the loan guarantees, though the Secretary of Energy has the power to modify the terms of the loan guarantees. "Congressional concern has arisen that the Westinghouse bankruptcy could place taxpayers at risk for the DOE-guaranteed loans that have been issued to date," Holt wrote in his April 19 report, titled, "Westinghouse Bankruptcy Filing Could Put New U.S. Nuclear Projects at Risk."
Georgia Power Company (Atlanta, Georgia), the principal owner of the new additions at Vogtle, is trying to choose between a set of bad options. At one extreme, it could continue building the two new units, now about 60% complete. To do that, it may have to guarantee payroll for all of the suppliers to Westinghouse, an enormous unplanned burden, even for a utility of Georgia Power's size. At the other end of the spectrum, the utility could decide to suspend or cancel further construction work at Vogtle. That second option would free thousands of skilled craft laborers, many of whom traveled to the Vogtle site from other labor markets. Either option, and a host of other alternatives in between those extremes, likely will keep bankruptcy lawyers working full time for years, filing and litigating claims and cross-claims for damages.
Nearly 6,000 skilled craft workers are on the Vogtle jobsite, according to Georgia Power spokesman John Kraft. The price tag for adding two new units at Vogtle is about $16.2 billion. Georgia Power is a unit of the Southern Company (NYSE:SO) (Atlanta, Georgia).
Jacob Hawkins, another Georgia Power spokesman, told Industrial Info that it has "an interim assessment agreement with Westinghouse under which the utility is obligated to pay, on behalf of the Vogtle co-owners, all costs accrued by Westinghouse for subcontractors and vendors for services performed or goods provided during the interim assessment period, which began March 29, 2017 with the potential to run through April 28, 2017."
What could happen after April 28 is anyone's guess. Procurement managers and supply-chain estimators in the Southeastern U.S. are reassessing how the turbulent situation at Vogtle could affect their projects' cost estimates and delivery dates. "We're seeing a huge labor supply-chain disruption rippling out from Waynesboro, Georgia, across the entire Southeastern U.S.," commented Tony Salemme, vice president of Industrial Info's Craft Labor Group.
In an emailed statement, Hawkins added: "Work is continuing at the (Vogtle) site during the assessment period. While we are working with Westinghouse to maintain momentum at the site, we are also currently conducting a full-scale schedule and cost-to-complete assessment to determine what impact Westinghouse's bankruptcy will have on the project and we will work with the Georgia Public Service Commission and the (Vogtle) co-owners to determine the best path forward. We will continue to take every action available to us to hold Westinghouse and Toshiba accountable for their financial responsibilities under the engineering, procurement and construction (EPC) agreement and the parent guarantee."
Georgia Power recently backed away from preliminary plans to build a new nuclear plant in Stewart County, Georgia. For more on that, see April 17, 2017, article - Georgia Power Pulls Plug on Potential New Nuclear Generation.
Vogtle-related uncertainties and problems threaten to ripple outward, potentially affecting other industrial projects being developed in the Southeastern U.S. The supply-chain disruptions could threaten the nation's other nuclear construction project, in Jenkinsville, South Carolina, as well as Power, Oil & Gas Terminals and Pulp, Paper & Wood projects throughout the Southeastern U.S.
Construction of the two new units at Vogtle drove up demand for skilled craft labor across the entire Southeast region, according to Industrial Info's Labor Forecast Analyzer. Demand for labor across the region jumped by nearly 10 million hours per year in 2012, the year construction of the two new units began, to 92 million hours per year in 2012 from 80 million hours the year before. All of that new demand came from Georgia. Within the Peach State, that entire surge in demand came from Zone 3, the greater Augusta area, the analyzer showed.
In 2011, the year before construction of Vogtle units 3 and 4 began, the greater Augusta area required 5.6 million hours of skilled craft labor. But In 2012, the year construction of the two new nuclear units began, annual demand surged 182%, to about 15.8 million hours. The next year, 2013, demand rose still higher, to 17.2 million hours, before falling back to 15 million hours in 2014. Demand perked back up in 2015 and 2016, to 16.2 million hours and 16.3 million hours in those years, respectively.
Further proof of the outsized impact the Vogtle construction project is having on the state's and region's labor markets can be seen in 2020, when construction of the two new nuclear units is scheduled to be complete. That year, demand for skilled craft labor in the greater Augusta area is forecast to drop by approximately 73% - to about 4 million hours from 14.5 million hours in 2019. Demand for labor in Georgia is forecast to drop by about 10 million hours between 2019 and 2020, to about 20.5 million hours from about 29.9 million hours. Over that same two year period, demand for labor across the Southeast region is expected to fall by a little over 5 million hours, to 95.6 million hours from 100.8 million hours.
"Adding two new units to the Vogtle nuclear plant has been a two-edged sword for labor," Salemme remarked. "The demand for electricians, welders, boilermakers, pipefitters and other skilled crafts at Vogtle so far outstripped the availability locally and across the state that Vogtle's contractors had to rely heavily on traveling labor to meet demand and keep construction moving forward."
"No laborer was complaining when demand was skyrocketing," he continued. "But Westinghouse's bankruptcy filing, and uncertainty about if and when laborers and vendors would be paid, have roiled the region's labor market. When demand surged for labor at the Vogtle plant, other developers and asset owners had to pay more to get laborers to travel to their projects. Now, if construction at Vogtle is suspended, skilled craftsmen would flood back to their local markets, which could lower the cost to build power plants or chemical processing facilities. But if construction continues, the costs and construction schedules of those other projects would be affected."
"For labor organizations and vendors, the Westinghouse-Vogtle situation is an incredibly complex 'lady or the tiger?' dilemma," Salemme said.
This is the third in a series of articles on the demand for and the supply of skilled craft labor in various markets around the U.S. Our first article in this series, Expected Shortfall of Some Skilled Craft Labor Hangs Over Planned Industrial Projects in Los Angeles, ran March 22, 2017. Our second article, Labor Demand: Going to San Francisco? Better Bring Some Boilermakers and Millwrights!, was posted April 10, 2017.
Salemme will be a featured speaker at the upcoming Northeast U.S. Petrochemical Construction conference, to be held June 19-20 at the Sheraton Pittsburgh Hotel at Station Square, Pittsburgh. Industrial Info is a sponsor of that event, and we will exhibit at the conference. FC Business Intelligence Limited (London, United Kingdom), is producing that event.
Industrial Info will hold its 2017 Industrial Market Outlook, on May 11 in Valley Forge, Pennsylvania. Join Industrial Info's subject-matter experts in the Power, Chemical Processing, Oil & Gas, Food & Beverage and Pharmaceutical & Biotech industries. Registration to the event is complimentary, but advance registration is required. Register here!
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
