Nuclear Spring
Westinghouse, picked apart and left for dead in the 1990s, is resurgent, thanks to an unlikely rebirth of the atomic power business.
By G. Pascal Zachary

(Business 2.0) – Outside, it's another warm summer afternoon in Madison, Pa., a forested suburb 30 miles southeast of Pittsburgh. Inside—in a brightly lit Westinghouse control room packed with computer monitors, scopes, and switches—four nuclear technicians from Switzerland are frantically barking commands to one another in German. Their reactor, they are told, is leaking radioactive steam, and it's minutes away from a meltdown unless they complete a tricky shutdown. "Stopping pump A!" one team member shouts. "Now pump B!" The shutoff switch misfires. Flipping madly through a loose-leaf binder, another technician finds the sequence for a manual override—in the nick of time.

It's all just a training exercise, of course, one that Westinghouse managers run in this simulator frequently for workers from nuclear power plants around the world. And, far from any meltdown, the five-day sessions, for which Westinghouse charges as much as $50,000, are a sign of booming business. Two decades after disastrous accidents at Three Mile Island and Chernobyl, the nuclear power industry has cranked back to life—thanks in part to rising oil prices and mounting evidence that gas- and coal-powered electric plants contribute to global warming, while nuclear plants produce emissions-free electricity at roughly the same cost. Not even the threat of terrorist attacks has slowed nuclear's comeback; most experts believe that concrete-reinforced reactors are among the best-protected assets in the United States, with 8,000 armed guards at 64 sites.

Rather than decommission aging nukes—there are 103 U.S. nuclear plants—utilities are instead extending their lives. And that's bringing a gusher of business to Westinghouse, the nation's top supplier of nuclear technology. Last year the company booked a record $3 billion in nuclear power orders, with nearly all of that business coming from renovating existing plants. (Of the world's 438 nuclear power plants, about half rely on Westinghouse-type reactors.) This year Westinghouse is on track to post revenue of nearly $2 billion and a healthy operating profit of at least 15 percent.

Impressive as those numbers seem, they don't begin to describe one of the most improbable turnarounds in U.S. business history. A fabled industrial giant, Westinghouse produced the first electricity generator in 1886, the first commercial radio broadcast in 1920, and the first industrial atom smasher in 1937. But it was nearly out of business just five years ago, having jettisoned its home appliance brands and morphed into a media conglomerate—CBS—in the mid-1990s. Now the 50-year-old nuclear power business has brought the Westinghouse name back from the brink—a fact that still astonishes the company's CEO, Steve Tritch, a mild-mannered mechanical engineer who once considered the nuclear field extinct. "Ten years ago I had a hard time telling a 40-year-old to stay in the business," says Tritch, who is 55. "Today I have no problem telling any employee there's a lifetime job here."

Actually there are plenty of them. Westinghouse, which employs nearly 9,000 people in 14 countries, expects to hire thousands more during the next five years to keep pace with a business that's sprung back to life in the United States and is expanding steadily in Asia and Europe. The growth scenario has turned the company's Energy Center, its headquarters near Pittsburgh, into a kind of mecca for nuclear power movers and shakers. While the Swiss nuclear operators are sweating it out in the simulator one recent afternoon, a delegation from France's national electric company is getting a technology briefing. Taiwanese engineers are studying a robot designed to do maintenance in high-radiation areas of a plant.

And in his office, Tritch is poring over a map of China, listening to his chief representative in Beijing, Gavin Liu, describe an even bigger financial jackpot that awaits Westinghouse if it can manage to broker the right deal. China, which currently generates just 2 percent of its electricity from nuclear power, has announced plans to build as many as 32 new plants in the next 15 years. Tritch is busily putting together a pitch to supply reactors for a dozen of them—a deal potentially worth more than $12 billion.

At Westinghouse these days, there's an understandable temptation to celebrate after decades of being battered. But the affable Tritch downplays the recent successes and has always favored self-deprecation as a guard against hubris. One of his favorite personal yarns has him on a hunting trip in Georgia with the CEO of a top Westinghouse customer. Steadying his rifle, Tritch squeezed off a shot. "I was going after low-flying quail," he says. The round blasted a parked car instead. Says Tritch, "I took out a radiator."

He's had his share of misfires in business too. As recently as 1999, Tritch, a 33-year Westinghouse veteran, worried aloud about nuclear power's future. Greeting a class of new hires—30 freshly minted engineering grads—Tritch told them, "I'm happy you're here, but I have a question: Why do you want to work in the nuclear power industry?"

Mark Urso was one of those hires. A Penn State alum with a mechanical engineering degree, he was happy to land a job. But he was shocked when he first learned that Westinghouse had become an all-nuclear shop. So were some of his relatives. "My wife and her family were convinced they'd gone out of business," Urso says. He remembers sitting at work, asking himself, "What did I get myself into?"

He had reason to wonder. In its prime, Westinghouse excelled in appliances at a time when washers and fridges were icons of machine-age high-tech. By the 1980s, though, Pittsburgh was "rust belt" and Westinghouse faced corporate annihilation. Unwilling to renew its aging industrial businesses, Westinghouse acquired CBS in 1995 and became a media giant overnight. Thus began one of the great corporate fire sales, as Westinghouse unloaded its prime industrial assets one by one.

What was left when the purge ended? Only the $700 million nuclear division that Tritch was helping to run. The division "was headed toward closing," recalls Tony Greco, Westinghouse's chief of human resources. "Nuclear looked dead." So dead, in fact, that the only serious bidders for what remained of the company were two foreign governments: Britain and France, both with state-owned firms that sell nuclear power services. Westinghouse's CEO at the time, Charles Pryor, chose the Brits, who promised to inject capital and to leave management alone. Armed with a deep-pocketed owner and caught up in a contracting industry, Westinghouse bought one of its major rivals (the nuclear unit of Swedish construction giant ABB), strengthening its positions in Europe and the United States and leapfrogging its main American rival, General Electric.

At the same time, a quiet revolution was beginning in the U.S. nuclear power industry—one that Westinghouse seized on to spark its comeback. In the 1980s, nearly every American utility had a nuclear plant, if only to show off its high-tech prowess. But owning one plant meant that a utility never achieved economy of scale; a few savvy utilities, however, realized that the plants could be profitable in larger numbers. The approach, modeled after the French system of a single company operating a country's nuclear fleet, animated the strategy of three American utilities—Dominion, Entergy, and Exelon—which today own a third of the nuclear power plants in the United States.

The consolidation played directly into the hands of Westinghouse, which had been the first commercial maker of nuclear reactors and the largest equipment supplier for U.S. plants. Consider the experience of Entergy, one of Westinghouse's largest American customers. In 2002, in part to help ensure that Westinghouse wouldn't go out of business, Entergy proposed a broad partnership in critical areas like refueling and other maintenance services. The alliance paid off: In the 1990s, Entergy, which supplies power to 2.6 million people in the South, typically had to shut down its nuclear plants for as long as two months for refueling. That was costly, given that a plant generates an average of $1 million in revenue a day. Through better scheduling and preparation, Tritch and Westinghouse cut the downtime in half.

With demand for new plants having long since dried up, Pryor and Tritch saw their opportunity: Shift the business away from supplying parts and own the business of servicing the existing ones to extend their lives—thus fattening Westinghouse's profit margins. Nuclear fuel is a lucrative business, because power plants need a refill every 18 to 24 months. And at a cost of about $30 million a pop, utilities are always looking for ways to make the fuel last longer and boost output. "We'd been too focused on trying to sell plants when there was obviously no market," says Pryor, who decided to emphasize service—refueling, maintenance, and customer satisfaction. "We started turning the company upside down."

Did they ever: Today nuclear refueling is a $900 million-a-year business for Westinghouse. And the U.S. fleet runs at 89 percent capacity, compared with a mere 62 percent in 1980. Better performance persuaded nuclear operators to extend the lives of their plants. "In the mid-'90s, we predicted one to three nuke plants to be shutting down annually starting in 2005," Greco says. Instead, he says, "utilities began to realize they had gold."

And Westinghouse began to realize a windfall. Recently the company received an order worth $150 million for a renovation job at a single nuclear complex, Pacific Gas & Electric's Diablo Canyon in California. Westinghouse has so much work, in fact, that its engineering group that designs and installs new reactor heads—where Urso, as it happens, is a rising star—has an eight-year backlog.

With Westinghouse no longer facing extinction, Tritch, who succeeded Pryor as CEO in July 2002, has the luxury of thinking longer-term. Through its British parent, Westinghouse has a stake in what many experts believe is the nuclear power technology of tomorrow—the so-called pebble-bed reactor. Instead of driving electric turbines with radioactive steam, as conventional Westinghouse reactors do, a pebble-bed plant uses gas. Instead of long fuel rods, next-generation nukes use small "pebbles" filled with enriched uranium. The design differences heighten safety, permitting smaller reactors that can be linked together, theoretically driving down production costs.

The South African government plans to build the world's first commercial-grade pebble-bed plant—which Westinghouse is helping to design and finance—by 2008. "If this project goes forward and is successful, then we have a long lead on competitors," says Regis Matzie, Westinghouse's CTO and a leader of the pebble-bed project.

Westinghouse is best positioned to exploit the pebble-bed reactor, but the Chinese and French governments are chasing the same technology. In the meantime, Tritch has a secondary strategy—a new conventional-type reactor, the AP1000, which in September was certified by the federal Nuclear Regulatory Commission, a necessary prerequisite for construction. The reactor, yet to be built, is believed to be safer, less expensive to operate, and more durable than its predecessors. The AP1000 is what Westinghouse hopes to persuade the Chinese to purchase; the same reactor is at the center of an ambitious effort by a consortium of U.S. utilities called NuStart Energy Development to build the first new nuclear power plant on U.S. soil since the 1970s.

Cracking the more pro-nuke European market also counts as one of Tritch's major coups. Until recently, France—the world leader in nuclear power, with 75 percent of its electricity coming from 59 reactors—was a closed shop, dominated by a government-owned technology company called Areva. But Tritch hammered out a breakthrough deal this year to supply 20 percent of France's nuclear fuel—more than double what it had previously supplied. "The French contract is huge," says Pryor, who remains a consultant to the company. "It sends a message that Westinghouse is world-class."

Of course all this technology might be useless if safety issues that have always dogged the industry aren't minimized. The entire nuclear business rises and falls together; a catastrophe in, say, China would knock the stuffing out of nuclear builders everywhere. Hence, the intense five-day training sessions in the Westinghouse simulators, where technicians are videotaped and graded.

"We need to remain ever vigilant on performance of the current plants," says Marilyn Kray, president of the NuStart consortium. She insists that next-generation reactors, such as the AP1000, are safe enough to convince the public—even environmentalists—that burning fossil fuel for electricity isn't environmentally sound and that nuclear is. That may be a tough sell, but perhaps not as tough as it used to be. "Environmentalists are starting to look more seriously at nuclear power, and that over time may create an opening in the United States for a revival," says David Jhirad, vice president for science and research at the World Resources Institute, a leading environmental group. In the meantime, he says, "the hope of the American nuclear industry is that the global market will keep it alive."

China, India, and other Asian countries seem happy to oblige. They've concluded that nuclear power is the preferred source for electricity in an era of expensive petroleum and global warming. In late September the Chinese government issued bid tenders for two plants. That has already triggered a heated contest between Westinghouse, GE, and France's Areva for China's business. "We don't look at it as make-or-break," says Jack Allen, head of Westinghouse's new plant unit. "Still, there's a lot to win and lose."

China's demand for new electricity dwarfs any other country's, but Korea and Taiwan are also building plants, partly supplied by Westinghouse. And India wants to expand nuclear power, though U.S. companies are currently prohibited from selling services or technology there because of that country's unsanctioned test of nuclear explosives in 1998.

All the new activity raises a tantalizing—and ironic—scenario. Under Jack Welch, GE de-emphasized its nuclear business, which is about half the size of Westinghouse's in revenue. But current CEO Jeffrey Immelt is pouring resources into atomic power. "The economics on nuclear are unbelievably positive right now," says Andrew White, president of GE's nuclear unit. So positive, some in the industry speculate, that GE may be tempted to buy Westinghouse. GE won't comment, and Tritch says he wants to stay independent. But even former CEO Pryor acknowledges that combining the two companies would create a powerful global competitor.

For now, though, Tritch is focused on keeping the momentum going. A serious pro football fan, he recently escorted a manager from a Taiwanese utility to a Pittsburgh Steelers game. Sitting in Westinghouse's luxury box, Tritch watched the game quietly. The Taiwanese guest cheered. He explained that his football knowledge was acquired on prior visits to Westinghouse.

With 10 minutes to go in the fourth quarter, the Steelers trailed and Tritch and his wife took off. The Taiwanese, transfixed by the game, stayed put. "The Steelers are my team," he insisted. The Steelers ended up losing. But Tritch and Westinghouse came out a winner: A technology alliance with that Taiwanese utility is about to be renewed for three years.

Top 10 Nuclear Nations

Nuclear Nations 12 or more operating plants 1 to 11 Nations without nuclear power

SOURCES: American Nuclear Society; company reports