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GE's Power Split Includes Wilmington Nuclear Base

By Christina Haley O'Neal, posted Nov 6, 2018
As financially troubled General Electric looks to streamline its portfolio, observers are watching what changes to the company's power units might mean for its local nuclear energy operations.

Whether that could mean a sell off of its power businesses, including Wilmington-based GE Hitachi Nuclear Energy, remains to be seen.
But the struggling company, now under new leadership, is making changes to shed costs.

Boston-headquartered GE announced Tuesday it is selling its lighting subsidiary Current to a private-equity firm. And last week, company leaders announced intentions to split GE's Power division, a division that includes the Wilmington facility.

GE Chairman and CEO Larry Culp detailed the changes in the company's third-quarter earnings call on Oct. 30. It's a move that will separate several assets in GE's Power portfolio into two units.

One unit will reign in GE’s gas life cycle business by combining its product and services groups. The other will consist of GE’s steam, grid, nuclear and power conversion segments.

Culp also said GE plans to cut dividends from 12 cents to 1 cent per share in December. And also in the third-quarter report, Culp noted an expansion of the Security Exchange Commission's investigation into the company's accounting practices. This is in addition to a Department of Justice investigation into GE Capital.

Two financial experts have slightly different opinions on what the changes to the power division might mean for the company.

A financial professor at the University North Carolina at Chapel Hill said that given GE's plans to restructure its power portfolio, a spinoff could be a possibility.

"It looks like a split between the gas business on one hand and everything else in power --
i.e. a split between what they continue to think will be a long-term growth business (gas) and all the rest, which are either consolidating or niche businesses," Stephen Arbogast, professor and director of the UNC Kenan-Flagler Energy Center, said in an email.

"The possibility of the latter being spun off as a way to take out debt from the core should not be discounted," he added.

Jack De Gan, chief investment officer of Harbor Advisory, had a different outlook on the power split. De Gan said he did not think that particular spinoff scenario might not be likely for the power units.

“Whether they could sell one or the other of those businesses, I think the answer right now is … they wouldn’t get anything near for what they have in the book value in that. I think they have got to stay the course to make them more profitable before they could even think about selling or spinning off,” he said.

“The only thing I can say for sure is, this is going to lead to significant downsizing … They (GE) have got to cut costs dramatically,” De Gan said about the company's power division, adding that could mean layoffs in the U.S.

GE Hitachi, a joint venture between GE and Hitachi that provides advanced nuclear technology and services, is housed with Global Nuclear Fuel (GNF) on GE's campus in Castle Hayne. That campus also holds operations for GE Aviation's Wilmington operations.

The campus' combined numbers make GE of one of the largest employers in Wilmington. While GE does not give out exact employment numbers, the company has previously said it employes about 3,000 people locally.

GE leaders did not discuss its nuclear business in detail during the Oct. 30 call and focused much of the talk of its power division split on the consolidation of its gas unit.

When asked about the potential impacts on GE Hitachi Nuclear Energy, GE corporate officials based in Boston referred to previous statements from the earnings call.

In those comments, officials said that the plans are for the two newly split units to report directly to Culp.

Culp, who started in October, replaced former CEO John Flannery, who announced earlier this year his plans to restructure the company to fix problems in its power division. Flannery served in his role for 14 months.

In Culp's changes to the business, he said that GE intends to "consolidate the Power headquarters, Gas Power Systems and gas -- and Power Services teams into the new gas life cycle business, effectively eliminating the power headquarters structure."

Culp said he feels that the headquarters consolidation and support will provide better insight into the "day-to-day" operations of the business.

While giving no mention of the nuclear unit specifically, Culp said during the earnings call that the rest of the power units "coming in directly as well through a different path, will give us an opportunity to see those P&Ls clearly without any noise or work business by business to drive improvements there."

Details still need to be worked out, Culp said, adding that he will be working on those in the "days and weeks to come." He did not mention a timeline for releasing more details.

The news follows the company's overall financial struggles in recent years, including that of segments within its power unit.

GE’s power division faced massive layoffs late last year. In December, the company announced that it was cutting 12,000 jobs in its power division, although the job cuts did not have a significant impact to GE Hitachi’s employees at the Wilmington headquarters, officials said at the time.
But despite the recent company news and problems with the overall company this year, GE's nuclear segment has continued to secure contracts in advancing nuclear technologies and its fuel business.

The most recent would further its advanced nuclear fuel business with a $33.7 million project award from the U.S. Department of Energy.

That project will include GNF, a GE-led joint venture with Hitachi Ltd. that operates primarily through Global Nuclear Fuel-Americas LLC in Wilmington and Global Nuclear Fuel-Japan Co. Ltd. in Kurihama, Japan. The company is a supplier of boiling water reactor fuel and fuel-related engineering services.

GE Hitachi also has a $1.9 million contract with the energy department for the company's advanced small modular reactor project.

When talking about the latest news involving GE’s financial report last week, Wilmington Mayor Bill Saffo pointed out that there are a number of contracts being carried out locally.

Saffo said he has been watching the national reports about GE's third-quarter figures and is waiting to see what that means for GE's nuclear base in Wilmington.

“I am concerned about that part of GE’s business, and obviously if they were to do something here it could … affect the economy. I’m kind of waiting like everyone else,” Saffo said.

However, Saffo said he worries how natural gas is impacting the energy market and competing with nuclear.

"It's always been a concern of mine … Natural gas is definitely a game changer. There is no doubt about it," Saffo said.

Referring to the company’s location here, Saffo said, “They made a significant investment here, and they brought a lot of people here. It’s a big asset of our economy, and I would hope that it would continue.”
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