A few things most people don’t know about Obama’s nuclear power loan guarantee program

President Obama Feb 16 announced an $8.3 billion loan guarantee to Southern Company to support construction of two new nuclear reactors in Georgia.

Here are a few things most people don’t know about this program, and that have not been widely reported in the media:

*Most people assume a loan guarantee is kind of like when your dad co-signed the loan for your first car. In fact, for nuclear reactors, taxpayers are not only guaranteeing the loans, they are providing the loans. Yep, that’s right, the money—which a Southern Company press release acknowledges—will come from the little-known Federal Financing Bank. We give the money to wealthy nuclear utilities, and then we promise that if they don’t pay it back, we will. Wow, great deal, especially with billions of dollars at stake.

*The Congressional Budget Office has predicted that 50%+ reactor projects receiving loan guarantees will default on their loans. That’s bad enough. It may be worse that Energy Secretary Steven Chu admitted upon announcing the first $8.3 billion loan guarantee Feb 16 that he did not know of this study—the only study ever conducted for Congress on the likelihood of utility default on nuclear loan guarantees.

*The Office of Management and Budget (OMB), which is required by law to set the “credit subsidy cost” for nuclear loan guarantees, refuses to say publicly what that cost is. This cost is supposed to reflect the risk to taxpayers of the loan guarantee and ensure taxpayers are not left completely holding the bag in the event of utility default. Given the Congressional Budget Office assessment of risk, they should be paying 50%. OMB refuses to say what their credit subsidy requirement is. Bet it won’t be 50%. Or the 20% you and I would have to pay for a house. Or even 5%. The utilities, led by Bush administration CEQ chief James Connaughton, now with Constellation Energy in Maryland, have been pushing for 1%, or even less.

*No one in the administration seems willing to explain whether loans from foreign export-import banks will be considered as “equity” for loan guarantees. This is a complicated point from an accounting standpoint, less so from a policy standpoint. When you get a loan to buy a house, you have to put up a certain amount of “equity,”—e.g. your down payment. If you get “a loan” from your parents, you’re  not really supposed to count that, even though everyone does. The banks know that, and know it isn’t really “a loan,” but as long as your down payment is large enough, you get the loan to buy the house.

In the case of nuclear plants, if a reactor project gets a loan for say, 80% of the project cost (that’s the maximum allowed under the law), the utility still has to find 20% of the cost on its own. Conceptually, it would take that money from its own revenue. But not many utilities have $2 billion in cash laying around to pay 20% of an average $10 billion reactor. But what if foreign export-import banks give out their own loans or guarantees? Would that count as equity? OMB isn’t saying, but that is clearly the route most US utilities are planning to go, meaning that nearly every US reactor project will end up as at least partially foreign-owned. And some, like Maryland’s Calvert Cliffs-3, would end up being so owned, controlled and dominated by foreign interests that it would be in violation of the Atomic Energy Act, which means it couldn’t get licensed in the first place. That issue is likely to end up in the Supreme Court before the nuclear “renaissance” is even nascent.

*Even so, the Senate Energy Committee’s approved energy bill would set up a new entity, the Clean Energy Development Administration, to get around those onerous OMB credit subsidy costs. If it passes, utilities could bypass OMB entirely, make no down payment, and would have access to unlimited loan guarantees to build new nuclear reactors and “clean” coal plants. Yep, that’s the ticket to a clean, sustainable energy future….

The fundamental realities are these:

*the program will do nothing to jumpstart a nuclear “renaissance.” The program is going to bypass private lenders entirely, since no private lenders will loan money for new nuclear power projects. Instead, the risk is entirely on taxpayers. Once the guarantees, excuse, me, federal loans run out, so will money for new reactors.

*the program has no concrete plans for dealing with the inevitable cost overruns (the average cost overrun for the first generation of reactors was more than 200%, according to the Dept of Energy). What happens when the utility runs out of loan guarantee money and the reactor still isn’t built? Neither the utilities nor the DOE nor OMB have a clue.

*the program, despite Obama administration assurances, has no transparency whatsoever. The criteria for evaluating loans are secret, so are the terms of the loans. So is the credit subsidy cost explained above. So are the names of the applicants for loans. So is any sense from DOE about which projects are most likely to get funded. Or which are rejected. In other words, the Department of Energy and the OMB have decided that even though billions of dollars of taxpayer money are at stake, taxpayers have no right to know how loan guarantee decisions are being made, what criteria are being used to make the decisions, how the loans are going to be repaid, how much the companies receiving loans have to put in of their own money, and so forth. Think of a question you’d like to ask about this use of taxpayer money; it won’t be answered. FOIAs have been submitted for all of this information; they haven’t even been replied to. This, by the way, is equally true of DOE’s loan guarantee program for renewable energy projects.