How Much Will Obama's Nuclear Blind Spot Cost America?
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The Obama administration has embarked on a high-stakes gamble: devoting billions of dollars to an expansion of nuclear power in the hope of winning Republican votes for a climate bill. But in its eagerness to drum up bipartisan support for one of the hardest sells on Obama’s policy agenda, is the administration turning a blind eye to the financial risk?
Obama’s 2009 budget provides $54.4 billion in government-backed loans for new reactors—a long-cherished goal of nuclear advocates and their (mostly Republican) allies in Congress. Environmental and taxpayer protection groups oppose this plan—often citing a damning 2003 report by the nonpartisan Congressional Budget Office (CBO) that assessed a similar proposed program and predicted that the loans would have a default rate of "well above 50 percent." The Department of Energy (DOE) argues that this study "is not germane to the current project" and says it has taken steps to avoid the financial pitfalls. But in interviews with Mother Jones, Obama administration officials refused to provide specific figures that would support their claim.
One way to gauge the possibility that a plant might go bust is to look at something called the credit subsidy rate. The term sounds horribly technical, but it's basically DOE jargon for collateral. In order to win Uncle Sam’s backing for an expensive nuclear power plant, a company has to set aside a certain percentage of the loan in a DOE fund. This figure is, in theory, based on the probability that the plant will go belly up. So, the riskier the venture, the more money the company is supposed to throw into the pot. That way, if construction gets delayed or cancelled and the project can't repay its loan on schedule, taxpayers won't be stuck with the entire tab.
The problem? The Obama administration won't disclose the risk involved with any of the proposed reactors it's considering for loan guarantees. Credit subsidy rates are confidential business issues, says Jonathan Silver, head of the DOE's loan guarantee program. Another senior administration official confirms that the subsidy rate is "not a number that's being given out" and is "different for every single project." The official will not even disclose the range of rates assigned to the plants under consideration for the program. Last month, the Obama administration offered the first loan guarantee of $8.3 billion to build two new reactors at the Vogtle plant in Georgia. It won't say how much Southern Company, the utility that owns the plant, will be required to set aside in order to receive the loan—or whether the government has calculated a figure at all.
In a report in the news service Climatewire last November, industry sources described tensions between the Office of Management and Budget and Department of Energy concerning how much money companies should be required to pony up if they want access to a taxpayer-guaranteed loan. The nuclear industry, backed by the DOE, argued for 1 to 2 percent of the total loan; the analysts at OMB reportedly pushed for something in the 2 to 4 percent range. (Obama administration officials dispute this account of agency infighting.) Nuclear critics say that even a 4 percent contribution wouldn’t come close to protecting taxpayers in the event of a loan default, and that companies should have to pony up a larger sum upfront. The 2003 CBO study recommended a 30 percent subsidy rate to cover the risk that a project would go under.
In addition to being cagey about the risks involved with reactor projects, the administration has also been working hard to discredit the CBO’s 2003 prediction that the default risk on loan guarantees is 50 percent or more. DOE's Silver called concern over that study "much ado about nothing." That report, he said, "was a hypothetical for a non-existent plant with a hypothetical set of conditionalities around it." The Vogtle plant, he argues, is a "real project with real power purchase agreements in place, real sums of money being required."