Guarantees a must for bad investments, say opponents

Wednesday March 3, 2010

BRATTLEBORO -- Nuclear loan guarantees are nothing more than "pork barrel politics on behalf of special interests," said Ellen Vancko, nuclear energy and climate change project manager at the Union of Concerned Scientists.

Right now, $18.5 billion in loan guarantees is available for the construction of nuclear power plants and Pres. Barack Obama is asking Congress to authorize another $36 billion.

Obama recently announced the federal government will make more than $8 billion in loan guarantees to Southern Co., which plans to build a nuclear power plant in Georgia.

The plant would be the first licensed since the 1979 accident at Three Mile Island. Groups such as UCS, Beyond Nuclear and the Nuclear Information and Resource Service stated that loan guarantees to the nuclear industry are needed because in 2007, six of Wall Street’s largest investment banks told the Department of Energy that they were unwilling to accept any financial risk for nuclear power loans.

Those banks expressed concern that higher capital costs and longer construction schedules for nuclear power plants, as compared to other generation facilities, means lenders and investors "in the fixed income markets will be acutely concerned about a number of political, regulatory and litigation-related risks that are unique to nuclear power...."

Wall Street’s refusal to underwrite nuclear power is because investors recognize it as an unacceptable risk, stated Mark Cooper, senior research fellow at the Vermont Law School’s Institute for Energy and the Environment, in his 2009 report "All Risk: No Reward for Taxpayers and Ratepayers."

In the 1970s and 1980s, wrote Cooper, nuclear reactors took twice as long to build as originally planned and cost twice as much as originally estimated, resulting in "large financial downgrades" to 4/5 of the utilities that undertook such ventures.

Some utilities, such as Public Service of New Hampshire, which undertook the Seabrook Nuclear Power Plant, even filed for bankruptcy as a result of skyrocketing costs and construction delays.

In 1985, Forbes magazine called the nuclear industry’s gambit "the largest managerial disaster in business history."

"The nuclear industry has a track record and it’s one of economic failure," said Michael Mariotte, executive director of NIRS.

"Nuclear power plants have had 50 years to demonstrate they can meet market needs," said Paul Gunter, of Beyond Nuclear, a test on which licensees have failed. "The current scheme is to tip the market in favor of a loser we’ve known all too long can’t meet the market test."

A spokesman for the Nuclear Energy Institute said once the loan guarantees are granted, investors will follow.

"We’re doing what we should be doing in the interest of prudence and assuring these projects will proceed successfully and with minimal risk to taxpayers," said Steve Kereksen.

Nuclear power plant operators receiving loan guarantees will be required to pay a credit subsidy fee, he said, which renewable energy sources won’t be required to pay.

The credit subsidy fee is supposed to be based on the perceived risk of a project and help reimburse taxpayers if the project defaults.

James Connaughton, the executive vice president of nuclear power plant operator Constellation has said that a 1 percent credit subsidy fee "would be reasonable and affordable."

That means on a $10 billion loan guarantee, Constellation would have to pony up $100 million.

Nuclear critics are asking DOE to require a 50 percent credit subsidy fee because the establishment of limited liability corporations would make it very difficult for the government to recover the money in case of default.

As an example, said Mariotte, a reactor proposed at Calvert Cliffs has seven layers of Llcs between it and Constellation, its parent company.

"If they pay off, the utility gets the profit," said Mariotte. "If they go belly up, the taxpayers pay the penalty."

Over the past 10 years, the nuclear industry has spent $650 million on advocating for loan guarantees, according to Judy Pasternak, of the Investigative Reporting Workshop at American University.

"In many ways, the nuclear power industry’s efforts to win support are a textbook case of how the influence game is played in Washington," wrote Pasternak.

Bob Audette can be reached at, or at 802-254-2311, ext. 273.


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