Nuclear Loan Guarantees Have Failed

Kennedy Maize

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If Once You Don’t Succeed . . .

With the promises of the Bush administration unfulfilled, the nuclear industry turned to the new Obama administration’s economic stimulus package. The industry backed an increase in the loan guarantee authority to $50 billion, which would still only support a handful of new generation projects—probably fewer than 10 under the current criteria that loan guarantees would support 80% of the capital costs of the new units.

The chief sponsor of the $50 billion loan plan was Utah Republican Sen. Bob Bennett, representing a state that has no nuclear generation (but which does have significant uranium deposits). Bennett ultimately voted against the Senate bill, even though it contained his $50 billion loan guarantee provision. The loan guarantees died in the House-Senate conference committee.

The new Obama administration sent some signals that it might look favorably on the idea but also indicated that it would open the loan guarantees to other technologies, including renewables and transmission. USEC’s Welch, announcing the slowdown on the new enrichment plant, added, “We are strongly encouraged that the Obama administration intends to accelerate the approval process for the loan guarantee program.”

Try, Try Again

Marvin Fertel, newly installed head of the Nuclear Energy Institute (NEI), the industry’s Washington lobbying group, made a pitch in mid-February to the Senate Energy and Natural Resources Committee, the nuclear power industry’s most comfortable political venue. Fertel argued for the expansion of the nuclear loan guarantees to $50 billion. In comments to the committee, Fertel noted that the federal government today manages a loan guarantee portfolio of more than $1 trillion, which also supports shipbuilding and transportation infrastructure.

Fertel noted that the loan guarantees in Title XVII of the 2005 law are “clearly inadequate” for the task of revitalizing U.S. nuclear power. Many analysts expect new nukes to cost up to $8 billion or more per unit. Building a new nuclear plant for most utilities bets the company against the nuke.

“Loan guarantees,” Fertel said, “offset the disparity in scale between project size and company size and allow for these companies to build new plants in a responsible manner that can include financing from export credit agencies in other countries like France and Japan.” The NEI’s testimony argued that the nuclear loan guarantee program has “structural impediments and restrictive interpretations of statutory language.” These bureaucratic provisions, said the NEI, “are proving to be obstacles, particularly in co-financing nuclear plant projects.”

Congress didn’t buy the nuclear industry’s entreaties. No money in the final bill went to new nuclear loan guarantees. At the same time, the industry seems to be moving away from the existing $18.5 billion authorized for loan guarantees, an apparent acknowledgement that the DOE loan guarantee program has failed.

Go It Alone

At the Platts meeting in February, Jeff Lyash, CEO of Progress Energy Florida, outlined one of the big problems with the DOE nuclear loan guarantee program. Florida Progress, he noted, applied in the first round of the DOE program for its planned two-unit new nuke in receptive, rural Luke County, Fla. The DOE approved moving the request to its second-phase review.

Florida Progress declined to go to stage two because, as Lyash explained, the DOE loan guarantee rules require that a first lien on the nuclear asset goes to the federal government. Unacceptable, said Lyash. Florida law requires the first mortgage to be on the books of the utility. In addition, he said, Florida’s municipal and cooperative utilities, whom the utility wants as equity partners, could not participate under the DOE’s lien terms, further poisoning the financial pond.

So Florida Progress, a large, conventionally regulated (cost-of-service) utility, will not seek the DOE loan guarantees. The company hopes to raise money in the traditional way: with construction work in progress authority from regulators (collecting construction costs in existing rates) bolstering the willingness of lenders to participate. But that financial path looks uncertain at best under current credit conditions in the market, Lyash acknowledged.

—Kennedy Maize is executive editor of MANAGING POWER.

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