Nuclear Loan Guarantees

February 2, 2009

By Steve Benen, Washington Monthly - We talked last week about nuclear power, and the piece from Washington Monthly editor Mariah Blake about why it's a bad idea to go back down this road. Blake wrote this post with relevant follow-up information, and I'm posting this on her behalf. -SB

The Congressional stimulus package is supposed to fix the mess created by sub-prime loans. But a provision in the Senate version will likely spawn billions more dollars in bad debt, raising the specter of another massive taxpayer bailout.

In particular, the bill would expand the Department of Energy's loan guarantee program by $50 billion, a provision crafted at the urging of the nuclear power industry, which is seeking at least $122 billion in Treasury-backed loans. In recent months, it has stepped up these efforts, as I report in the current issue of the Washington Monthly:

The ten companies most likely to benefit from the loan guarantee program poured more than $25 million into lobbying in the first three quarters of 2008. The NEI [Nuclear Energy Institute] spent $1.9 million during the same period, 40 percent more than in all of 2007. It has also forged alliances with organized labor, hiring former Teamsters lobbyists and wooing the AFL-CIO. In a speech at the NEI annual conference last May, Mark H. Ayers, the AFL-CIO's president of Building and Construction Trades, spelled out the agreement between the two groups: in exchange for the industry's commitment to use union labor, the union would flex its own muscle to "persuade the new majority in Congress about the need for extending and increasing the loan guarantee program."

There is a reason that the industry is scrambling to secure generous loan guarantees: It has few other options. Even before the Wall Street meltdown, banks and investors weren't willing to sink capital into new reactors because of the enormous risks (see, for example, this letter). Prying funding from today's frozen markets will be all the more impossible -- especially given the mounting evidence that (contrary to industry promises) next-generation nuclear power plants will be dogged by the same staggering costs and construction woes as their predecessors.

Michael Grunwald recently laid out the industry's conundrum in Time magazine :

It turns out that new plants would be not just extremely expensive but spectacularly expensive. The first detailed cost estimate, filed by Florida Power & Light (FPL) for a large plant off the Keys, came in at a shocking $12 billion to $18 billion. Progress Energy announced a $17 billion plan for a similar Florida plant, tripling its estimate in just a year. "Completely mind-boggling," says Charlie Beck, who represents ratepayers for Florida's Office of Public Counsel.... This sticker shock has unnerved Wall Street. A Warren Buffett-owned company has scrapped plans for an Idaho nuclear plant; banks and bond-rating agencies are skeptical as well. In fact, renewables attracted $71 billion globally in private capital during 2007 while nukes got zero.

The big question is whether, given our nation's dire economic state, taxpayers should be backing projects that the private sector deems too risky. And make no mistake: The risks are enormous. The Congressional Budget Office has found that the chance of default on guaranteed loans for new reactors is "very high -- well above 50 percent." Should the loan guarantee provision survive when the Senate bill (which has already been approved by the Senate Appropriations Committee) is merged with the House version on the Senate floor, the public could be on the hook for tens of billions of dollars. And any stimulative effect on the economy would be minimal in the near term, since according to the Nuclear Regulatory Commission, it will take at least two years before the first plant is licensed for construction.

Pouring billions into dicey projects that pay few short-term dividends -- what quicker way to deepen our financial quagmire?

For more on the nuclear power industry's struggle to shift the financial risk of building new reactors to taxpayers, check out the current issue of the Washington Monthly.

-Steve Benen 11:20 AM Permalink | Trackbacks | Comments (17)