More Nuclear Loan Subsidies Too Risky

March 4, 2009

Union of Concerned Scientists Press Release - Elliott Negin, 202-331-5439
MASSIVE FEDERAL LOAN GUARANTEES FOR NEW NUCLEAR POWER PLANTS WOULD PUT TAXPAYERS, RATEPAYERS AT RISK, NEW REPORT FINDSBAILOUT ESTIMATES FOR FAILED PROJECTS COULD RANGE FROM HUNDREDS OF BILLIONS TO MORE THAN A TRILLION

WASHINGTON (March 4, 2009) - The nuclear power industry is pressuring Congress to dramatically expand federal loan guarantees for building new plants, which would put taxpayers and ratepayers at significant financial risk, according to a report released today by the Union of Concerned Scientists (UCS).

Congress already has authorized $60 billion for loan guarantees in which the federal government would shield utilities and private investment firms from the risk of default on loans for building new electricity generation plants. The Department of Energy (DOE) has allocated $18.5 billion of that money for new nuclear plants over the next few years. Given the average projected cost of building one reactor is currently $9 billion, the industry is clamoring for considerably more. To date, the DOE has received $122 billion in applications for loan guarantees for new nuclear power plants.

The report, "Nuclear Loan Guarantees: Another Taxpayer Bailout Ahead?," recounts the nuclear industry's disastrous financial history and documents the hundreds of billions of dollars taxpayers and ratepayers already have spent to keep the industry afloat. (For the report, go to: www.ucsusa.org/nuclearbailout.)

"Taxpayers and ratepayers have been forced to bail out the nuclear power industry twice in the past 30 years, and if Congress gives the industry the massive loan guarantees it wants, we likely will have to cough up hundreds of billions of dollars to do it yet again," said Ellen Vancko, the nuclear energy and climate change project manager at UCS, which commissioned the report. "The industry has gone from promising electricity 'too cheap to meter' to being too costly to consider."

The first bailout occurred after the industry abandoned some 100 plants in the 1970s and 1980s when construction costs skyrocketed and growth in electricity demand slowed. The result was what Forbes magazine in 1985 called "the largest managerial disaster in business history." Taxpayers and ratepayers covered most of the more than $40 billion (in today's dollars) for the abandoned plants, while ratepayers had to pay more than $200 billion to cover cost overruns for plants that were completed.

The second bailout came in the 1990s, when states restructured the electric industry to reduce regulation and increase competition in generation markets. As part of that restructuring, utilities were allowed to charge their ratepayers for "stranded costs" -- the difference between the book value of the plants and the lower market value they were worth at the time. As a result, ratepayers were forced to pay more than $40 billion in stranded costs.

Given the industry's record, Wall Street firms have publicly stated that they will not invest in new nuclear power plants without federal loan guarantees. Utility executives also have said they will not place their companies at risk by financing new nuclear plant construction. They would rather place that risk on taxpayers.

The Government Accountability Office (GAO) estimates that the average risk of default for a federal loan guarantee for the nuclear industry is 50 percent. UCS's report estimates that the potential risk for guaranteeing nuclear plant construction loans ranges from $360 billion -- based on current cost estimates for the 100 new plants needed to replace current plants by 2040 -- to as much as $1.6 trillion based on 300 plants (with 50 percent higher costs) that some in the industry have proposed building.

"The potential cost of a third public bailout would make the first two look like chump change," said Vancko. "Congress should think twice about pushing the industry to invest in plants that Wall Street and even the industry itself say are too risky to finance on their own."

Before making a commitment to massive federal loan guarantees for new nuclear plants, the report recommends that Congress and the DOE:

-- Limit loan guarantees to a small number of new plants to demonstrate the feasibility of new designs and the new federal licensing process.

-- Keep the amount dedicated for nuclear plant loan guarantees to the current $18.5 billion.

-- Demonstrate that the DOE can adequately manage the loan guarantee program before issuing any guarantees.

-- Require companies receiving loan guarantees to agree not to sue the U.S. government over nuclear waste storage costs. (A number of energy companies have sued the federal government for failing to open the Yucca Mountain storage site.)

-- Require the nuclear industry to adhere to the same requirements for reducing taxpayer costs and risks applied to other industries that have benefited from government rescue plans, such as the finance and auto industries.

"It is abundantly clear that building new nuclear power plants is far too risky for Wall Street and Pearl Street," Vancko said. "That should send a signal to Congress and taxpayers that they are too risky for Main Street as well."

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The Union of Concerned Scientists is the leading U.S. science-based nonprofit organization working for a healthy environment and a safer world. Founded in 1969, UCS is headquartered in Cambridge, Massachusetts, and also has offices in Berkeley, Chicago and Washington, D.C. For more information, go to www.ucsusa.org.