WASHINGTON — Critics of a new nuclear loan guarantee program warned a House Oversight Committee panel this week that it would subsidize too-risky investments, while backers claimed the program is critical to nuclear development.
The critics included Rep. Dennis Kucinich, D-Ohio, chairman of the committee’s domestic policy panel, which called the hearing, “Nuclear Power’s Federal Loan Guarantees: The Next Multibillion-Dollar Bailout?”
President Obama’s 2011 budget request would authorize $36 billion for Department of Energy loan guarantees to support nuclear energy projects. The $36 billion would be in addition to $18.5 billion of loan guarantees already available under the Energy Policy Act of 2005. Some of those guarantees have already been offered, including $8.33 billion for the construction and operation of two reactors at a plant in Burke, Ga. The project is co-sponsored by the Municipal Electric Authority of Georgia and the city of Dalton.
During the hearing, critics evoked the ghost of a financially disastrous Washington Public Power Supply System bond default as evidence of the potential risk to the government. The $2.25 billion of WPPSS bonds were issued to finance the construction of two of five nuclear power generating plants, but the projects buckled under cost overruns. They were halted in January 1982, leading to the default of the bonds and extensive litigation.
The WPPSS debacle and the number of cancelled nuclear plant orders in the U.S. were cited by Henry David Sokolski, executive director of the Nonproliferation Policy Education Center, as reasons for opposing project finance that receives federal backing.
Loan guarantees would not decrease the costs for nuclear projects, but would amplify risk held by the federal government on those projects, agreed Peter Bradford, a former chairman of both the New York State Public Service Commission and the Maine Public Utilities Commission. Without loan guarantees, he said, “probably all” nuclear reactors being considered would not be built, but the program would create a “favored class of borrowers” with better access to capital than other sectors.
Competitive power procurement over the past 30 years has transferred financial risk to investors and lenders from customers, witnesses said. As those risks grew in recent years, investor and lender appetite diminished, according to Bradford. “New reactors can only be built if someone other than investors and lenders bear the risks. There are only two alternatives: customers and taxpayers,” he said in prepared remarks.
To ameliorate risk, the government could require loan guarantee recipients to privately refinance their loans without federal backing within five years of project completion, suggested Jack Spencer, nuclear energy research fellow at the Heritage Foundation.
Both critics and supporters said federal backing for the investments is necessary for nuclear development.
But proponents, including Leslie C. Kass of the Nuclear Energy Institute and Christopher Guith of the U.S. Chamber of Commerce, noted that the government already has a broad loan guarantee portfolio totaling $1.2 trillion.
The guarantees support programs that “collectively generate revenue for the government … [by] requiring significantly less expenditure to cover defaults than revenue received by way of credit subsidy costs and other fees,” Guith said.
“It’s worth noting that the average fee for all government loan guarantee programs in the 2010 fiscal year is 0.2% of the loan amount … because many loan guarantee programs generate more fee revenue for the federal Treasury than they cost,” Kass said.