Obama Administration Preparing to Implement Bush/McCain Energy Policy With Taxpayer Bailout for Southern Company Nuclear Reactors
Published reports indicate that the Obama Administration will announce on Tuesday, February 16, approval of a "conditional" taxpayer loan guarantee to the Southern Company for construction of two new nuclear reactors at its Vogtle site in Georgia.
"If the reports are correct, this would be a repudiation of Obama's own campaign statements against subsidies for nuclear power, and the implementation of the worst energy policy excesses of the Bush Administration and failed presidential candidate Sen. John McCain," said Michael Mariotte, executive director of Nuclear Information and Resource Service, a national organization based in Takoma Park, Maryland.
NIRS pointed to a video of then-candidate Obama telling voters on December 30, 2007 that he opposed taxpayer subsidies for nuclear power: www.youtube.com/watch?v=-R52J2D5QQU. During the election campaign, McCain called for construction of 45 new reactors in the U.S. by 2030. "Last time I checked," Mariotte said, "McCain lost the election. It's astonishing that his misguided and rejected energy policies live on. It is safe to say that no one voted for Obama in order to give taxpayer money to wealthy nuclear corporations."
The Department of Energy's loan guarantee program for reactor construction was established by Congress at the urging of the Bush administration in 2005. In 2007, Congress authorized the program to provide $18.5 Billion in loan guarantees for new reactors. In late January, President Obama proposed nearly tripling the program to $54 Billion.
"Few realize that the DOE's program extends beyond simple guarantees. In some cases at least, the loans will come directly from the taxpayers through the little-known Federal Financing Bank (FFB). Thus the taxpayers will be put in the awkward and highly risky position of both providing billions of dollars in loans to giant nuclear corporations and promising to repay the loans if the companies default," explained Mariotte. "With the Congressional Budget Office predicting a 50% default rate on nuclear construction projects funded with loan guarantees, the risk of budget-busting losses to taxpayers is enormous."
While it is not yet known whether the proposed Vogtle loan guarantee would come from the FFB, Mariotte pointed out that another loan guarantee applicant—UniStar Nuclear, which hopes to build a new reactor on Maryland's Chesapeake Bay—states in its NRC application papers that it expects its sources of financing "will be the Federal Financing Bank" guaranteed by the DOE and foreign export credit agencies.
Indeed, little is actually known about the apparent Vogtle loan guarantee. Despite Energy Secretary Steven Chu's promises of openness, the loan guarantee program has been highly secretive and its standards and project evaluation methods closed to public scrutiny. Even the identities of the four projects said to be on DOE's "shortlist" for loan guarantees have been gleaned from the utilities themselves rather than from the DOE.
"The DOE's refusal to release even its project evaluation methods, much less any specifics about utility applications, provides no confidence that its diligence in reviewing the applications is adequate," said Mariotte. "With so many billions of taxpayer dollars at stake, you would think DOE would be bending over backwards to protect the public trust and ensure public understanding of the process. Instead, DOE acts like it has something to hide."
One key unknown about the apparent Vogtle loan guarantee is the "credit subsidy" cost that will be applied. This cost—which utilities must pay upfront in order the secure the guarantees—is supposed to based on the perceived risk of the project and help reimburse taxpayers if the project defaults. Recent reports have quoted utility officials, such as James Connaughton of Constellation Energy (a partner in UniStar Nuclear), as seeking credit subsidy costs of 1% or less of the loan guarantee value.
"We hope the Obama Administration has not caved in to pressure from nuclear utilities, which are seeking dangerously low credit subsidy costs," said Mariotte. "While the dollar amounts of nuclear loan guarantees are high, and thus even a low credit subsidy cost can run into a lot of money, the risks to taxpayers of nuclear projects are even higher, as the Congressional Budget Office has indicated. The subsidy cost must reflect the real risk to taxpayers, not just what giant nuclear utilities want to pay."
The Vogtle loan guarantee will be conditional on the project receiving a license from the Nuclear Regulatory Commission. That is not expected before late 2011 at the earliest and likely will be later than that. The Vogtle project would use the Westinghouse AP 1000 reactor design, which suffers from fundamental nuclear safety deficiencies and is not currently approved by the NRC.
Moreover, a construction license does not reduce the risk to taxpayers. According to a 1986 DOE study, the first 75 reactors built in the U.S. suffered an average cost overrun of 207%. Latter reactors experienced similar and even larger overruns. 43 reactors during the first nuclear go-round received licenses but were cancelled before operation, in some cases even before construction began. The only two reactors now under construction in the western world, in Finland and France, are both overbudget (75% in Finland's case, 20% in France's case) and behind schedule.
"Who will pay if we see even a fraction of the overruns utilities experienced in the 1970s and 1980s?" asked Mariotte. "At predicted costs of anywhere from $7 Billion to $15 Billion for a single new reactor, even small overruns mean huge expenses and likely equally huge losses to taxpayers. And there is not even a shred of evidence that U.S. utilities, having not had a successful reactor order since 1973, can build a reactor anywhere near projected costs. If any of these projects actually get underway, we can expect the utilities to be coming back to the taxpayer trough for more."
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