The nuclear energy industry and the country’s top banking institutions have together applied pressure on the Office of Management and Budget (OMB) to secure more comprehensive loan guarantees for new power plants. And lawmakers are responding by considering legislation that would ensure those guarantees.
In a meeting in April with OMB, a representative from the Nuclear Energy Institute (NEI), electric utility executives and a banking official pushed for complete loan guarantee coverage that could cover 80 percent of a project’s cost. Without better coverage, say nuclear energy advocates, the nuclear “renaissance” could be seriously derailed.
“There either will be no or limited new nuclear plants developed without a workable loan guarantee program,” said Peter Saba of Paul, Hastings, Janofsky & Walker.
Saba, who represents nuclear energy companies and served in the DoE in the George H.W. Bush administration, attended the meeting and said that in the banking community, “there is not going to be any financing” unless the loan guarantee is fixed.
Loan guarantees by the federal government act as default protection for private lenders when they help finance massive projects, like nuclear power plants, to take into account certain risks and possible delays.
In materials circulated to OMB, executives from financial institutions including Credit Suisse and Lehman Brothers wrote that “lenders and investors in the fixed income markets will be acutely concerned about a series of major risks, including the possibility of delays in commercial operation of a completed plant.” They also made clear they wanted to avoid “another Shoreham” — referring to the decommissioned Long Island nuclear power plant that saddled residents with huge electric rates without producing any power.
The NEI provided a stark assessment by its New Plant Finance Task Force, a group of nuclear executives across the country. Without better loan guarantee coverage, the task force argued, companies would have difficulty in financing new plants, which can cost as much as $4 billion.
And even at 90 percent, financing the plan “will probably not be workable,” said Richard Myers, NEI’s vice president of policy development, who also attended the OMB meeting. Myers also said his trade group met separately with DoE to discuss the issue.
Nuclear power makes up a substantial share of the country’s electricity usage, providing close to 20 percent of America’s power, according to NEI’s website. Citing climate-change concerns, the trade group believes nuclear energy is vital for the nation’s energy portfolio. And the group’s allies on Capitol Hill argue that the rule is not in line with the 2005 bill.
“I believe that these proposed rules still are not as expansive as they should be and do not reflect the vision of the Energy Policy Act of 2005,” said Sen. Pete Domenici (R-N.M.), a main sponsor of the act and one of Congress’s most ardent nuclear advocates, in a statement.
In response, DoE said its rule should match the 2005 act’s requirement for 80 percent coverage of a project’s cost.
“To increase our energy security and reduce greenhouse gas emissions, we are anxious to support projects that employ promising clean energy technologies while protecting the taxpayer dollar from the potential financial risks of these projects,” said Megan Barnett, an agency spokeswoman, when asked why DoE did not propose total coverage.
Staff members for Domenici have been meeting with aides for his New Mexico counterpart, Sen. Jeff Bingaman (D), the chairman of the Senate Energy and Natural Resources Committee, to discuss the issue.
The rule would affect not only nuclear power but producers of biofuels and other alternative energies. Renewable-energy company executives have also testified before members of the committee on the loan guarantee issue.
Like Domenici, House members involved in energy legislation have expressed reservations on loan guarantee coverage. Earlier this month, before the rule was proposed, four representatives, including John Dingell (D-Mich.) and Joe Barton (R-Texas), the chairman and ranking member of the House Energy and Commerce Committee, wrote to the White House about the issue.
The House has draft legislation online that would force DoE to increase its loan guarantee coverage to 100 percent. The Senate has already introduced a bill to do so.
In the interim, the NEI plans to address the proposed rule during its 45-day public comment period. Saba expects other nuclear power companies will comment on the rule as well.
Jim Snyder contributed to this report.