Now we know just how desperate the Department of Energy was to give a taxpayer loan to Southern Company and others for construction of two new reactors at the Vogtle site in Georgia.
Like a car dealer trying to sweep unsold autos off the lot, DOE gave Southern Co. the loan with nothing down. Nada. Zero.
Hannah Northey at E&E Publishing broke the story late yesterday, based on documents she received from DOE under the Freedom of Information Act.
Those documents indicated that the credit subsidy fee Southern and its partners had to pay to obtain the loan was zero. “The credit subsidy fee payable to DOE in connection with its execution of the loan guarantee agreement dated Feb. 20, 2014, between DOE and [Oglethorpe], pursuant to which DOE will guarantee a federal financing bank loan to OPC [for $3 billion, including estimated capitalized interest] is $0,’ Davison [DOE Loan Program Office Executive Director Peter] wrote in one letter to Higgins,” the article states.
Think of the “credit subsidy fee” as the down payment on a loan. If you buy a house, these days the bank is likely to require that you pay 20% of the mortgage up front–they want you to have a serious stake in the property. Apparently, when it comes to nuclear power, DOE decided that normal banking practices could be thrown out the window. What is surprising is that the White House’s Office of Management and Budget (OMB) signed on to the deal. For years, the rumors and chatter coming out of the notoriously tight-lipped OMB were that it regarded the project as risky and that it would require a meaningful credit subsidy fee. But OMB obviously backed down.
The terms of the $6.5 Billion (with another $1.8 Billion still to come to other project partners) loan–and it is a direct taxpayer loan from the Federal Financing Bank, not just a loan guarantee–clearly vindicated the strategy Southern and its partners used to obtain it. The loan was announced personally by President Obama in February 2010. Then, for four years, the utilities, DOE, and OMB squabbled over the terms of the loan. Southern executives frequently said they didn’t need the loan in any case, so wouldn’t take a deal that didn’t benefit them.
So, Southern didn’t need the loan–they’ve been building the reactors anyway paying off bank loans, some apparently coming from Europe, with money collected in advance from ratepayers. But DOE wanted to give a loan so badly that it gave Southern and its partners everything they wanted. Sweet deal.
For comparison, the loan DOE/OMB offered to Constellation Energy for the Calvert Cliffs-3 reactor included a credit subsidy fee of $880 million. Admittedly, Calvert Cliffs-3 was always a riskier project financially, and by then Constellation was souring on it anyway, but that provided all the excuse Constellation needed to drop out of it altogether. That left Electricite de France holding the bag, and eventually it was denied a license under the Atomic Energy Act’s prohibition against foreign ownership, control or domination of a U.S. reactor. Apparently DOE was loath to even potentially endanger another nuclear project, even one that proudly stated it didn’t need the loan.
Interestingly, the Southern Alliance for Clean Energy (SACE) has been filing FOIA requests with DOE for years for information about the Vogtle loan, including about the credit subsidy fees, most recently in February. Twice SACE had to go to court to force DOE to divulge the information. In 2012, SACE finally received some documents indicating the credit subsidy fees DOE was then considering: “these documents showed that Georgia Power’s fee was 0.5-1.5% for a range of $17-52 million and Oglethorpe’s was 2.5-4.3% for a range of $70-132 million.” At the time, clean energy advocates said those fees were far too low. Yet DOE went lower.
Said Sara Barczak of SACE in response to yesterday’s stunning revelation: “We are astonished that utility giant Southern Company is getting an amazing sweetheart deal with basically no protections for taxpayers. It is outrageous that the Department of Energy and Office of Management and Budget somehow determined that the two reactors under construction at Plant Vogtle pose less of a risk of default today than they did four years ago. Have these agencies been living under a rock? Fukushima has happened, natural gas prices have fallen, nearly all other new reactor projects have vanished and, most importantly, the Vogtle expansion is 21 months behind schedule, well over $1 billion over budget and has a large outstanding lawsuit of nearly another billion dollars between Southern Company and Westinghouse. How that together doesn’t constitute an unacceptable risk to taxpayers is baffling.”
More than $10 Billion remains in the DOE’s fund for nuclear construction loans. While most projects that applied several years ago for loans have since been abandoned, could seeing sweetheart terms like this could make some utilities revive their failed and risky projects? In the meantime, SACE already has called for a Congressional investigation into the DOE’s nuclear loan program (a call NIRS heartily endorses).
April 22, 2014
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