Congressional appropriators reached a deal in mid-December giving DOE the authority to issue $18.5 billion in loan guarantees for new nuclear plants and $2 billion for uranium enrichment projects over the next two fiscal years.
It meets the ultimate objective that we considered important -- that DOE be given authorization for establishing a workable loan guarantee program so we can begin moving forward with new nuclear plants.
--Michael Wallace, Constellation Energy and UniStar Nuclear Energy

Though it is less money than it had hoped for, the nuclear industry lauded the action as a good start to providing financial assistance for a handful of multibillion-dollar nuclear projects. The industry had sought $50 billion for fiscal 2008 and 2009, and for a short time, it appeared it might get $25 billion in FY-08.

The provision was initially pushed through by New Mexico Senator Pete Domenici, the ranking Republican on the Energy and Water Development Appropriations Subcommittee. It was placed in a draft energy and water spending measure that was to be rolled into a massive bill funding most federal agencies for FY-08. But some appropriators, unaware that the provision had been inserted, objected when they learned of it, said a congressional staffer familiar with the budget negotiations.

Other lawmakers jumped in, directing loan guarantees toward other types of energy sources, and soon DOE authority for energy projects reducing carbon emissions reached $45 billion, the staffer said. After days of negotiations, DOE approval for nuclear energy projects was limited to $20.5 billion in FY-08 and FY-09. The provision also was moved out of the spending bill and placed in a report accompanying the bill.

The FY-08 omnibus spending bill was approved by the House and Senate on December 17. The bill then headed to the White House where President George W. Bush signed it into law on December 26.

Kevin Book, senior vice president and analyst for the broker-dealer Friedman, Billings, Ramsey & Co, said putting the authorization language in a report, rather than an appropriations bill, could have legal significance because a statute has the weight of law and report language is simply a guideline. In an interview, he said he believes that either House or Senate appropriators made a mistake when reconciling report and statutory language, or they intentionally created a disconnect to give environmentalists and others opposed to new nuclear production a chance to slow its development through litigation.

Book acknowledged that courts do take legislative report language into account when interpreting congressional intent. But ultimately, future congressional action might be needed to resolve disagreements. "If I had to interpret this in a single sentence," he said," it would be 'We're coming back to this.'"

But Michael Wallace, executive vice president of Constellation Energy and chairman of UniStar Nuclear Energy, a joint venture between Constellation Energy and Electricite de France, said in an interview December 17 that the industry believes the provision in the report gives DOE the authority it needs to make loan guarantees.

"Our view is this has solid bicameral, bipartisan support, and this is the approach that was negotiated," he said, adding that it "meets the ultimate objective that we considered important -- that DOE be given authorization for establishing a workable loan guarantee program so we can begin moving forward with new nuclear plants."

Wallace said the $18.5 billion should be enough for about three to four projects to move forward. He said the industry hopes that Congress and the administration monitor the program over the next two years and consider what happens beyond FY-09.

If the bill passes into law, the next "critical step" is for DOE to issue a solicitation for loan guarantees, Wallace said. The industry expects the solicitation would be issued within the next 30 to 60 days, and DOE would award loan guarantees in FY-09, he said. The federal FY-09 begins on October 1, 2008.

In addition to nuclear energy projects, language in the omnibus bill report gives DOE authority to issue through FY-09 $6 billion in loan guarantees for coal gasification projects at new and retrofitted facilities that use carbon capture and sequestration, and $10 billion for renewable or energy efficient systems and manufacturing projects. The report directs DOE to submit to congressional appropriators a loan guarantee "implementation plan" that defines award levels and eligibility within 45 days of a solicitation.

The budget bill contains $5.5 million to cover administrative costs associated with DOE's loan guarantee office. That's less that the $8.4 million proposed by the Senate but more than the House-proposed $2.4 million.

Nuclear Energy Institute President/CEO Frank "Skip" Bowman said in a December 17 statement that availability of loan guarantees "will help reduce uncertainties surrounding these capital-intensive projects."

Nuclear Information and Resource Service disagreed, saying that more than 500 organizations -- including Greenpeace, Friends of the Earth International, and the Sierra Club -- have signed a statement rejecting nuclear power as a means of addressing climate change. Michael Mariotte, executive director of NIRS, asserted that "nuclear power has not successfully addressed any of the problems that caused the failure of its first generation: safety, radioactive waste disposal and the poor economics that led to soaring electric bills, bond defaults and utility bankruptcy. Add to that the newer problem of security, and nuclear power can't win any rational argument over renewable energy and energy efficiency technologies."

Costs

Constellation's Wallace stressed that the risks of loan guarantees would be captured in subsidy costs that are paid for by the applicants and not by taxpayers. He said many in the industry want the calculations for the subsidy costs to be partly spelled out in the solicitation DOE issues to invite applications. The costs should be further evaluated when the actual loan applications are submitted, he said. "We see this as being an iterative process, as DOE actually evaluates the loan applications with various features represented in different projects."

He said this approach is more practical than establishing hypothetical situations in an attempt to evaluate subsidy costs. "We think it may be most practical to get applications in-house, consider the actual risks of those particular projects, and then fine-tune how they determine the subsidy costs," he said. Those risk factors might include a company's financial health, the financial structure of a proposed project, the level of equity, and participants in a project, he said. Each factor has a role in determining the risk involved in a particular project, and ultimately the subsidy cost. Those issues, he said, need to be sorted out in individual loan applications.

Created: January 7, 2008