The Obama administration finalized $6.5 billion worth of loan guarantees for the country's first U.S. reactors in decades without requiring developers to pay a "credit subsidy fee" -- money that protects taxpayers should the developers default, according to documents obtained by Greenwire.
The Energy Department zeroed out the fees in February when finalizing a first-of-its-kind $3.5 billion loan guarantee for a subsidiary of Southern Co. and an approximately $3 billion loan guarantee for Oglethorpe Power Corp. to build two reactors at the Alvin W. Vogtle nuclear plant, about 30 miles southwest of Augusta, Ga., according to two letters obtained through Freedom of Information Act requests.
DOE Loan Program Office Executive Director Peter Davidson sent a Feb. 11 letter to Earl Long, Southern subsidiary Georgia Power's assistant treasurer, and a separate letter the same day to Betsy Higgins, Oglethorpe's chief financial officer, which said the companies owed nothing in final credit subsidy fees tied to the execution of the Vogtle loan guarantees.
"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 wrote in one letter to Higgins.
The Office of Management and Budget's calculation may reflect that Southern Co. has invested billions -- more than $25 billion -- in the project and is an investment-grade company with years of experience in the electricity business -- unlike other startups the agency has provided with loan guarantees. A 2013 report from the Nuclear Energy Institute noted both Southern Co. and its subsidiary, Georgia Power, are A-rated, investment-grade companies that can recoup costs, being located in a regulated market.
DOE spokesperson Dawn Selak: "This calculation is based upon a standard methodology used across the federal government. In this case, it should be noted that the Vogtle project sponsors are well-established, sizable companies that are already heavily invested and wholly committed to the project."
Southern Co., notably, declined to provide a comment for the record.
While Vogtle is moving forward, other loan guarantees in the past, authority DOE has under the Energy Policy Act of 2005, have not materialized. Most recently, Constellation Energy Group -- now a division of leading nuclear power generator Exelon Corp. -- backed away from plans to build a reactor in Maryland after DOE asked for an initial $880 million upfront payment in fees, an amount calculated by the OMB, to protect against a potential project default.
Activists have for years called on DOE to divulge the details of the loan guarantees, namely the credit subsidy fees -- an amount that represents the "price tag" nuclear developers must pay to the federal government to cover the risk that a project is not completed and that the government may have to repay the project's lenders.
The zero-sum figure drew immediate criticism as a "sweetheart deal" for the companies.
"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 a couple years ago," said Sara Barczak, director of the Southern Alliance for Clean Energy's high-risk energy choices program. Barczak said the fees are critical in light of the 2011 nuclear disaster in Japan, stiff competition nuclear projects face from cheap gas and the snuffing out of other projects.
"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 Co. and Westinghouse," she said. "How that together doesn't constitute an unacceptable risk to taxpayers is baffling."
The fees are based on the Office of Management and Budget's governmentwide formula. The OMB formula, according to a Nuclear Energy Institute 2010 white paper, is based on the probability of default and how much is lost or recovered, the timing of the default, and how quickly the company would recover.
The revelation that the credit subsidy fees for Southern and Oglethorpe are nil is critical in light of DOE's ongoing negotiations on a third loan guarantee for $1.8 billion for the Municipal Electric Authority of Georgia, which is also taking part in building the two Westinghouse AP1000 units that are slated to begin operating at Vogtle in 2017 and 2018.
Georgia Power owns 45.7 percent of the Vogtle project, Oglethorpe owns 30 percent and MEAG, a consortium of municipalities, owns 22.7 percent.
The fees have been a point of debate in negotiations surrounding the loan guarantees -- agreements initially expected to be finalized in 2012 that got bogged down over terms and costs and eventually complicated by DOE requirements that were added after the much-publicized bankruptcy of solar panel maker Solyndra, which had received federal loan guarantees (E&ENews PM, Jan. 30).
Southern CEO Tom Fanning hinted in 2012 that the utility could move forward with Vogtle without the DOE support, saying, "Whatever terms and conditions we enter into ultimately work to the benefit of our customers" (Greenwire, July 19, 2012). But during the following months and years, Southern officials said they were nearing an agreement -- one suitable for a large corporation -- that was economical for customers (E&ENews PM, Feb. 21, 2013).
Analysts say that the future of the U.S. nuclear industry, and of nuclear power generation in the United States, will largely depend on the success of the two reactors, called Vogtle 3 and 4. Although the reactors are being built, developers have already faced regulatory snags and construction hang-ups, leading to delays and cost increases over time. The project is now estimated to cost the utility and its ratepayers nearly $15 billion.
Even so, the agreement signifies the White House's push for new nuclear, as well as a drawdown of the original nuclear program.
When the White House announced its conditional commitment in 2010, then-White House climate adviser Carol Browner said she hoped the Georgia reactors would be "the first of many new nuclear projects." That call saw a Democratic president being cheered by the nuclear power industry for supporting nuclear's long-hoped-for revival, while being condemned by nuclear power opponents on the left for putting billions of dollars in taxpayer money at risk (ClimateWire, Feb. 17, 2010).
Industry officials at the time said an upfront credit subsidy payment of 1 to 2 percent of the loan amount would be manageable, but a significantly higher number would kill the proposed reactor projects.
The nuclear industry has defended the project. The NEI in its 2010 white paper noted that Southern and other utilities building the reactors are placing their balance sheets at risk -- "in essence, pledging the company and its assets as security for the loan guarantee."
Lake Barrett, an energy consultant based in Washington, D.C., noted that the Vogtle reactors are located in a regulated market and that the Public Utility Commission in Georgia supports the project. "[The project] is pretty low-risk from an investment point of view, they're in a state that's regulated and the ratepayers are going to honor those debts," he said. "The companies get a reasonable rate of return, as opposed to 'you're on your own, baby.'"
DOE has received eight other applications for almost $64 billion in loan guarantees that the agency considers inactive. Following the finalization of MEAG's loan guarantee, DOE will have $10.2 billion in remaining nuclear authority -- enough, the agency anticipates, to support one other nuclear generation project, according to the Government Accountability Office.