Archive for the ‘Loan Guarantees’ Category

Nuclear Townhall
December 31, 2010

An unidentified source in a French news story says the Obama Administration may be holding back from awarding a federal loan guarantee to NRG’s South Texas project because it is in the Lone Star State. 

"According to one source, the Obama administration would prefer the loan guarantee to go to the Calvert Cliffs project in Maryland, which is a Democratic state, rather than to NRG’s project in largely Republican Texas," says this report from Agence France-Presse.  "According to the same source the DoE would also prefer the money go to EDF to avoid the risk of making the US nuclear sector over-reliant on Japanese technology."

The story is a boilerplate review for French readers spelling out Electricite de France’s difficulties in reviving Calvert Cliffs after its partner, Constellation Energy, dropped off the project two month ago. The comment comes far down near the end of the story.  Still, it has a ring of plausibility, since the Obama Administration is about to square off with Texas over the authority to issue air quality permits regulating carbon, beginning January 2.  On the other hand, it’s hard to see why relying on Japanese technology is any different from relying on French technology.  The real problem is that there is very little American technology remaining since the roadblocks to nuclear development erected in the past 30 years have driven most of the industry offshore.

Constellation walked away from Calvert Cliffs after the Congressional Budget Office estimated the chances of a loan default at 50 percent and asked a $700 million fee in compensation.  EDF has tried to revive the project but must find an American partner to satisfy a 1950s law saying non-American companies cannot own more than half of a commercial reactor.  NRG’s South Texas project has had its own troubles, with the City of San Antonio pulling out of the project when it became too expensive.  NRG is attempting to build two Westinghouse Advanced Boiling Water Reactors, a technology that is not the most advanced but has an old approval from the Nuclear Regulatory Commission.  The more advanced technology, the Westinghouse-Toshiba AP1000, now under construction at four sites in China, is still under review at the NRC after six years.   EDF’s Calvert Cliffs project would be an Areva’s U.S. Evolutionary Power Reactor (EPR), a duplicate of the European Power Reactor that Areva is constructing in France and Finland.  The only remaining U.S. design, General Electric’s Advanced Boiling Water Reactor, is now being marketed in conjunction with Hitachi.

If the Obama Administration wants to promote American nuclear technology, it will have to do more than block loan guarantees at South Texas.

Read more at Agence France Presse

Nuclear Townhall
December 15, 2010

It could go either way. The incoming Republican Congress could favor nuclear as a means of strengthening the nation’s energy base. Or they could oppose it as an undue burden on taxpayers.
 
A coalition of conservative taxpayer groups – plus an infiltrator, the Non-proliferation Policy Education Center – voted for the latter yesterday, submitting a statement urging the new Congress to halt any increase in federal loan guarantees for new nuclear reactors.
 
"It’s just an unacceptable risk for the taxpayer to take," said Ryan Alexander, president of Taxpayers for Common Sense, according to a report form the International Business Times. Ryan cited a 2003 Congressional Budget Office study says default rates can hit 50 percent or more.
 
The CBO report has become the baseline for measuring risks in awarding loan guarantees and was the reason Constellation abandoned plans to build a third reactor at Calvert Cliffs. Using the CBO figures, the Department of Energy was asking Constellation to pay an 11 percent fee, adding $750 million to the project. Even William Yeatman, a policy analyst for the Competition Enterprise Institute, which also signed the letter, says the CBO figures overestimate the risk.
 
Most interesting is the presence of the Non-Proliferation Policy Education Center, an organization that is trying to prevent the spread of nuclear weapons by blocking civilian nuclear development worldwide. Like several other anti-nuclear advocates, NPEC has decided that conservatives can be turned against nuclear by emphasizing its costs. Henry Sokolski, executive director of NPEC, regularly writes for National Review Online. NPEC’s argument is that allowing other countries to build enrichment and reprocessing facilities will inevitably lead to the spread of nuclear weapons. The pursuit of this policy has meant that other countries continue to move ahead with nuclear development while the U.S. is being left behind.

Read more at the International Business Times

Nuclear Townhall
December 9, 2010

The jockeying for position on nuclear loan guarantees during the lame duck session began yesterday as House Democrats effectively excising $29 billion in budget authority from President Obama’s FY2011 request in a 12-month long continuing resolution (CR) for Fiscal Year 2011 that narrowly passed the chamber.

Loan guarantees for nuclear have never been a high-priority for the current House leadership. They also pose a dilemma for the incoming Republican majority, however, since Tea Party conservatives have made reducing federal subsidies the heart of their campaign.
 
Earlier this year, President Obama actively embraced nuclear energy as part of his global climate strategy and proposed expanding the current $18-billion loan guarantee program to $54 billion, a $36 billion increase. The current budget proposal enacted  by the House would limit the authority available in the current fiscal year to $25 billion, a $7 billion increase – about enough for two new reactor projects beyond the Vogtle project, which was consummated mid-year. That Constellation Energy recently withdrew a $7.5 billion reactor project that was about to receive federal funding probably didn’t help in advertising the urgency of the program. Constellation objected to the 11 percent fee demanded by the Office of Management and Budget, which would have added $800 million to its costs.

Congress is currently operating on a continuing resolution that holds last year’s outlays constant. Senate Republicans are expected to push for a partial-year CR extension favored by the incoming House Republican leadership, which could leave new loan guarantee authority up in the air until Spring.

Read more about it at Bloomberg News

John E. Burget is a veteran finance manager whose experience goes all the way back to Seabrook. Now president of Burget Capital Strategies in Houston, he has some good ideas on how to go about financing nuclear projects.
 
In a two-part series on Nuclear Energy Insider, Burget says that the two methods now favored most – government loan guarantees or Construction While in Progress (CWIP) – both have their limitations and hazards. Government loan guarantees can only cover a few projects. At the same time, “If US state law and Public Utility Commission regulations permit new project builders to pass capital charges on to ratepayers years before project completion [CWIP], it nearly always creates strong opposition.”
 
Burget recalls his experience as vice president of a highly regarded Wall Street firm involved in the funding of Seabrook. The New Hampshire project was delayed by environmental opposition until the Public Service Company of New Hampshire announced it could no longer proceed without charging construction costs to ratepayers in advance. Popular governor Meldrim Thomson agreed to do it but he was defeated by Hugh Gallen, a relatively unknown businessman who promised to oppose CWIP.

Burget proposed an independent New Hampshire Energy Finance Authority that would have the power to issue tax-exempt bonds to cover finance costs for any private power project. After two years of debate, the proposal almost made it through the state legislature – only to be sunk by Three Mile Island.
 
“To the best of my knowledge this particular legislation has not yet been adopted in any other state,” writes Burget. “However many US public power systems, and other specialized state agencies such as toll road, airport and port authorities that are not tax-supported, have long used revenue bonds for 100% debt financing of large capital projects without Federal or state guarantees.”
 
It’s an interesting proposal worth considering. Part II of Burget’s article, which will review the current regulatory environment, will appear today.

Read more at Nuclear Insider

A report released late Friday by the DOE Inspector General (IG) reported that only 8.4 percent of the $3.2 billion appropriated by Congress in February 2009 for the Energy Efficiency and Block Grant Conservation Program as part of the economic stimulus package has been “expended.”  The IG figures were as of the beginning of August.

According to the report, 2,265 jobs were created or saved – “about one job per grant award.”  The result is called “inconsistent” with Department targets “as well as the fundamental goals of the Recovery Act…”  This is despite what the IG called a “herculean effort” to get the program started and executed.  The findings were reported to be similar to a February study of a companion stimulus program – the Weatherization Assistance Program.

A July 30th DOE status report on Recovery Act funding shows just $5.6 billion of $32.7 billion authorized by the Congress in 2009 is “outlaid.”  $29.7 billion is estimated to be “awarded.”

A related July 28th status report on the DOE loan guarantee program shows only $8.914 billion of DOE’s available $109.8 billion in loan guarantee authority to be closed.  Another $12.377 billion is reported to be conditionally committed. $8.333 billion alone is earmarked for the two new Vogtle nuclear plants, conditional loans that have been “formally accepted.”  In May, the DOE announced a conditional commitment for a $2 billion loan guarantee to AREVA for its Eagle Rock Enrichment Facility.

Although about half of the existing nuclear loan guarantee authority is closed or conditionally committed, the  nuclear portfolio was authorized five years ago.  The President has requested an additional $36 billion for new plants.  House and Senate appropriators have cut that request to $15 billion and $10 billion in their respective Fiscal Year 2011 mark-ups.  An additional $9 billion sought in a FY 2010 supplement appropriations bill was excised by the Senate.

Read more at the NY Times

In a reversal of fortune from last year’s stimulus bill where nuclear energy was the odd man out, this past week the U.S. Senate choose to slash $1.5 billion from a $6 billion loan guarantee fund for renewable energy projects.

The $1.5 billion was used by the newly deficit conscious Senate to pay in part for a $26 billion emergency funding package for states, which was approved this past Thursday in a 61-39 vote.

The renewable energy industry decried the funding rescission as "devastating" and "pretty extreme."  In communiques to Congress, officials claimed the cut would result in the loss of thousands of jobs, put more than a dozen projects in limbo and jeopardize renewable  energy industry employees and investors.

Congressional observers said the Senate triage could reflect rising concern over the viability of the solar industry’s marquee loan guarantee recipient — California-based Solyndra — and its U.S. Department of Energy $535 million inaugural guarantee. Solyndra has since scrapped its planned IPO and displaced its founding chief executive officer.

According to a Reuters report, earlier this year company auditors raised eyebrows over Solyndra’s operating losses, negative cash flow and financial exposure saying these factors raised "substantial doubt about its ability to continue as a going concern.”

Notwithstanding the reprieve for nuclear loan guarantees in last week’s program cutback, issuance of new loan guarantees for nuclear energy plants remains at an impasse at the DOE with demand outstripping supply.  Congress meanwhile appears poised to fall short of the $36 billion in new authority for nuclear loan guarantees requested by the President for the FY2011 budget.

Read more at Platts

Two of the most promising new build projects announced severe cutbacks this week as hope that the Department of Energy will soon announce any new loan guarantees begins to fade.

NRG, of Princeton, N.J., announced it would reduce monthly spending to $1.5 million a month, down 95 percent from two months ago, at its South Texas project near San Antonio. Total spending for the year will drop from an anticipated $302 million to $186 million. Although CEO David Crane said he is still confident the project will go forward, NRG is obviously pulling back on its commitment. NRG stock rose 3 percent after the announcement.

Constellation Energy in Maryland made virtually the same announcement last week when it said it is suspending all new spending on Calvert Cliffs III until the loan guarantee issue is resolved. Constellation even suggested it might drop the project altogether if a decision from the Department of Energy is not forthcoming by the end of the year.

EDF, the French national utility that is Constellation’s partner on the project, reported a big drop in earnings last week, mainly because of losses on Calvert Cliffs. The two companies have already spent $600 million on the project.

Hopes that any new loan guarantees may be forthcoming from DOE are guarded. The Department has committed about $9 billion of its authorized $18.5 billion to the Vogtle Plant in Georgia, being build by Southern Nuclear Company.  The remaining loan guarantee pool is not sufficient to fund both South Texas and Calvert Cliffs — forcing DOE to chose between the two projects or further delay any announcement until FY2011 budgets are finalized with fresh funding. 

In February President Obama proposed raising the loan guarantee fund to $54 billion but Congress has not yet fully acted on his suggestion. The Senate nixed an additional $9 billion in loan guarantee funding from a proposed FY2010 supplemental funding bill.

Read more at the WSJ…

…and the Baltimore Sun

By Nuclear Townhall Staff
The House of Representatives yesterday evening passed a Fiscal Year 2010 supplemental appropriations bill, principally providing funding for the Iraq and Afghanistan war campaigns.

The measure includes an amendment funding new energy loans guarantees, including $18 billion in innovative technology loans, split evenly between nuclear loan guarantees for new plants and renewable energy programs.  $18 billion was previously provided for nuclear plants under the auspices of the Energy Policy Act of 2005.

The Senate will take up consideration of the supplemental when it returns from a July 4th recess the week of July 12.

By Nuclear Townhall Staff
The House of Representatives will take up consideration today of a Fiscal Year 2010 supplemental appropriations bill, principally for funding for the Iraq and Afghanistan war campaign. The measure also includes Haiti relief and funding for key domestic priorities.  Final approval is expected before the House adjourns for its July 4th recess.

According to the House Appropriations Committee, the measure funds new energy loans guarantees, including $18 billion in innovative technology loans, split evenly between nuclear loan guarantees for new plants and renewable energy programs.

$18 billion was previously provided under the auspices of the Energy Policy Act of 2005. The amendment reportedly requires DOE to provide a report to the House and Senate Appropriations Committees on the loan subsidy fees charged by DOE for nuclear loan guarantees as a condition for issuing a conditional loan guarantee commitment or on financial closing.

House leadership readies FY2010 Supplemental Appropriations bill for House floor action before leaving for July 4th recess.

The latest draft of the supplemental spending bill House Democrats plan to bring to the floor this week scales back funding for veterans exposed to Agent Orange to $10 billion from $13.4 billion, and aid to school districts to prevent teacher layoffs to $10 billion from $23 billion.

According to a summary of the bill circulated Tuesday by the House Majority Whip's Office, all funding above levels in the Senate-passed version will be offset over 10 years.

House Majority Leader Hoyer said Tuesday that he expects to bring the bill to the floor this week, but that no decisions have been made as to exactly when.

Reportedly, the House Supplemental bill contains $9 billion for nuclear loan guarantees and a matching $9 billion for renewable loan guarantees.

Townhall will closely follow developments.