Earlier Authorization for Loan Guarantee Money Sought – Important Information About Guarantee Fee Costs

Platts published an article dated May 24, 2010 describing a request by the Obama Administration to include an additional $10 billion in loan guarantee authority for nuclear and renewable energy programs as part of the supplemental appropriation bill that is normally used for military war related expenditures and disaster relief programs. The loan guarantee authority, if granted, would be subtracted from the amounts previously included in the FY2011 budget request. The reason for including the request in the supplementary appropriation bill is to move the money quicker to projects that are ready to move but waiting for government approvals of their loan guarantee requests.

The numbers reported by Platts are worth understanding. The loan guarantee authority amounts are not spending requests – those dollar amounts are going to be loaned with an expectation that the money will be repaid. There is a requirement for an appropriation – which is considered to be actual spending – of $180 million. That money will be set aside in a fund established to cover government’s share of the cost of any defaults on the loans.

Here is where it gets interesting. Of the $10 billion in loan guarantees, $9 billion would go towards nuclear projects and $1 billion would go towards renewables. Of the $180 million being appropriated as what amounts to default insurance, $90 million would support the $9 billion for nuclear and $90 million would support the $1 billion for renewables. I presume that government accountants and analysts computed the amounts required based on risk of default and credit worthiness of the borrowers and took into account the amount of loan default payments that the borrowers would have to provide to the fund.

For a government that wants to encourage private spending that creates both clean energy and good jobs, it seems obvious that investing $90 million to encourage $9 billion worth of projects is a better deal than investing $90 million to encourage $1 billion worth of projects.

There is some resistance to including this provision in the supplementary spending bill.

The bill could face resistance from budget hawks in Congress. Senator Tom Coburn, an Oklahoma Republican, said last week he is drafting an amendment to the bill to offset its cost through cuts elsewhere in the budget.

“This bill will be an important test of whether politicians in Washington are ready to listen to the American people and do their job of budgeting,” Coburn said in a statement. “The emergency designation of this bill is a farce designed to evade budget rules that require Congress to pay for new spending.”

Coburn is a senator from Oklahoma, the same state whose governor just vetoed a bill that would have encouraged nuclear energy development by allowing the Oklahoma Municipal Power Authority to invest in nuclear energy projects.

Additional Reading

For information about the magnitude of the oil and gas industry in Oklahoma, visit OKLAHOMA OIL & GAS FACTS which includes facts supplied by the Oklahoma Corporation Commission.

Update: (Posted on May 28, 2010 at 4:04 am) Apparently Senator Coburn has expressed support for nuclear energy developments – at least in 2005. He was one of the few politicians in the state quoted as being supportive of the actions taken as part of the Energy Policy Act of 2005 to streamline the approval process and provide some loan guarantee authority in an article titled Energy Officials Say Nuclear Power Comeback Not Likely to Happen in Oklahoma.