In Defense of Nuclear Plant Loan Guarantees

I know that Atomic Insights is starting to have some of the impact that I want it to have because the blog is getting more and more commentary from outside of the community of people that already like the idea of using atomic power. One of the main reasons I do this is to try to provide an independent voice in what is a very important, and – at least to me – interesting discussion about choices we can make concerning energy production systems.

If you do not read the comment threads associated with the blog entries, you are missing part of the fun. However, sometimes the threads get important enough to elevate them to the blog front page.

In response to a comment received from a person with the handle “Fiscal Conservative”, I wrote something that I think is worth a discussion on its own. Here is what “Fiscal Conservative” had to say in the discussion thread on the blog about CNBC’s “Nuclear Option”.

Did the show humanize the subsidies that the nuclear backers are seeking? The $100 billion DOE is seeking in new loan guarantees for reactors for which the CBO estimated a 50% default rate will impact all of us and help add to the economic slide the US is on. Did the show give the up-to-date estimate by DOE that the current cost for a single reactor is $9 billion? Pardon me, that was a week ago now so I assume the cost has already gone up significantly. As the economic disaster we are facing will affect the way we dress and how we look as Americans, was the massively subsidized nuclear industry’s contribution to the fiscal crisis examined? If not, why not???

To read my (slightly edited) response, please click on the “Read the rest of this entry>>” link below.

@”Fiscal Conservative” – Interesting line of questions. It should not surprise you that I think you are way off base in your understanding of the issues associated with energy decisions.

1. The established “nuclear industry” is, like many large enterprises in America, often tempted to grab as much of the public kitty as possible. That is one thing that can be learned from our current economic crisis – many “capitalists” adhere to the philosophy of privatizing profit while socializing risk. Therefore I do not defend efforts to grab real subsidies like the Production Tax Credit so loved by the wind and solar industries and their green fellow travelers.

2. Loan guarantees are somewhat different, especially if properly structured and monitored. Like nearly every individual middle class American, I have personally benefited by obtaining and using federal loan guarantees at a time in my life when I was just starting out and needed to make a big investment. Banks did not yet know me or have a way of evaluating my credit worthiness for a purchase larger about three years worth of my rather modest annual income, so I looked to my Uncle Sam and asked him to cosign for my first house.

As a member of the US military, I was eligible for a Veteran’s Administration (VA) loan guarantee. Of course, that loan guarantee was not automatic, I had to prove my income (not hard in that case, since Uncle Sam was also my employer) and show that I had managed what little money I had up to that point well. I also had to choose a home that met VA inspection standards, the home had to be appraised by a competent, independent evaluator chosen by the VA, and I had to show that the payments were within a modest portion of my current budget after giving me credit for the fact that I would not have to rent any more.

The government actually earned money on that decision since I paid fees every month and since the seller of the home paid an initial fee to the VA. The bank benefited, my young family benefited, the construction industry benefited, and several realtors pocketed commissions both when I bought and when I sold. That same kind of deal used to be widespread throughout our economy in the form of student loans, FHA loans, etc.

I believe with all of my being that such loan guarantees for solid, well thought out investments are part of what made America one of the real economic powerhouses of the world. It has only been in the past 20 years or so when that system has been corrupted by people in the republicrat party to take away the checks and balances so that they could make billions from the fees and pass off the risk to investors.

Coming back around to nuclear power plant loan guarantees – we are talking about a new enterprise, one where the private companies involved are actually quite small compared to the overall market. They are trying to make large, long term investments that banks do not fully understand and those banks would like a cosigner who can help ensure that the projects are successfully competed so that the projected income can actually arrive. If the government (that means all of us, by the way) does its part, there should be a lot of winners.

The government absolutely has a right to demand fees, inspect the finances, establish income requirements, independently evaluate the pricing structure, and help to make sure that the project gets completed and that the income is actually used to pay back the lenders.

The end result can be enormously beneficial to the US economy. One thing that CNBC’s “Nuclear Option” did not do very well is to show just how competitive nuclear generated electricity is in the market place. France’s nuclear power plants not only supply internal loads, but they also provide the equivalent of about 6-8 plants worth of output to their neighbors.

Those neighbors buy because French nuclear power is cheap and reliable. In the US, nuclear plants run at full power almost all of the time (in excess of 90%) because their power is the cheapest controllable source on the grid after the hydro electric power that was also built with federal loans or direct purchase.

One implication of your question is that the nuclear industry has had something to do with our current financial mess. Nothing could be farther from the truth since there are NO financial subsidies going to the industry today. All of the money flowing right now is going FROM the industry TO the government in the form of fees and taxes.

The waste fund, generated by collecting just one mill per kilowatt-hour has been supporting hundreds of government and contractor employees for nearly two decades – even though the industry has gained no benefit at all from all of the frittering away. The NRC is nearly fully supported by fees paid by licensees. Current nuclear plants generate several hundred million dollars per year in taxable revenue that is generally taxed at the top corporate rate. The plants are large capital assets that pay tens of millions per year in local property tax.

Show me in law one single subsidy being paid by the government to the operating industry (university research does not count) and I will gladly send you a check for $50.00. (I will open that offer up to the first 5 people who send me an email with a verifiable program description.)

Oh yeah – one more thing. All of those massively increasing cost estimates for future plants now need some reevaluation. Part of the basis for the estimates was an inflation assumption for commodities like steel, concrete and copper that no longer holds true.

Another part that has been lost on some people is that the cost also included the financing costs; that $9 billion number is not the cost of the plant today, it is the total cost after interest and fees at the time that the plant is complete – some 10-14 years from now. That is like saying that a new Jetta costs $40,000 if the real deal is that I would pay $20,000 now and finance at high interest for 6 years.

Some participants in the energy discussion take that $9 billion and then start
figuring additional finance charges to get into really scary territory.