Vogtle loan sparks review of DOE program

Vogtle loan sparks review of DOE program

$8.3B loan remains uncertain

March 5, 2013 | By Travis Mitchell

The U.S. Department of Energy's (DOE) Loan Guarantee program has drummed up significant controversy over its lifetime.

Solyndra is perhaps the program's most infamous, garnering notoriety after it defaulted on a $535 million DOE loan. The Obama Administration became embroiled in controversy as lawmakers ripped into what they saw as a poorly issued loan. Tesla, another high-profile loan recipient, also recently reported a $75 million loss for the fourth quarter of 2012. The company's CEO claims the it will repay the $465 million loan in five years, well before its 2022 due date.

But the Solyndra and Tesla loans pale in comparison to the $8.3 billion conditional loan guarantee given to fund expansion of the Vogtle Electric Generating Plant. While the conditional agreement was made in 2010, final negotiations continue and the outcome remains uncertain. The loan is nearly 50 percent of the $18 billion the DOE has set aside for nuclear loan guarantees.

$8.3 billion loan concerns remain

The Vogtle loan will help expand the nuclear plant by providing financing for two more reactors -- Unit 3 and Unit 4. Georgia Power is the majority owner of the plant with a 45 percent stake. Other utilities include Oglethorpe Power Corporation, Municipal Electric Power Authority of Georgia and Dalton Utilities. Units 1 and 2 became operational in the late 1980s, and were renewed in 2009 for another 20 years of operation. Total capacity is 2,430 MW.

Southern Company estimated that Georgia Power customers will save $15 million to $20 million in annual interest costs thanks to the loan guarantees.

At least one analysis, however, raises concerns about how the loan guarantee program could affect taxpayers nationwide. A document-heavy analysis from Earth Track and Synapse Energy Economics looked at many DOE filings, obtained through a Freedom of Information Act (FOIA) request. The report was commissioned by the Southern Alliance for Clean Energy (SACE) and Friends of the Earth.

SACE has been following the loan guarantee program for years, and found a number of red flags with the Vogtle program in particular. For starters, the plant construction is running at least $900 million over budget and has been delayed 15 months. While those costs won't increase the amount of the loan guarantee, it puts increased pressure on ratepayers.

In addition, the reactors were unlicensed at the time the conditional loan guarantee was made in 2010.

"It's sort of a series of indicators that don't bode well for conclusion," said Sara Barczak, High Risk Energy Choices Program Director at SACE. "I'm not saying the two Vogtle reactors will not be built, but as you see delays and cost increases, you have a higher risk of project default."

SACE reiterated that it is not attacking or accusing the utilities involved (or the DOE for that matter), and the report does not allege any wrongdoing. But the parties involved view investigating this loan as an opportunity to protect taxpayers who will be on the hook for an unprecedented loan if the project goes bankrupt.

"We wanted to really find out what the risks were," Barczak said.

While there is no indication that the project will go bankrupt, there is a history of nuclear development going bankrupt or failing to get off the ground. One example is the Bellefonte Nuclear Generating Station in Alabama, which has had numerous setbacks in the past 40 years.

The goal was not to stop the loan or vilify nuclear energy, but rather to gather information and understand more about the terms and taxpayer implications of the loan guarantee program. But digging up the information proved to be a headache.

Government's failure to cooperate

Mindy Goldstein, director of the Turner Environmental Law Clinic at Emory University School of Law, told FierceEnergy that the requested documents weren't received on time, were heavily redacted, and led to an "egregious and aggravating" process. A total of seven FOIA requests were filed in a three-year period, she said.

A 40-page "Open Issues List" from February 2012 obtained through the FOIA process was heavily redacted and gave little indication as to what could be holding up the loan finalization, though it confirms that the parties are involved in a number of disagreements relating to the original loan agreement.

Southern Company said that there has been constructive dialogue between the utility and the DOE, and that it is committed to completing construction on the Vogtle units regardless of the loan, according to spokesperson Tim Leljedal. The ongoing negotiations prohibited him from providing any specific details about the delays in the loan finalization.

Barczak highlighted the increasingly partisan lens of renewable and nuclear energy as a possible reason the Vogtle loan has escaped legislative scrutiny, noting that renewable energy enjoys a high favorability in the Southeast states.

Still, it's unclear exactly why Congress has ignored the issue, especially given the outrage and investigation that followed the smaller Solyndra loan and the ongoing pressure to cut federal spending and tax revenue.

"The biggest frustration on our part is that it's not a gamble that Congress needed to be making because the main utility involved on the project has said they don't need the loan guarantee," Barczak said.

One main issue was the tax credit subsidy guarantee -- a deposit paid by the loan recipient in the event of a default. In the case of Vogtle, analysts involved in the report called this subsidy guarantee astonishingly low. And the credit subsidy is believed to have remained static even as project delays and costs continue growing.

The parties involved filed a lawsuit two weeks ago, suing the DOE for failing to provide adequate FOIA compliance, including illegally withholding portions of the Open Issues List and the Loan Guarantee Agreement.

"It seems to us that what's happening is that anytime we want information we not only have to fight for it and ask for it but we end up having to go to court for it," Goldstein said.

While Barczak said she was unsure if the conditional loan offer would be (or even could be) rescinded, she is hopeful that the report will spark lawmakers to press for more transparency and information about the loan and the loan program in general.

"We at least hoped that there would be more of a spotlight and more attention paid to this," she said.