Budget watchdogs see folly in US loan guarantees for nuclear power

That view was echoed last year on Wall Street, when a June report by Moody's Investor Service entitled "New Nuclear Generation: Ratings Pressure Increasing" termed new nuclear plants a "bet the farm" credit risk for the 14 utilities pursuing them.

"New Nuclear – The Economics Say No" was the title of a Citigroup report in November that cited surging costs for nuclear power in Britain – despite the British government's recent shift to support it. Citing cost overruns and delays on nuclear power projects in China and Finland, the report said that without loan guarantees from the British government, government-set minimum power prices, and other guarantees, "we see little if any prospect that new nuclear stations will be built in the UK by the private sector."

"It speaks volumes that nobody on Wall Street would risk a penny of their own to build a nuclear power plant," says Jerry Taylor, senior fellow at the Cato Institute, a libertarian think thank. "That tells us all we need to know about the wisdom of loaning money to utilities to build nuclear plants."

Breaking the dam of resistance?

Nuclear power supporters, however, are elated. Even though Obama offered a "conditional" loan guarantee – contingent on Nuclear Regulatory Commission license approval for the new plants – it is still a big boost for the Southern Co., recipient of the guarantees.

"We are honored by the administration's confidence in our ability to build the nation's first new nuclear power plant in more than three decades," David Ratcliffe, the Southern Co. CEO, said in a statement.

Obama's proposed $54 billion in federal guarantees would back seven to 10 new plants, according to the Nuclear Energy Institute, a lobby group.
"This loan guarantee, and others to follow, will act as a catalyst to accelerate construction of new nuclear plants," said a statement from the group.

The federal government's move will probably ensure that the project goes forward – and lowers the risk for the company, which must still come up with several billion of its own funds for the project, some analysts say.

"I certainly don't see Southern Co. defaulting," says Justin McCann, senior equity analyst at Standard & Poors in New York. "They have a strong balance sheet and probably would have been able to go through this project without the guarantee."

That does little to mollify fiscal watchdogs – especially those with an eye on US Senate legislation that, if passed, could exempt such loan guarantees from congressional oversight, potentially allowing an unlimited off-balance-sheet expansion of federal loan guarantees.

"These loan guarantees are not just free money that pours out of the sky. These bills come due," says Mr. Moylan at the National Taxpayers Union. The problem, he says, is that politicians find loan guarantees to be an easy way to promote an industry, but that a decade or so down the road there's the risk that some of these projects could go belly-up.

"This is not uncharted territory," Moylan says. "We've paid billions to cover losses on some of these projects in the 1970s and '80s. We're saying there's potential for a lot more red ink in the future."

----

Follow us on Twitter.

Previous

1 | 2