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Loan Guarantees for New Nuclear Reactors Put Taxpayers at Great Risk and Should Not Be Issued by Department of Energy


Oct. 22, 2009 

Loan Guarantees for New Nuclear Reactors Put Taxpayers at Great Risk and Should Not Be Issued by Department of Energy

 Groups from Maryland Ally with 3 other States with Reactors Up for Loan Guarantees to Speak Out in Opposition; DOE Liberalization of Rules Would Expose Taxpayers to Billions of Dollars in New Defaults

Taxpayers will be put at significant new risk for billions of dollars if the U.S. Department of Energy (DOE) moves ahead in the coming days and weeks to issue its first set of controversial taxpayer-backed, conditional loan guarantees for new nuclear reactors, according to 18 national and state-level public interest groups from Maryland, Georgia, Texas and South Carolina. In a joint statement issued today, the groups called on DOE to put the issuance of loan guarantees on hold given the unacceptable financial risks placed on the taxpayer, the poor track record of the DOE with past loan guarantees and the lack of transparency in the loan guarantee decision-making process.

“The DOE Loan Guarantee Program is fundamentally flawed,” said Allison Fisher, organizer with Public Citizen’s Energy Program. “The DOE’s lack of control over the prohibitive and uncontrolled cost of new reactors, excessive and unjustified secrecy, and its inability to properly secure the loan guarantees are the ingredients for another industry bailout by taxpayers.”

DOE has identified four nuclear utilities to distribute $18.5 billion in conditional loan guarantees, which would not become final until reactor license approval is issued by the Nuclear Regulatory Commission, several years away at best. Seven planned reactors from these four companies are under consideration, including Constellation Energy and Electricite de France’s (EdF) proposal to build a third reactor at Calvert Cliffs in southern Maryland.

“Given that the current estimated price tag for the reactor proposed for Maryland is $9 to15 billion, it is clear that DOE will not be able to fully back Constellation and EdF’s proposal,” said Johanna Neumann, director of Maryland PIRG. “Ratepayers will likely assume the balance of the risk. If the nuclear project in Maryland fails, residents will be hit twice – once as taxpayers and once as ratepayers,” Neumann said. 

The loan guarantees would put U.S. taxpayers, rather than investors, on the hook to pay back the loans should any of the projects default. According to a May 2003 Congressional Budget Office (CBO) report, the risk of default on loan guarantees for new nuclear plants is “very high – well above 50 percent.” The shift of liability to taxpayers underscores not only the necessity of public review and scrutiny of the loan guarantee program, but also begs the question of how effectively and to what degree DOE can mitigate financial risk to taxpayers through program administration.

 Further, the DOE has been criticized by the Government Accountability Office (GAO) and the DOE Inspector General for not setting up the necessary controls to manage the government’s significant financial risk exposure. The GAO reported in July 2008 that “rather than taking and completing key steps to better ensure that the loan guarantee program would be well managed and accomplish its objectives, DOE focused on soliciting preapplications for proposed projects.” The report concluded that DOE is not “well positioned to manage the loan guarantee program effectively and maintain accountability because it has not completed a number of management and internal control activities key to carrying out the program.”

“We demand that DOE suspend the issuance of conditional loan guarantees as DOE has not demonstrated that it has in place a transparent process for protecting U.S. taxpayer-financed nuclear loan guarantees against default.”, said Paul Gunter, Director of the Reactor Oversight Project for the Takoma Park, MD-based Beyond Nuclear.

Members of the Chesapeake Safe Energy Coalition are also intervening at the state and federal level against the reactor project for a host of reasons, including cost, inadequate ratepayer protections, breach of federal law on foreign-ownership, lack of a radioactive waste management plan, environmental impact, and that subsidies for the highest-cost energy option – nuclear power – would be a diversion of resources from cleaner, cheaper options that the nation must urgently pursue.

The Chesapeake Safe Energy Coalition is among the 18 state and national groups that have signed on to the statement. A full listing of groups and the full text of the joint statement can be viewed at https://www.citizen.org/sites/default/files/groupstatementloanguarantees10.09.pdf