President Obama’s announcement yesterday of a "conditional" $8.3 billion loan "guarantee" to the Southern Company for construction of two nuclear reactors in Georgia obscured an important fact about the loan guarantee program: taxpayers are not just providing a guarantee, they also will be providing the actual loans.
According to a press release from Southern Company yesterday, "Total guaranteed borrowings would not exceed 70 percent of the company's eligible projected costs, or approximately $3.4 billion, and are expected to be funded by the Federal Financing Bank." (Note: the discrepancy in amounts--$3.4 billion vs $8.3 billion, is because Southern Company is only a partial owner of the two reactors, the rest of the funds will go to the other owners).
The Federal Financing Bank (FFB) is a little-known government entity that more typically makes loans to universities, colleges, rural electric co-ops and other small-scale projects. Interest rates from the FFB may be lower than offered by private financial institutions. Use of the FFB means that the loans themselves for new reactor construction will come from taxpayers, putting taxpayers in the risky business of both providing the loans and guaranteeing to themselves that the loans will be repaid.
Similarly, UniStar Nuclear, which is said to be on the Department of Energy’s "shortlist" of loan guarantee applicants, states in its license application to the Nuclear Regulatory Commission, "It is expected that, with respect to the portion of the debt guaranteed by the Department of Energy under the loan guarantee program, the source of financing will be the Federal Financing Bank, and with respect to the portion of the debt insured by export credit agencies, the source of financing will be commercial banks." [Note: the statement appears in the license application, General Information, Rev. 6]
This is not like Dad co-signing a loan for a child’s first car. The idea that these are just loan "guarantees" is fictitious: these are actual loans. Giant nuclear utilities will be raiding the federal treasury for money to build reactors, and they are expecting the taxpayers to bail them out if the project goes bad.
Coupled with Secretary Chu’s astonishing admission yesterday that he was unaware of the Congressional Budget Office report estimating a 50% failure rate for new reactor projects, the administration has chosen a path of enormous risk to taxpayers and is obscuring the real nature of that risk.