Documents newly acquired under a Freedom of Information Act (FOIA) request and subsequent litigation show that Solyndra-like problems are plaguing the controversial $8.33 billion federal loan guarantee conditionally committed for the construction of two nuclear reactors (Vogtle 3 and 4) in Georgia, according to a new analysis by Synapse Energy Economics and Earth Track for the Southern Alliance for Clean Energy (SACE).
The new report and related memo are based on hundreds of Department of Energy (DOE) documents dated between June 2008 and July 2012. The analysis provides extensive new information about problems with the handling of the loan guarantee process for the Vogtle Project, the adequacy of the financial terms for the federal loan guarantees, risks to taxpayers not fully addressed in DOE’s credit subsidy analysis, and indications of political interference with key financial decisions related to the conditional loan guarantees.
Among the key findings:
- Repeated indications of involvement in the loan guarantee process and terms by political appointees. An e-mail from December 2010 points to unspecified communication between the White House and the Nuclear Energy Institute over issues of concern. (In this and other cases, extensive redactions in the FOIA documents make the precise focus of the meetings and discussion unclear.)
An email from February 2010 notes that DOE did not “deal” with Shaw [the firm slated to do much of the reactor construction]; rather, “the [W]hite [H]ouse did.” Efforts for DOE to close out consultation, most likely on loan terms, was handled “at the political level” of the Department of the Treasury, according to another email. Emails from DOE staff indicate that Secretary Chu was involved in discussions with key Vogtle Project players over loans details as well. “MEAG’s CEO, Bob Johnston got a call on Friday from Secretary Chu and they discussed the progress that had been made with Southern and where we stood on our [the MEAG] term sheet negotiation,” read one email. As the report notes: “Those discussions were generally with the top management of the companies. This is a potentially troubling blurring of financial risk review, political discussion, and potential modification of loan terms.”
- Credit subsidy payments that appear too low to offer adequate protection to taxpayers in the event of a default. According to the report: “Even the high estimate for Georgia Power ($52 million), for example, would add only about 1/8% to borrowing costs over the life of the loan. This increment, which is supposed to protect taxpayers from the risk of default on the first nuclear reactors built in the U.S. in 30 years, is likely less than the Federal Financing Bank (FFB) markup on the loan relative to the Department of the Treasury’s base cost of borrowing.” The uncensored documents also reveal that the other major utility partners were offered a conditional loan guarantee with substantially higher credit subsidy fees than Georgia Power, but were still not protective of taxpayers. Oglethorpe Power’s fee was 2.5-4.3% for a range of $70-132 million and MEAG’s fee was 5-11.1% for a range of $108-186 million.
- Stale credit subsidy values. Despite continuing changes to the loan terms and a deteriorating power market over the past two years, there is no indication that DOE has adjusted credit subsidy estimates to reflect those dramatic changes.
- Over-reliance on external contractors for key risk evaluations. DOE appears not to have built sufficient analytic tools and staff expertise internally to properly assess credit risks and deal structure.
- Inadequate control of credit subsidy assessment process. Credit subsidy values were issued to borrowers before the credit subsidy model was finalized, and there is some indication that Vogtle Project borrowers may have been given access to the analytic models DOE used to assess credit risks and subsidy rates.
“The Vogtle loan guarantee puts nearly 16 times as much at stake for taxpayers when compared to Solyndra," says Sara Barczak, program director, Southern Alliance for Clean Energy. "Taxpayers cannot afford an $8.33 billion gamble when the odds are stacked against them as badly as they are here. The very large exposure to losses for U.S. taxpayers should the Vogtle Project go awry, along with the known complexities of building two new reactors, underscore the importance of an objective and unbiased review of the project, its borrowers, and the appropriate credit subsidy level. Political interference increases fiscal risks because political pressure can supplant economic and financial assessments in driving funding decisions and terms.”
Mindy Goldsten, director, Turner Environmental Law Clinic says one of the biggest problems facing the federal loan guarantee program is the lack of public information.
"Despite committing $8.33 billion dollars of taxpayer money, DOE fought tirelessly to keep much of the information about the deal private," Goldsten says. "Only after repeated requests and litigation were most of the documents reviewed in this report released in full. Even more troubling, DOE appears unwilling to waiver from its practice of secrecy – recent requests by Southern Alliance for Clean Energy for new documents concerning the loan guarantees for the Vogtle Project have resulted in incomplete and heavily redacted responses from the agency.”
Additional report highlights include the following:
- Over reliance on third parties to assess the risk for taxpayers. “While some external input is useful in order to bolster DOE’s expertise (e.g., review by external credit rating agencies), the released documents suggest that all key tools used to assess project risk were developed and held by private companies, and that individuals outside of the government were relied on for most tasks related to modifying and interpreting model runs, and addressing deal structure. Extensive redactions in credit subsidy models precluded third-party review of the validity of either the input assumptions or the results.”
- Principal repayment delayed as long as possible, maximizing the interest rate subsidy to borrowers. According to released documents, none of the more than $3 billion in principal that Georgia Power will borrow gets repaid before years 29 and 30 of the loan. Back-loading of repayments is known as a “balloon structure,” and OMB expressed a desire not to see it repeated on other guarantees. Both MEAG and OPC are also slated to have large amounts of debt remaining at the end of the 30-year loan term and will need to refinance to pay off the DOE.
- Disagreements between DOE and OMB on credit subsidy amounts were evident in the released documents. However the details and extent of the disagreements, as well as how differences were bridged, have all been entirely redacted.