The U.S. Department of Energy in February approved $6.5 billion in lending for Southern Co. subsidiary Georgia Power and Oglethorpe Power Corp without requiring them to pay a credit subsidy fee, which is supposed to compensate the government for the financial risk involved in making the loan. Together, those companies own a three-quarters stake in the two new reactors under construction at Plant Vogtle in eastern Georgia.
Greenwire first obtained the documents using the federal open records law.
Spokesmen for Southern Co. and Oglethorpe Power declined to comment on the fee structure. Officials at the Department of Energy say they used a standardized system to calculate the charges and did not give either company special treatment.
“These calculations are made using a standard methodology, consistent with guidelines followed across the federal government,” DOE spokeswoman Dawn Selak said in a statement. “In this case, it should be noted that the Vogtle project sponsors are well-established, sizable companies that are already heavily invested and wholly committed to the project.”
Initially, industry analysts and insiders viewed the loan guarantees as more critical to building efforts. Decades ago, utility companies were pushed to the brink of collapse when they built an earlier generation of nuclear plants. Building costs skyrocketed while the demand for electricity dropped. Some utility companies simply quit building, figuring it was cheaper to walk away than finish.
Given that history, it was unclear whether major lenders would fund a new generation of reactors given the historical odds that a project could go bust and loans would not be repaid. To ease such worries, Congress in 2005 authorized federal funding to help finance the projects, which shifted more of the risk from financiers to taxpayers.
Critics of the program have long argued it shifts risk from private investors onto taxpayers, since the government would have to absorb the cost of a loan default. Not charging a loan subsidy fee suggests that the government believes the projects are sure financial bets.
“If that’s the case, then they don’t need a loan guarantee because the loan guarantee is for projects that are deemed risky by traditional Wall Street investors,” said Sara Barczak of the Southern Alliance for Clean Energy, which has been critical of the loan guarantee program.
Very few utilities reached a deal to secure the government loans, mostly because power companies have abandoned plans to build nuclear plants. The Great Recession trimmed the demand for energy. Meanwhile, falling natural gas prices made it cheaper to build natural gas plants. Interest rates have also fallen to record lows, making it relatively cheap to borrow from the open market and decreasing the advantage of borrowing from the government. In fact, Southern Co. officials repeatedly said they could fund the building project without government-backed lending.
The nuclear plant under construction in Georgia and a similar project underway in South Carolina are the first nuclear reactors built from scratch in a generation.
The size of the credit subsidy fees have been a matter of debate.
Bigger fees were assessed in places where electric utilities must sell their energy at market prices. In markets where utilities compete to sell energy, the low cost of natural gas has pushed down the electricity price paid by consumers. But low electricity prices make it extremely difficult for nuclear plants to recoup their costs and stay profitable. Given those risks, government officials wanted Constellation Energy to pay a credit subsidy fee of hundreds of millions of dollars when it applied to build a nuclear plant in Maryland. The company refused and ultimately cancelled the project.
Utilities face a different financial situation in regulated markets like Georgia where they are monopolies without competition. Their customers are required by law to pay for construction costs. Utility regulators can prevent Southern Co. from passing along egregious costs to customers, but it’s rare. As a result, most analysts consider it unlikely that Southern Co. or Oglethorpe Power would default on their debt. Lenders typically offer better terms for less-risky investments.