Taxpayers Left Vulnerable by Energy Department With Issuance of Questionable Fifth Extension on Vogtle Loan Guarantee Offer

WASHINGTON, D.C.///October 4, 2013/// Taxpayers for Common Sense President Ryan Alexander today issued the following statement:

Wall Street has a well-known appetite for risk. Win big, lose big. But even the thrill seekers and money makers in New York know that nuclear power is a bad bet. The best deal makers know when to walk away. But after three years and five extensions, the Department of Energy seems desperate to make a sucker bet with Southern Company and put more than $8 billion of the taxpayers money on the line. DOE shouldn’t be extending the offer, they should be running the other direction.”

It seems reasonable to ask why the U.S. government thinks it’s a good idea to saddle taxpayers with the risk associated with federal loan guarantees for nuclear power projects. Particularly when the $8.3 billion worth of loan guarantees now being finalized would go to a group of companies with credit ratings that have tanked and for a nuclear reactor project that is already delayed and more than $1 billion over budget.

Yet, that is exactly what is happening with Southern Company’s Vogtle nuclear reactor project in Georgia. The project deadline for final agreement on federal loan guarantee terms has just been extended for the fifth time through the end of December 2013.

There is no good reason for the U.S. Department of Energy to keep extending this deadline. In fact, there are many good reasons to not extend the deadline yet again. The key reason? If these agreements are finalized, taxpayers will be left holding the bag in the event of default.

Troubling signs for the nuclear industry are all around us. The mothballing of reactors, runaway costs, major project delays, unresolved safety concerns, international ownership complications, and heavy competition from natural gas are only the beginning. Nuclear has faced four plant closures in the past year alone, in addition to a number of cancellations for the expansion of existing reactor sites. More and more utilities are choosing to focus on alternatives because they see a better return on their investment.

Why would the Department of Energy (DOE) take such an ill-considered gamble with taxpayer dollars on the line when Wall Street understandably thinks it’s a sucker’s bet?

WALL STREET SAYS NO

The Vogtle project is already experiencing huge cost overruns and delays. In fact, the prognosis for its successful completion is so grim that the credit ratings for all four owners of the project have been downgraded:

• On July 11, 2013, Moody’s Investor Service released a new credit report finding that Georgia Power Company’s (subsidiary of The Southern Company) credit rating could drop further if construction of nuclear reactors 3&4 at Southern Company’s Plant Vogtle site is further delayed or costs continue to rise.

• This year, Goldman Sachs and Zack’s downgraded Southern Company’s status from “Hold” to “Sell”.

• Moody’s, Standard & Poor’s, and Fitch have all given “Negative” ratings to the four companies that own the project.

• Nuclear is only one of the things that Southern Company is in hot water for today. The utility has recently been reporting severe losses to the tune of $1 billion due to mismanagement of another energy-related project in Kemper County, MS.

So why is DOE so eager to sign off on this loan guarantee? It would put $8.33 billion in taxpayer dollars at risk or, to put it in perspective, nearly 16 times the size of the infamous failed Solyndra loan guarantee. The answer lies in the vast amounts of money that Southern Company has spent lobbying the federal government. According to the Center for Responsive Politics, Southern Company spent more than any other electric utility on lobbying, with a grand total of $15,580,000 in 2012, or approximately $42,000 a day, to push forward a deal that Wall Street is rejecting.

SOUTHERN CLAIMS IT DOES NOT EVEN NEED THE LOAN GUARANTEES

To hear Southern Company tell it, they will have no trouble securing private financing and investment for the Vogtle reactor project. Yet, they are actively negotiating loan guarantee terms with DOE. Even more curious is why the loan guarantee is being offered in the first place. According to the DOE Loan Programs Office website, the Title XVII loan guarantee program, created under the Energy Policy Act of 2005, is intended to “support innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks.” If Southern Company’s claims are correct, then they surely do not fall under the category of needing taxpayers to back them. Taxpayers for Common Sense is concerned that the closed-door negotiations have allowed project partners to craft a deal which heavily favors them, makes private loans less attractive, and puts U.S. taxpayers on the hook for a risky deal.

VOGTLE: A PROJECT OVER COST AND BEHIND SCHEDULE

In 2008, Southern Company and its utility partners applied to receive federal loan guarantees to construct two 1,100 MW Westinghouse AP1000 reactors (reactors 3&4) at Southern Co.’s Plant Vogtle near Waynesboro, Georgia. Yet, the two reactors are on a troubled trajectory:

• Reactors 3&4 were initially estimated to cost more than $14 billion and come online in 2016 and 2017, respectively. However, construction delays and pending lawsuits have already pushed the project’s commercial operating dates back to 2018 and 2019 and could cause significant increases in project costs.

• In a February 2013 report to the Georgia Public Service Commission, Georgia Power (subsidiary of the Southern Company) requested approval for additional project costs totaling $737 million. Today, the combined estimate of project costs from the project partners has reached nearly $15.5 billion.

• Westinghouse and the Shaw Group-the two contractors hired to construct Southern’s two new units- have filed suit against Southern Co. and its partners seeking $930 million for the costs of project design changes. As of September 2013, litigation is pending. If the project’s utility partners lose the lawsuit, project costs could rise even higher to $16.5 billion.

All of this points to an uncertain future for Vogtle, and one that is filled with delays and additional costs.

The writing is on the wall: Wall Street has it right; investing in the Vogtle nuclear reactor project is risky business, and U.S. taxpayers should not be made into the suckers left holding the bag.”

ABOUT TCS

Taxpayers for Common Sense is a 501(c)(3) non-partisan budget watchdog serving as an independent voice for American taxpayers. The mission of TCS is to achieve a government that spends taxpayer dollars responsibly and operates within its means. The organization works with individuals, policymakers, and the media to increase transparency, expose and eliminate wasteful and corrupt subsidies, earmarks, and corporate welfare, and hold decision makers accountable.

CONTACT: Ailis Wolf, (703) 276-3265, or aawolf@hastingsgroup.com.

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