Taxpayers for Common Sense has been critical of the Loan Guarantee Program since its inception in 2005 and we are pleased that Congress held a hearing to discuss it. We urge the Committee to have more hearings to address the worrisome taxpayer risk and the concerns that several reviews of the program have raised.

Members of the Subcommittee were particularly focused on how the recent events at the Fukushima Daiichi Nuclear Power Plant in Japan might affect the Loan Guarantee process for issuing loans to build nuclear power plants. Because the Loan Guarantee Program is primarily a financing institution, Mr. Silver said that they would work with other agencies, like the Nuclear Regulatory Commission, to closely examine the technologies they fund, but that he had no expectation that nuclear projects currently being considered for a loan would slow down. This is despite the fact that one of the nuclear projects currently under review, a plant referred to as South Texas , would be partly funded by Tokyo Electric Power Company, the same company that owns Fukushima Daiichi and is responsible for the release of radioactive material into the ocean after a tsunami struck that plant on March 11. Silver noted that the goal for the Loan Guarantee Office is to fund 6-8 nuclear projects with over $50 billion in authority (only $18.5 billion of which has been approved by Congress so far). This is in line with the President’s request to increase the program by $36 billion.

Potentially a huge problem for taxpayers, Mr. Silver reacted positively to the suggestion by some members that the Loan Guarantee Office could potentially give “contingent conditional commitments” to nuclear companies. This means that, because the Loan Guarantee Program has more nuclear projects seeking funding than they have authority to loan, they might offer a conditional commitment to a nuclear power company that was contingent upon Congress passing more nuclear loan authority, if there was such a “package ready to go.” Mr. Silver was not aware of any legal issues that might prevent his office from offering these sorts of contingent agreements, though he said no such projects fit that description currently. This could effectively lock taxpayers into agreements for loan guarantees for which Congress has not appropriated any authority.

Other areas of concern for the Congressmen included whether or not the Loan Guarantee Program would crowd out private investment, what Rep. Simpson (R-ID) contested was a “constipated” rate at which loans are being awarded, and what would happen if the program were defunded in some ways, as was proposed under House Resolution 1 . This House bill would reduce loan guarantee authority by $25 billion, but that would still leave more than $25 billion on the table, $18.5 billion of which would remain for nuclear projects and $2 billion for uranium enrichment. The bill would also terminate the renewable and energy efficiency loan guarantee subsidy costs appropriated under the stimulus.

Unfortunately, no Members present at the hearing seriously raised the myriad of problems associated with the Loan Guarantee Program. The Department of Energy Inspector General recently released a report finding significant problems with the program and their inability to “readily demonstrate how it resolved or mitigated relevant risks prior to granting loan guarantees.” The program also has underestimated program costs, high default risks, and a significant lack of transparency.