Three years ago, the Obama administration offered the biggest federal loan guarantee deal it's promised to date for an energy project, committing over $8.3 billion in taxpayer funds to help the Atlanta-based Southern Co. and partners build two nuclear reactors at its Georgia Power subsidiary's Plant Vogtle near Augusta, Ga.
Shortly after the February 2010 announcement, the watchdogs at the Southern Alliance for Clean Energy (SACE) submitted a Freedom of Information Act (FOIA) request to the Department of Energy to learn more about the Vogtle deal -- and encountered an administration reluctant to disclose details.
"DOE fought tirelessly to keep much of the information about the deal private," reports Mindy Goldstein, director of the Turner Environmental Law Clinic at Atlanta's Emory University, which helped SACE with the FOIA request.
Following repeated requests and litigation, DOE finally released a cache of hundreds of documents produced from June 2008 through July 2012, which SACE has posted in an online library available to the public.
Many of the materials are heavily redacted, making it difficult to piece together an understanding of the deal, which still has not been formally accepted by the borrowers. So SACE commissioned an analysis by Synapse Energy Economics and Earth Track, two Cambridge, Mass.-based consulting firms that specialize in energy financing.
They released their report this week, and it holds a number of troubling findings:
* Political appointees were involved in setting the terms of the Vogtle loan guarantees. One email referenced communication about the loan guarantees between the Nuclear Energy Institute, an industry lobby group, and the White House (though the report points out that this does not necessarily mean the president himself). Another email said the White House, not DOE, would "deal" with The Shaw Group, the Louisiana-based company building the reactors. Others indicate that former Energy Secretary Steven Chu discussed details of the guarantees with Georgia Power and MEAG, a consortium of public power systems that's a partner in the Vogtle project.
Documents also indicate there were discussions about the deal "at the political level" of the Treasury Department as well as extensive negotiations -- heavily redacted in the released documents -- between Georgia Power and the Departments of Energy and Labor about whether the prevailing wage requirements of the Davis-Bacon Act apply to the Vogtle project. While paperwork spelling out the terms of the deal from February 2010 has a clause requiring compliance with the law, the report found that "other e-mails indicate that at least GPC [Georgia Power Co.] received some exemptions."
"Political interference increases fiscal risks because political pressure can supplant economic and financial assessments in driving funding decision and terms," the report says.
* Credit subsidy payments appear inadequate to protect taxpayers in the event of default. Building new nuclear reactors is a high-risk endeavor subject to significant cost overruns (at least $1 billion so far for the Vogtle project), delays, and even cancellation -- which is why private lenders have proven reluctant to get involved. But despite these substantial risks, the analysis found that DOE's loan guarantees for the Vogtle project are structured much like routine infrastructure investments.
"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," the report says. While DOE offered substantially higher credit subsidy fees to the other partners in the project, MEAG and Oglethorpe Power, they are still not protective of taxpayers.
In addition, released emails indicate that credit subsidy values were issued to borrowers before the model was finalized, and that borrowers may have been given access to the analytic models DOE used for its calculations.
"These communications call into question the quality of the credit subsidy values presented to borrowers, and likely weaken DOE's negotiating position to tighten terms later," the report warns.
* DOE may lack the tools and expertise needed to properly assess the project's risks. The analysis by Synapse and Earth Track found that all of the key tools used to assess the risks of the Vogtle project were developed and held by private companies. The outsourcing of the risk analysis raises questions about whether the public interest was adequately considered. In addition, the extensive redactions in the documents of discussions around credit subsidy models make it impossible to review the validity of assumptions or results, the report notes.
The Vogtle deal is the first offered since 2005 when Congress set aside $17.5 billion in loan guarantees to help restart nuclear construction in the United States following a 30-year global decline in the industry due in part to the 1979 Three Mile Island nuclear meltdown in Pennsylvania. Interested in reducing reliance on fossil fuels in an effort to curb greenhouse gas pollution, the Obama administration later proposed expanding available nuclear loan guarantees to $50 billion.
SACE points out that the amount of taxpayer dollars at stake in the Vogtle deal is 16 times the value of the $535 million loan guarantee DOE gave Solyndra, the California-based solar panel maker that declared bankruptcy after taking the money. The ensuing political scandal over that failed deal became an issue in last year's presidential race as Republican candidate Mitt Romney criticized President Obama for supporting the company.
But despite its far higher stakes, the Vogtle deal has gotten little scrutiny to date -- though SACE hopes its report will change that. The Knoxville, Tenn.-based watchdog group anticipates the Vogtle loan guarantees could be finalized as soon as this June, though Southern Co. has reportedly been looking into private financing options.
"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," says SACE Program Director Sara Barczak.