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NUCLEAR POWER’S FEDERAL LOAN GUARANTEES:

THE NEXT MULTIBILLION-DOLLAR BAILOUT?

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

APRIL 20, 2010

Serial No. 111–138

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

JIM COOPER, Tennessee

PATRICK J. KENNEDY, Rhode Island

PETER WELCH, Vermont

BILL FOSTER, Illinois

MARCY KAPTUR, Ohio

JIM JORDAN, Ohio

MARK E. SOUDER, Indiana

DAN BURTON, Indiana

MICHAEL R. TURNER, Ohio

JEFF FORTENBERRY, Nebraska

AARON SCHOCK, Illinois

JARON R. BOURKE, Staff Director

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C O N T E N T S

Page

Hearing held on April 20, 2010 .............................................................................. 1

Statement of:

Bradford, Peter, former member, U.S. Nuclear Regulatory Commission,

former chairman, New York State Public Service Commission, former

chairman, Maine Public Utilities Commission, adjunct professor, Vermont Law School; Arjun Makhijani, president, Institute for Energy

and Environmental Research; Jack Spencer, research fellow in nuclear

energy, Thomas A. Roe Institute for Economic Policy Studies, the Heritage Foundation; and Leslie Kass, senior director of business policy

and programs, Nuclear Energy Institute .................................................... 11

Bradford, Peter .......................................................................................... 11

Kass, Leslie ................................................................................................ 39

Makhijani, Arjun ....................................................................................... 21

Spencer, Jack ............................................................................................. 22

Cooper, Mark, senior fellow for economic analysis, Institute for Energy

and the Environment, Vermont Law School; Henry Sokolski, former

Deputy for Nonproliferation Policy, Office of the Secretary of Defense,

president and executive director, Nonproliferation Policy Education

Center; Richard Caperton, policy analyst, Center for American

Progress; Michael D. Scott, managing director, Miller Buckfire & Co.,

LLC; and Christopher Guith, vice president of public policy, U.S.

Chamber of Commerce ................................................................................. 72

Caperton, Richard ..................................................................................... 139

Cooper, Mark ............................................................................................. 72

Guith, Christopher .................................................................................... 170

Scott, Michael D. ....................................................................................... 152

Sokolski, Henry ......................................................................................... 92

Letters, statements, etc., submitted for the record by:

Bradford, Peter, former member, U.S. Nuclear Regulatory Commission,

former chairman, New York State Public Service Commission, former

chairman, Maine Public Utilities Commission, adjunct professor, Vermont Law School, prepared statement of ................................................... 15

Caperton, Richard, policy analyst, Center for American Progress, prepared statement of ........................................................................................ 141

Cooper, Mark, senior fellow for economic analysis, Institute for Energy

and the Environment, Vermont Law School, prepared statement of ....... 75

Guith, Christopher, vice president of public policy, U.S. Chamber of Commerce, prepared statement of ...................................................................... 173

Issa, Hon. Darrell E., a Representative in Congress from the State of

Ohio, prepared statement of ........................................................................ 48

Kass, Leslie, senior director of business policy and programs, Nuclear

Energy Institute, prepared statement of .................................................... 41

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio:

Article dated March 11, 2010 ................................................................... 66

Prepared statement of ............................................................................... 4

Scott, Michael D., managing director, Miller Buckfire & Co., LLC, prepared statement of ........................................................................................ 154

Sokolski, Henry, former Deputy for Nonproliferation Policy, Office of

the Secretary of Defense, president and executive director, Nonproliferation Policy Education Center, prepared statement of .................. 95

Spencer, Jack, research fellow in nuclear energy, Thomas A. Roe Institute

for Economic Policy Studies, the Heritage Foundation, prepared statement of ........................................................................................................... 25

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NUCLEAR POWER’S FEDERAL LOAN GUARANTEES: THE NEXT MULTIBILLION-DOLLAR

BAILOUT?

TUESDAY, APRIL 20, 2010

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:07 p.m., in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Cummings, Welch, Foster,

Jordan, Issa, and Towns (ex officio).

Staff present: Jaron R. Bourke, staff director; Jean Gosa, clerk;

Charisma Williams, staff assistant; Ron Stroman, chief of staff, full

committee; Leneal Scott, IT specialist, full committee; Lawrence

Brady, minority staff director; Adam Fromm, minority chief clerk

and Member liaison; Stephanie Genco, minority press secretary

and communication liaison; Christopher Hixon, minority senior

counsel; and Brien Beattie and John Ohly, minority professional

staff members.

Mr. KUCINICH. Thank you very much for being here. The Domestic Policy Subcommittee of the Oversight and Government Reform

Committee will now come to order. Today’s hearing is the first of

several Domestic Policy Subcommittee hearings on the topic of the

$54 billion loan guarantee program for a new wave of nuclear

power plants. Today the subcommittee will hear from nongovernmental proponents and critics of the Federal loan guarantee program. Without objection, the chair and ranking member will have

5 minutes to make opening statements, followed by opening statements not to exceed 3 minutes by any of the Members that seeks

recognition.

Without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials for

the record.

American taxpayers have very recent experience with the cost of

bailing out businesses. Today’s hearing evaluates the likelihood

that taxpayers will be saddled with a new bailout. This time the

bailout would be for the nuclear power industry.

During the 1970’s and the 1980’s, economics halted the spread of

the nuclear power industry. Cost overruns in building nuclear

power plants averaged more than 200 percent. Utilities abandoned

100 plants during construction, around half the plants they had

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planned. Taxpayers and ratepayers reimbursed utilities for most of

the more than $40 billion cost of these abandoned plants. Ratepayers bore well over $200 billion in cost overruns for completed

nuclear plants. In 1985, Forbes Magazine called this, ‘‘the largest

managerial disaster in business history, a disaster on a monumental scale.’’

Now, the nuclear industry wants to have a renaissance. They assert that new technologies and standardized plant designs will

produce results that are totally different from their prior history of

mismanagement, cost overruns and taxpayer or ratepayer bailouts.

They say that the cost of planned construction will be lower, that

there will be no cost escalations or construction delays, and that

the problem of disposal of nuclear waste will be resolved.

Well, Wall Street isn’t buying it. The nuclear industry can’t get

private capital to fund its rebirth. So to have any comeback, they

need tens of billions of dollars in Federal loans and Federal loan

guarantees backed by American taxpayers. The government appears ready to provide it. On June 30, 2008, the Department of Energy asked for applications for $181⁄2 billion in loan guarantees for

nuclear plant construction. The current administration is seeking

to triple that amount to $541⁄2 billion. The Department of Energy

announced its first nuclear loan guarantee on February 16, 2010,

an $8.3 billion loan guarantee to the Southern Co. for construction

for two reactors in Georgia.

Not to worry. The nuclear industry and the U.S. Department of

Energy say the risks to taxpayers are low. However, the Congressional Budget Office estimated in 2003 that a nuclear power plant

project would have a, ‘‘well above 50 percent,’’ chance of defaulting

on its loan guarantee. And that was for a plant that was estimated

then to cost only $21⁄2 billion, with only 50 percent of that cost covered by a loan guarantee. Cost estimates increased substantially

after the CBO report in 2003, and Standard & Poor’s predicted on

October 15, 2008, that the construction costs of nuclear power

plants would soar even further. Moody’s has referred to the construction of a new nuclear power plant as a ‘‘bet-the-farm’’ investment for most companies.

The purpose of this hearing is to determine whether taxpayer-financed loan guarantees for a nuclear power plant are necessary to

jump-start the nuclear renaissance, whether they are being priced

correctly, and whether they are likely to create a multibillion-dollar

liability for the taxpayer and a multibillion-dollar bailout for the

nuclear industry.

As my Republican colleagues have pointed out in their February

3, 2010, policy brief, ‘‘While loan guarantees can help utilities with

near-term financing, they also create taxpayer liabilities, dole out

preferential treatment and distort capital markets.’’ We will hear

today from witnesses from all parts of the political spectrum,

Democrats and Republicans, conservatives, moderates, liberals.

Finally, a source for a March 5, 2010, article in the Los Angeles

Times described the situation the subcommittee is examining in

the following way: ‘‘Consider buying a car. The salesman has a long

history of telling lies, covering up mistakes and breaking promises.

He is trying to sell you a car that doesn’t exist yet, so he is not

sure what it will look like. It is likely to cost at least two, maybe

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three times what it says on the sticker. It almost certainly will

take much longer to deliver it than he says it will. So the question

before us: Why would anybody buy that car?’’

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. KUCINICH. The chair recognizes Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman. Thank you for holding

this hearing.

When I travel around our district and our State talking about

the future of our country, the issue of energy always comes up, and

I like to frame it like this. Americans instinctively know that the

world is a better place when America leads. We can lead economically, militarily only if we have access to reliable and affordable

sources of energy. That is why I’m an advocate for a commonsense,

‘‘all of the above’’ American energy solution.

Everyone here agrees that Americans need cost-effective energy,

especially in these tough economic times. Unfortunately, some of

my friends on the other side of the aisle take a position on energy

policy that is unrealistic at best and disingenuous at worst. On the

one hand, they tell us we have to reduce carbon emissions or the

sky will fall because of man-made global warming. On the other

hand, they impose such draconian regulatory burdens on building

new nuclear power plants, the only zero carbon source we have,

that no nuclear power plant has been approved in over 30 years.

At the same time, they continue to pour billions of dollars we don’t

have into windmills and solar panels that alone cannot deliver the

energy we need.

We cannot power our lives and our economy relying solely on

sources of power like windmills and solar panels. Even this Congress can’t pass a law that makes the wind blow or the sun shine.

Does this mean that wind and solar should not be part of the energy mix in the country? Not at all. We need an affordable energy

that is available around the clock. We need an ‘‘all of the above’’

energy policy where consumers, businesses and the free market,

not bureaucrats and politicians in Washington, make energy

choices.

I am skeptical of all government subsidies because I don’t think

Washington has the wisdom or, frankly, the ability to pick the

right solutions for our Nation’s energy needs. That’s what the free

market does so well. I do not want the arrogance and the abuse

of power we saw with the government takeover of health care turn

into the blueprint for restructuring the energy sector of our economy.

The real reason we are here today is because some people are

ideologically opposed to nuclear power, and the only reason these

loan guarantees exist is to offset the cost of burdensome regulation

that has been imposed by those who seek to impose their agenda

on America’s energy future. The best thing we can do as legislators

is to clear away the thicket of regulations and subsidies that frustrate the market’s ability to find the right mix of affordable energy

solutions that our country needs. The solution, quite simply, is less

hubris, less government and more humility from Washington politicians.

Thank you, Mr. Chairman. I yield back our time.

Mr. KUCINICH. I thank the gentleman. For those that just joined us, the topic of the hearing is the $54

billion loan guarantee program for a new wave of nuclear power

plants.

The chair recognizes Mr. Foster.

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Mr. Issa.

Do you want to check in the cloakroom? OK. Fine. OK.

If there are no more opening statements, I’m pleased to announce that the subcommittee will now receive testimony from the

witnesses who are before us. I want to start by introducing our

first panel. Mr. Peter Bradford is a former member of the U.S. Nuclear Regulatory Commission, former chairman of both the New

York State Public Service Commission and the Maine Public Utilities Commission. He currently chairs Vermont’s public oversight

panel on the reliability of the Vermont Yankee nuclear power

plant. He was a member of the 2007 Keystone Center Collaborative

on Nuclear Power and Climate Change and the 2006 National

Academy of Sciences panel evaluating alternatives to continued operation of New York’s Indian Point nuclear plants. And he has also

advised several international bodies on nuclear issues. He is a

graduate of Yale University and Yale Law School.

Welcome, Mr. Bradford.

Next is Dr. Arjun Makhijani. He is the president of the Institute

for Energy and Environmental Research. He earned his Ph.D. in

nuclear fusion at the University of California in Berkeley. He is the

author of numerous books and studies, including, ‘‘Carbon Free and

Nuclear Free: A Roadmap for U.S. Energy Policy.’’ That was in

2007. He is a fellow of the American Physical Society and has

served as a consultant to the Tennessee Valley Authority, Lawrence Berkeley Laboratory and several agencies of the United Nations.

Welcome, Dr. Makhijani.

Mr. Jack Spencer is a research fellow in nuclear energy at the

Heritage Foundation’s Roe Institute for Economic Policy Studies,

where he concentrates on subsidy policies, technology issues and

nuclear waste management. Previously Mr. Spencer worked at the

Babcock & Wilcox Companies on commercial, civilian and nuclear

energy issues, and that would be military nuclear energy issues.

Thank you for being here.

Finally for this panel, Ms. Leslie Kass. Ms. Kass is senior director of business policy and programs of the Nuclear Energy Institute, where she is responsible for developing and managing programs related to the business and financial aspects of the nuclear

industry. Ms. Kass has 17 years in the industry, having worked for

utilities and a uranium enrichment company. She holds a bachelor’s degree in materials science and engineering from MIT and an

MBA from Duke University’s Fuqua School of Business.

I want to thank all of the witnesses for appearing before the subcommittee. It is the policy of the Committee on Oversight and Government Reform to swear in our witnesses before they testify. I

would ask that you please rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Thank you very much.

Let the record reflect that each of the witnesses answered in the

affirmative.

I would ask each witness to give a brief summary of your testimony, and to please keep this summary under 5 minutes in duration. Your entire written statement will be included in the record.

And I am grateful for your presence here.

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Mr. Bradford, you will be our first witness on the panel. You may

proceed.

STATEMENTS OF PETER BRADFORD, FORMER MEMBER, U.S.

NUCLEAR REGULATORY COMMISSION, FORMER CHAIRMAN,

NEW YORK STATE PUBLIC SERVICE COMMISSION, FORMER

CHAIRMAN, MAINE PUBLIC UTILITIES COMMISSION, ADJUNCT PROFESSOR, VERMONT LAW SCHOOL; ARJUN

MAKHIJANI, PRESIDENT, INSTITUTE FOR ENERGY AND ENVIRONMENTAL RESEARCH; JACK SPENCER, RESEARCH FELLOW IN NUCLEAR ENERGY, THOMAS A. ROE INSTITUTE FOR

ECONOMIC POLICY STUDIES, THE HERITAGE FOUNDATION;

AND LESLIE KASS, SENIOR DIRECTOR OF BUSINESS POLICY

AND PROGRAMS, NUCLEAR ENERGY INSTITUTE

STATEMENT OF PETER BRADFORD

Mr. BRADFORD. Thank you, Mr. Chairman, members of the committee.

Without concern over climate change, the 30-year verdict of U.S.

power markets that new nuclear reactors were too expensive and

too economically risky would remain undisturbed. Instead, some

now assert that a massive effort to build new reactors by having

taxpayers and customers——

Mr. KUCINICH. Do you want to bring that mic a little bit closer?

A little bit more. People can’t hear you in the back.

Mr. BRADFORD [continuing]. Take the risks that investors and

lenders are refusing to assume will reduce climate change. The opposite is true. Such an undertaking will undermine the fight

against climate change by diverting money and attention from the

resources that offer much larger atmospheric pollution reductions

much sooner and less expensively.

One must begin by understanding the reason that new nuclear

plants have not been built in the United States for decades. It has

nothing to do with the U.S. reactor licensing or regulatory processes, which licensed more plants than the next several countries

combined. It has everything to do with cost and with risk. Competitive power procurement as adopted in free-market economies over

the last 25 years shifts the economic risk of all new power plant

construction, risks such as plant cancellations, cost overruns and

emergence of cheaper competitors, from the customers to investors

and lenders. Aware that each of these risks had hit the nuclear industry hard in the recent past, investors and lenders would not put

their own money at risk by committing to competitive prices and

delivery schedules for new reactors.

Loan guarantees are the centerpiece of the present effort to reverse the successful 30-year evolution of competitive power markets by shifting the risks to taxpayers. But loan guarantees do not

lower any actual costs in the way that cheaper steel or concrete

would do. For example, the savings that the recently announced

$8.3 billion loan guarantee appeared to produce for Georgia’s proposed Vogtle reactors are offset by a new taxpayer risk exposure

of almost $100 taken on by every family in America. And every additional $10 billion in taxpayer-backed loan guarantees will add another $100 to this exposure.

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At its peak in 2008, the nuclear renaissance consisted of 23 existing and projected applications for 34 new reactors. Since 2008, reality has set in. Nuclear cost estimates have risen, demand has

fallen, as have the cost estimates for most major alternatives. Several nuclear projects have been canceled outright. Most of the remaining 16 applications for 24 reactors have experienced combinations of major cost overruns and major delays. Most, indeed probably all, of these reactors will not be built without loan guarantees.

The economic and political impact of trying to charge the full cost

to the customers is just too great. Customer backlash in Florida

and in Texas has already demonstrated this.

By way of response to the subcommittee questions directed to

me, I will summarize as follows. First: Are the cost overruns in the

construction of nuclear power plants a thing of the past or a

present-day problem? While we have no current U.S. nuclear construction experience on which to base an answer; however, the trebling of U.S. nuclear cost estimates in less than a decade is not encouraging. Experience in Newfoundland and in France with the design that Areva proposes for Maryland’s Calvert Cliffs, a loan guarantee finalist, is also not encouraging. In Finland the Areva reactor, originally scheduled to be on line last summer, has doubled

Areva’s cost estimate and fallen at least 3 years behind a 4-year

schedule.

Some Asian nations claim more success in building to schedule

and budgets. Energy Secretary Steven Chu asserts that if the proposed loan guarantees result in plants that come on line on time

and on budget, private capital for new nuclear will then become

available. But this is wrong. Today’s ‘‘on budget’’ is so high in relation to the price of alternatives to the prices projected in our power

markets and to the price of energy efficiency that even if new U.S.

reactors come on line on budget, the financial community will not

invest.

Second: Do we currently have such a demand for electric power

that we need to rush into construction of multiple nuclear plants?

The United States has little or no demand for wholesale electric

power, and new nuclear is forecast at a 12 to 20-cent-per-kilowatthour price range. If we make wise use of far less expensive energy

efficiency, renewables and natural gas, we will not face electricity

shortages, even if we adopt policies that put a meaningful price on

greenhouse gas reductions.

Third: Do increased loan guarantees for nuclear power plants

misdirect resources? Yes. Those who argue that we have to subsidize many new reactors along with all of the alternatives ignore

the economic reality of limited resources and the fact that new nuclear reactors cannot produce near-term greenhouse gas reductions.

Furthermore, I can attest from my own experience regulating in

Maine and New York that entities in States committed to building

large nuclear projects will deemphasize and even resist alternative

sources. One need only look at New Hampshire’s 1980’s resistance

to Hydro-Quebec Power where the opposition of Maine utilities to

renewable cogeneration and energy efficiency while the region’s

utilities struggled to finish Seabrook and Millstone 3 to see this effect clearly. The same was true in New York while Shoreham and

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Nine Mile Point 2 preoccupied the State’s utilities, and the same

is true in Florida today.

However, the problem of misdirected resources is much broader

than this. Loan guarantees do not create new capital; they merely

create a favored class of borrowers who will have easier access to

the available capital than will all other would-be borrowers. Murray Weidenbaum, who was later chairman of President Reagan’s

Council of Economic Advisors critiquing the failed program to manufacture synthetic fuel from coal many years ago, noted a basic

function that credit markets are supposed to perform is that of distinguishing credit risks and assigning appropriate risk premiums.

This function is the essence of resource allocation by credit markets. As an increasing proportion of issues coming to credit markets bears the guarantee of the Federal Government, the ability of

the market to differentiate credit risks inevitably diminishes.

Fourth: Will the proposed Clean Energy Deployment Administration adequately deal with the risk of defaults? The answer is not

as presently written. The Senate version of CEDA, because it has

the potential to underwrite unlimited nuclear loan guarantees, is

particularly problematic. Secretary Chu recently estimated that the

price to be charged for a loan guarantee would range between half

of 1 percent and 11⁄2 percent of the face value of the guarantee. For

the conditional loan guarantee recently approved for the Vogtle

units, this would mean that the average family would receive between 50 cents and a $1.50 for its $100 exposure.

Other estimates of a reasonable credit subsidy fee are considerably higher. For example, the Congressional Budget Office estimated 30 percent in 2003, Standard & Poor’s estimated 4 to 6 percent. The Center for American Progress recently did an analysis

concluding that the payment should be 10 percent. Underpricing of

risk is, of course, a root cause of the current financial crisis.

To make matters worse, the Department of Energy apparently

intends to keep secret the credit subsidy fee charged to each guaranteed recipient. The people disadvantaged by this secrecy will be

first the public, who will not be able to quantify the extent to which

DOE has exposed American families to uncompensated risk; second, builders of other forms of power generation and energy efficiency, who will not be able to prove what now seems very likely,

that DOE intends to charge less for guarantees to highly risky nuclear ventures than it will charge for loan guarantees to more secure renewable and solar ventures; third, State utility regulators,

who may be unable to set rates based on actual costs since loan recipients may allege that they cannot disclose these costs in a public

forum.

In conclusion, whatever the appeal of offering a limited number

of loan guarantees to a few first mover plants, meaning six or

seven, as part of a bargain that succeeds in passing a meaningful

cap-and-trade program, the discussion of loan guarantees in Congress seems to have spun far outside of that orbit. A larger commitment would proclaim new reactors to be a climate change winner

when all meaningful economic evidence is to the contrary. It would

put energy and climate policy at the service of nuclear power.

Sound public policy works the other way around.

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Thank you very much.

[The prepared statement of Mr. Bradford follows:]

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Mr. KUCINICH. Dr. Makhijani.

STATEMENT OF ARJUN MAKHIJANI

Mr. MAKHIJANI. Thank you, Mr. Chairman. I really appreciate

the opportunity to testify before you. And I just want to take this

personal opportunity to thank you for reading my book, ‘‘Carbon

Free, Nuclear Free,’’ and for making it part of your Presidential

campaign. Thank you very much.

You asked me six questions, and I will just go question by question and summarize my testimony along those lines. The first question was, why won’t Wall Street invest in nuclear power plants,

and why does Moody’s call them ‘‘bet-the-farm’’ investments?

Now, I will just give you some examples. Starting with a quote

from the CEO of General Electric, Mr. Immelt, he was quoted in

the Financial Times as saying, if you were a utility CEO and

looked at your world today, you would just do gas and wind. You

would say they are easier to site, digestible today, I don’t have to

bet my company on any of this stuff. You would never do nuclear.

The economics are overwhelming.

Now, he was promoting loan guarantees because you couldn’t do

nuclear without betting the company. What does ‘‘betting the company’’ mean? Let us take some examples. Progress Energy wants

to build two reactors in Florida with estimated costs of $17 billion.

Now, these are company estimates. Progress Energy’s market capitalization when I wrote this testimony last month was $10.85 billion. That is, the cost of the project is a lot more than the market

capital of the company. Florida Power, a little bit better. Its price

tag is $14 billion for two reactors, and its market capitalization last

month was $19.41 billion, but still quite close to the market capitalization of the company. If you look at CPS Energy, which is one

of the country’s largest publicly owned utilities, a municipal utility

for the city of San Antonio, its entire assets, gas, electric, buildings,

transmission, distribution, the net value of those assets at the end

of its last fiscal year in January 2009 was $6.4 billion. And it had

at one time 50 percent of two reactor projects in south Texas, and

that 50 percent, one reactor, is now estimated costs of $9.1 billion,

quite a bit more than the net worth of the whole company on the

books, on its own books.

Now, Wall Street has flatly refused to finance these projects.

There are three problems. It is not just the high cost; it is the long

lead time compared to alternatives, which also compounds the risk.

And it is the large unit size, which also compounds the risk.

And I just would like to add that Mr. Bradford mentioned that

nuclear would squeeze out alternatives, and one reason it squeezes

out alternatives is that when you put more than the value of your

company on one project, and that project isn’t going to return a dollar to you for 8 or 10 years, you can’t afford to put another comparable investment in anything else.

Now, in Florida, ratepayers are paying in advance for these reactors without any assurance that they are going to get any electricity in return. The legislature there passed a construction work

in progress law. And it is not just home-owning ratepayers that are

protesting; businesses are also protesting. Here is what the Washington Post said: Utilities advance payments are consumer losses,

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and businesses such as Georgia Industrial Group and Georgia Textile Manufacturing have joined consumer and environmental

groups in combating State laws and higher rates.

Now, the four reactors in Florida are in some question as a result

of this ratepayer protest, including ratepayers—business ratepayers who are not against nuclear power. They just say, ‘‘We don’t

want to pay in advance,’’ and they have no guarantee they are

going to get anything for this money. It is like giving a builder an

advance to build you a house, but you have no contract that says

they are actually going to build it and give you the keys. If they

abandon the project halfway, you will have no recourse.

Now, the San Antonio case is actually very interesting because

the city spent—the city’s utility spent about $370 million on paperwork and initial engineering. They don’t have a price, a final price.

They won’t have a final price until 2012. And the part—its partners, NRG Energy and Toshiba, were 50/50 initially in this project.

There was an alleged cover-up of the cost overruns. Initially the

company had said $5.4 billion and then $6 billion and then $7 billion when I arrived on the scene in San Antonio in March 2008.

When I assessed the project, I felt the cost would be between $12

and $17 billion in round numbers, as you have said, Mr. Chairman,

two to three times what the company said at the time. By last fall

it seemed clear that their cost estimate was going to be something

like $18 billion, a little bit more than my high end. Now the project

is in something of a mess because CPS Energy wants to withdraw.

You asked me about new reactor designs.

Mr. KUCINICH. I would just ask the gentleman if you could wrap

up your testimony and then maybe we could get to some of the

other points in the questioning period.

Mr. MAKHIJANI. Sure. Should I wrap it up now, or do you want

me to go over——

Mr. KUCINICH. If you would make the last point you wanted to

make, and then we will have to move on.

Mr. MAKHIJANI. OK. The last couple of points are that there is

no reactor that we have that is proposed to be built that is fully

certified as of now because the certified reactors have design modifications they’ve asked for. And I would say that 3 or 4 years ago,

I believed that it would be impossible—essentially it was an educated guess to make a renewable energy system in this country,

and I changed my mind when I did the research. That is why I

wrote my book, ‘‘Carbon Free, Nuclear Free.’’ I believe it is possible

to do an economical energy system, and I have debated nuclear energy and nuclear power performance on this numerous times since

my book was published.

Mr. KUCINICH. Thank you, Dr. Makhijani.

And members of our committee will have an opportunity to get

your questions, and some of the other points you wanted to make

I’m sure you will be able to get in.

The chair recognizes Mr. Spencer. Thank you for being here. You

may proceed.

STATEMENT OF JACK SPENCER

Mr. SPENCER. Chairman Kucinich, Ranking Member Jordan——

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Mr. KUCINICH. Would you pull that mic a little bit closer so we

can all hear you? Thanks.

Mr. SPENCER. My name is Jack Spencer, and I’m a research fellow for Nuclear Energy Policy at the Heritage Foundation. The

views I express in this testimony are my own and should not be

construed as representing any official position of the Heritage

Foundation.

A limited loan guarantee program can help overcome some nearterm financing obstacles, but President Obama’s expansion could

transform a limited program into a broader one that threatens to

institutionalize both the existing systemic challenges as well as inefficiencies that subsidies ultimately create.

By subsidizing a portion of the actual cost of a project, nuclear

or otherwise, through a loan guarantee, the government is actually

distorting the allocation of resources by directing capital away from

more competitive projects.

These subsidies have four market-distorting properties that I

would like to discuss. First, the loan guarantee artificially discounts the cost to build a project, which allows the recipient’s

project to be market viable at a point where it otherwise would not

be. This allows the recipient to focus on other measures, even securing the next subsidy, rather than addressing cost-inflating

issues.

Second, this artificial price reduction removes the incentive to

look for less expensive or more competitive options. It also hurts

competition within the nuclear industry. A utility that cannot afford a large subsidized reactor might be able to afford multiple

smaller ones. This would create competition, and the subsidized

technologies would either have to reduce costs or lose market

share.

Third, a major problem facing nuclear power in the United

States is not that it lacks subsidies, but that the regulatory environment does not promote growth, innovation or competition. Regulatory reforms could substantially reduce the investor risk, which

would be reflected in lower financing costs. Guaranteeing the loans

reduces near-term pressure to fix this ongoing problem.

And finally, they suppress private-sector financing solutions.

Companies routinely invest in projects with substantial risks without government loan guarantees. Finding a way to develop an investment is at the heart of free enterprise, but loan guarantees distort this process and remove the incentive to come up with better

long-term solutions.

If loan guarantees are expanded, they must be coupled with reforms and conditions. Any expansion of the loan guarantee program should be accompanied by the following five conditions, which

would help reduce their market-distorting effects, protect the taxpayer, and ensure a strong, market-viable nuclear industry in the

long term.

First, end loan guarantees and capital subsidy programs. Stopping the program at $541⁄2 billion in total loan guarantees, which

is the President’s total, would at least limit the damage and provide a deadline whereby industry and government must have resolved their outlying issues.

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Second, ensure that the recipients pay the full cost of the subsidy. While the President’s budget did not request funds to pay for

the subsidy cost, legislation introduced over the past year has. This

should be avoided. An accurate financial assessment should provide

a market incentive to reform the policies that give rise to the risks

to begin with. This will occur, however, only if the true cost of the

subsidy is assessed, and if guarantee recipients are responsible for

paying that cost.

Third, make recipients privately refinance within 5 years of

project completion. Rather than a long-term financing option, the

loan guarantee program should be viewed as a bridge program to

protect investors against project failure during its most vulnerable

stages. Upon completion, loan recipients should privatize liability

by refinancing without support of additional taxpayer backing.

Fourth, limit loan guarantees to no more than two plants of any

reactor design. Completing the permitting process for two plants

that share a single reactor design should be sufficient to establish

regulatory integrity. This condition would also ensure that no one

reactor design monopolizes the program, and that Federal regulators diversify their regulatory experience.

And finally, limit to two-thirds of the loan guarantee program

that can support a single technology. Because regulatory support is

a necessary prerequisite to reactor use, and the regulatory environment favors large light water reactors, nuclear investors tend toward this technology as it poses the least regulatory risk. Ensuring

that the subsidy is not consumed by a single reactor type should

help break the regulatory monopoly currently held by light water

reactors by lowering the relative risk of emerging commercial nuclear technologies.

If not subsidies, then what? Whether through the promise of subsidies, regulatory problems, unworkable waste management policies or DOE programs that stifle competition, the current policies

are not working. The following reforms should be pursued instead

of subsidies. Reform the permitting process for new nuclear power

plants. Creating a more efficient and predictable permitting schedule should be a top priority, but that alone is not enough. The NRC

must also be better prepared to regulate reactor technologies beyond large light water reactors.

Waste management policy reform. The current system is driven

by government programs and politics. There is little connection between used fuel management programs, economics and the needs

of industry. Any successful plan must grow out of the private sector

and be driven by sound economics.

And finally, supporting the NRC’s authority to determine the

safety of Yucca Mountain. The NRC should be allowed to review

the Department of Energy’s permit application for the Yucca Mountain repository and determine if it can be constructed and operated

safely.

In conclusion, a true nuclear renaissance cannot be micromanaged from Washington, but with the right free-market policies in

place, nuclear energy has a chance to literally change the world.

That concludes my testimony. I look forward to your questions.

Mr. KUCINICH. Thank you, Mr. Spencer.

[The prepared statement of Mr. Spencer follows:]

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Mr. KUCINICH. Ms. Kass, you may proceed.

STATEMENT OF LESLIE KASS

Ms. KASS. Thank you, Mr. Chairman.

Chairman Kucinich, Ranking Member Jordan and members of

the subcommittee, thank you for your interest in loan guarantees

for the construction of new nuclear power plants to meet our Nation’s energy needs and reduce carbon emissions. I appreciate the

opportunity to speak with you today.

As the President stated last month at the announcement of the

conditional commitment for loan guarantees offered to the Vogtle

nuclear project, ‘‘To meet our growing energy needs, and to prevent

the worst consequences of climate change, we need to increase our

supply of nuclear power.’’ It is that simple. Investing in nuclear energy remains a necessary step. I hope that this announcement underscores both our seriousness in meeting the energy challenge and

our willingness to look at this challenge not as a partisan issue,

but as a far more—matter far more important than politics, because the choices we make will affect not just the next generation,

but generations to come.

To make the necessary transformation to a low-carbon economy

while we upgrade aging energy infrastructure, consensus estimates

show that the electric sector must invest between $11⁄2 and $2 trillion by 2030. This will fund new power plants, transmission and

distribution systems, energy efficiency measures and environmental controls.

To meet the national policy objective of reducing carbon emissions, the public and private sectors must work together to ensure

clean energy is affordable for consumers and businesses alike. By

reducing the cost of capital, the DOE loan guarantee program authorized by the 2005 Energy Policy Act serves the public interest

by accelerating deployment of clean generating technologies at a

lower cost to consumers.

The Federal Government already manages a successful loan

guarantee portfolio of approximately $1.2 trillion, which on balance

returns more to the Treasury than it costs the taxpayer. The Federal Government uses these credit support programs to support

shipbuilding, steelmaking, rural electrification, affordable housing

and many other purposes.

To ensure the protection of the taxpayer’s interest, all projects

seeking DOE loan guarantees will be subject to detailed due diligence and underwriting by a rating agency and the DOE. This due

diligence evaluates the technical, legal and financial attributes of

each project.

The companies building new nuclear power plants will have significant shareholder equity, a billion dollars or more per project at

risk. This equity is in a ‘‘first-loss’’ position, meaning that the company would forfeit that equity in the event of a default. As a result,

the companies seeking loan guarantees for new nuclear power

plants have a powerful incentive to ensure that the projects achieve

commercial success.

The amount of misinformation about nuclear plant construction

and loan guarantees is remarkable. One of the more egregious examples is the continued use of a 50 percent default rate from a

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2003 CBO analysis of a different loan guarantee program that was

never enacted. CBO Director Douglas Elmendorf was moved to explain on March 4th that the 2003 report, ‘‘reflected information

about the technical, economic and regulatory environment as it existed in 2003, almost 7 years ago. Such generalized estimates of

credit risk may not apply to a guarantee for any particular power

plant because of variations in the technical, economic, regulatory,

and contractual characteristics of each project. Without such information, much of which would be proprietary, CBO has no basis for

estimating the cost to the government of any specific loan guarantee of this type.’’

Detailed analysis and historical data demonstrate that the new

nuclear power projects being proposed for DOE loan guarantees

provide a very high degree of lender protection. A realistic analysis

of default probability and recovery rate, based on project specifics,

will produce credit subsidy costs sufficient to protect the taxpayers’

interest. Credit subsidy calculations must be approved by DOE’s

Credit Review Board, the Office of Management and Budget and by

the Treasury Department.

Given the very low probability of losses associated with nuclear

projects, the benefits far outweigh their risks. Electricity consumers will benefit from low-cost, clean energy. Southern Co. projects

that its $3.4 billion portion of the loan guarantees for the two reactors at the Vogtle station would save consumers $15 to $20 million

in interest costs annually. The program will create jobs for American workers. Each plant will generate 1,400 to 1,800 jobs during

construction, with 2,400 at peak; 400 to 700 permanent jobs for

plant operations; and 400 to 700 additional jobs in the community

to support the plant work force. Construction of new nuclear plants

will create demand for commodities like concrete and steel and

hundreds of components, large and small, that benefit American

manufacturers.

In addition to the existing U.S. manufacturing supply base, the

industry is reaching out to manufacturing workshops to help businesses identify the opportunities in new plant construction. For example, over 300 companies from Ohio participated in workshops

just last year.

In conclusion, the nuclear loan guarantee program is an opportunity to build the clean-energy facilities necessary to support our

economy and to put Americans back to work. The analytics show

that the risk of default are small, and, as the President explained,

the benefits cannot be ignored.

Mr. Chairman, thank you again for the opportunity, and I look

forward to your questions.

Mr. KUCINICH. Thank you very much for being here.

[The prepared statement of Ms. Kass follows:]

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Mr. KUCINICH. And I would like to start with a question of you,

Ms. Kass. Department of Energy representatives have been quoted

as saying that the credit subsidy fee that Southern Co. will pay for

its $8.3 billion Federal loan guarantee is proprietary to Southern

Co. and, ‘‘will remain confidential.’’ Is that the industry’s position,

that the amount of credit subsidy fees for nuclear plant loan guarantees should be kept secret and should not be disclosed to the

public or to the company shareholders and bondholders?

Ms. KASS. I believe that the process by which we derive the credit subsidy cost should be very transparent for all stakeholders and

for all projects, those that are renewable for which the Government

is covering the credit subsidy cost, and those for nuclear and other

technologies where the borrower pays. Now, the very project specifics I do believe get into confidential information for contracts, so

some of those pieces of information would need to remain proprietary. And where you draw the line, obviously, that is up to DOE

and OMB.

Mr. KUCINICH. Mr. Bradford, would you like to comment on that

question?

Mr. BRADFORD. I think the problem——

Mr. KUCINICH. Could you pull the mic closer?

The question relates to should the credit subsidy fees remain

confidential. Is it proprietary? Do the people—taxpayers have no

right to know what kind of skin they have in this game, or, you

know, what do you think?

Mr. BRADFORD. I think the proposition is beyond sober analysis.

Mr. KUCINICH. What do you mean? I mean, we——

Mr. BRADFORD. There is no conceivable justification for withholding the credit subsidy fee being charged these projects.

Mr. KUCINICH. Wait. You’re not answering the question. They are

saying it is proprietary. You know something about the nuclear industry. So is there any justification in terms of business sense and

its proprietary information?

Mr. BRADFORD. Not the credit subsidy fee itself. It can’t possibly

be proprietary. It is the amount that the taxpayers are receiving

in return for extending the loan guarantee. And they are being

told, the taxpayers, that they can’t know what level of protection

they are receiving. The justification that DOE advanced, that is

that other applicants for loan guarantees might complain if they

felt that they had gotten unfairly treated, is, in fact, the exact reason why they should be aware of what type of treatment has been

extended to their competitors. If the solar industry is being charged

10 percent, and the nuclear industry is being charged 1 percent,

damn right they should know it and be able to complain about it.

Mr. KUCINICH. Dr. Makhijani, what is your opinion of a credit

subsidy fee that is secret and not disclosed to the taxpayers?

Mr. MAKHIJANI. Mr. Chairman, first of all, the subsidy fee will

give us some idea how the government values the risk of default

and whether it is realistic or not. In my opinion, the risk of default

is quite high because nuclear power plants take so long to build,

they may be economically obsolete before this first set goes on line.

Mr. KUCINICH. So why would this subsidy fee need to be made

public then?

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Mr. MAKHIJANI. We need to know whether the subsidy fee is adequately covering the risk and what the risk analysis is that leads

to a specific sum of money.

Mr. KUCINICH. Mr. Spencer, what is your position on this credit

subsidy fee? Do you think from a business standpoint it ought to

be proprietary and should remain confidential?

Mr. SPENCER. I’m not in the business sector, so it is not really

fair for me to answer.

Mr. KUCINICH. From an economic standpoint.

Mr. SPENCER. From a public policy standpoint, I think that we

do need transparency over the subsidy cost. And I think that it is

critical, because really that has a lot to do with, as we just heard,

what the risk is associated with this. And I think it works on both

sides. I tend to believe that the risk associated with nuclear power

would be relatively low, so I think that it should be made public.

But it is absolutely critical that the—that those important business

aspects remain confidential. So we need to figure out a way to do

that.

Mr. KUCINICH. OK. Thank you.

Ms. Kass, on the back cover of the current National Journal, that

staff could put the copy up, there is an ad with the headline,

‘‘Southern Company Is Investing $6 Billion in Clean, Reliable, Affordable Energy.’’ My question to you is this: Wouldn’t it be more

accurate if Southern Co. had stated that it was investing $6 billion

of taxpayers’ money, that this $6 billion is going to be coming from

taxpayers’ money from the Federal Financing Bank; isn’t that

right?

Ms. KASS. Actually, sir, I had in my testimony Southern Co.’s portion of the loan guarantee is $3.4 billion. So they are getting a

guarantee for a $3.4 billion loan, and the rest of their portion of

the project, they are about a 40—45, 46 percent owner, would come

from owners’ equity. So there is quite a bit of their own cash invested as well.

Mr. KUCINICH. Is that loan taxpayers’ money that they are referring to? Is there any taxpayers’ money in there at all?

Ms. KASS. It comes from the Federal Financing Bank because

that is the way the loan guarantee program rule is written. They

are required to access that from the Federal Financing Bank.

Mr. KUCINICH. And that’s taxpayers’ money, right?

Ms. KASS. The Federal Financing Bank. So, yes.

Mr. KUCINICH. The chair recognizes Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman. Let me do some housekeeping first. If I could ask unanimous consent to get Ranking

Member Issa’s statement entered into the record?

Mr. KUCINICH. So ordered.

[The prepared statement of Hon. Darrell E. Issa follows:]

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Mr. JORDAN. Thank you.

Let me go to Mr. Spencer and Ms. Kass, if I could. Mr. Bradford

in his testimony stated—and I’m reading from it—the reason the

new nuclear—that no new nuclear plants have been built in the

United States for decades has nothing to do with the U.S. licensing

process and has nothing to do with citizen interveners in the court

hearings. And yet I think in Mr. Spencer’s testimony he talked

about a 4-year timeframe to get a permit for a new reactor. When

I look at the memo that the staff put together, it is 3 to 5 years,

both licensing and permitting.

I mean, do you agree with Mr. Bradford’s statement that it is

not—has nothing to do with the cost of these—building these has

nothing to do with the requirements that the government has in

place? Mr. Spencer and then Ms. Kass.

Mr. SPENCER. No. I think that clearly the permitting process has

more than nothing to do with it, though that is not the only problem. And we have seen this historically, really starting in the early

1970’s, the regulatory burden growing on nuclear energy throughout that time period. Certainly into the 1980’s as the regulatory

burden grew, there were other systemic problems, energy prices

changing, the downturn of the economy all contributing to the reduction of the use of nuclear energy.

Mr. JORDAN. So is this—for Joe Layman here, is this—it is almost like the government chasing its tail. Because we have this

high regulatory burden which adds cost to the project, well, then

we need to put taxpayer money at risk so that someone will actually undertake the project. And then because of that, then we add

more burdens because taxpayer money is at risk, and it is a bad

spiral for energy needs for the country and taxpayer dollars that

are being put at risk in the first place.

Mr. SPENCER. I agree with the way that you just described it. Let

me be clear. It is not just a regulatory burden. There are policy

issues with nuclear waste and some other things that add to unpredictability into the system that increase the risks that then leads

to the need for taxpayer support.

Mr. JORDAN. But you would argue that the regulatory burden is

a factor? Would you say a big factor?

Mr. SPENCER. I would say a significant factor.

Mr. JORDAN. A significant factor. Would you agree, Ms. Kass?

Ms. KASS. Yes. The time to market for nuclear in this country

right now is about 10 years, and a lot of that is licensing. There

are currently 54 reactors under construction worldwide with several more planned, and other countries are moving forward who

don’t have a similar regime.

Mr. JORDAN. OK. Now, with that being established, what specifically needs to change on the regulatory side? I mean, I think Mr.

Spencer in his testimony, he talked about almost a bias the government has for certain types, because the regulators get accustomed

to approving that type of reactor. And I don’t know enough to make

the distinction. So what needs to change on the regulatory side

that would help the process?

Ms. KASS. The thing we need most right now is experience. We

have a new Part 52 licensing process that allows for designs to be

certified up front. You can also have a site certified environVerDate 11-MAY-2000 14:16 Jun 09, 2011 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65123.TXT KATIE PsN: KATIE
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mentally up front, and then you could put in your combined license. We believe in the second wave we will be down to about 2

years for a combined license, provided that we are efficient with

the process.

The industry has some recommendations for making sure that

we take out some of the redundant reviews between the early site

permit and the COL, as well as ensuring that the hearing process

again involves all the public stakeholders, which this new process

involves everyone up front, which would feel very positive and very

transparent, but involves them but in a way that doesn’t lag on.

Mr. JORDAN. OK. Let me ask this. I simply just don’t know. How

long does the process take for a coal—coal-fired plant? How long

does the process take to approve any type of wind project or solar

panel project? Is it comparable, or is it much shorter, much longer?

Give me the comparisons.

Mr. SPENCER. I don’t know the answer to that question, but I can

find it for you. But I do know this, that each of those projects that

you just brought up are currently facing regulatory delays for a lot

of the same environmental reasons that are facing nuclear, interestingly enough.

Really, across the board, we are facing a situation where our infrastructure construction is being hamstrung because of unreasonable regulation. This problem of regulation is not just one for the

nuclear industry, though that’s what we are talking about today.

It is something that we need to face generally in this country.

Mr. JORDAN. I would agree with that. OK.

Thank you, Mr. Chairman.

Mr. KUCINICH. The chair recognizes Mr. Foster.

Mr. FOSTER. Thank you.

Let’s see. I will start with Mr. Makhijani. I was wondering if you

have an opinion on the suggested design point of multiple small

nuclear—things that are basically plucked off an assembly line,

thereby reducing the time between when you manufacture the

modules and the time that you actually get a revenue stream, if

you really are optimistic that will have a transformative effect on

the economics of nuclear projects, particularly when they are sited

on an existing preapproved site where there is already reactor approval?

Mr. MAKHIJANI. I’m actually not very optimistic, and the reason

is as follows. There is obviously some advantage to saying we are

going to manufacture small nuclear power plants on an assembly

line basis rather than putting together a special project each time

onsite. However, there is a reason we have large reactors. It is because of economies of scale, and the economies of scale work as follows. The cost of the materials and the construction goes approximately as the surface area of the reactor vessel, the containment

building. And the amount of power you generate goes with the volume of the reactor vessel. And the volume increases much faster

than the surface area when you increase the size of the reactor.

That is why we have 1,000-megawatt reactors rather than 100-

megawatt reactors. Imagine a ball. The volume of the ball increases much faster than the radius or the surface area of the ball.

Something like that.

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Mr. FOSTER. But if for a larger—if you’re going to argue physics

or engineering here, but the hoop stress—there is a famous result

when you are designing a pressure vessel, that the total mass of

the pressure vessel is sort of independent of whether it is a smallor large-radius pressure vessel. So there is sort of second-order effects here.

Anyway, this is—you have to do the whole engineering study of

the big and small ones to get the answer there. I think it is a little

more complicated than elementary.

Mr. MAKHIJANI. If I might add, yeah, it is quite complicated. I

will just give you one reason why the cost might not come down

as much as is being advertised.

And second, with nuclear reactors you have radioactive materials

inside a high-pressure vessel. And that is why—that’s part of the

reason why the cost of reactors are high as compared to the cost

of an ordinary boiler is because it involves very particular risks,

and you have to investigate and check every weld and so on, and

you’re going to have to do that in the factory as you have to do it

at the site.

Mr. FOSTER. I guess I had a question. I’m not sure who should

cover this. But I don’t understand exactly how the secret interest

rate subsidies work. Aren’t these regulated utilities where your

books are pretty much open to the universe? How do you succeed

in keeping these secret? Is there anyone who can help me with

this?

Mr. BRADFORD. Well, I can try. The Department of Energy has

announced that they will treat the fee to be charged for the loan

guarantee as proprietary to the recipient of the loan guarantee. So

they, who are the ones who decide the fee, have no intention of

making it public. In the States in which generation is still regulated, the commission, of course, can ask for it, but they’re likely

to be told that it is proprietary information, and that the Department of Energy has so certified. That means they may be able to

see it themselves, or they may not, but in all likelihood, they won’t

be making it public either. So it will remain secret in those State

proceedings as well, if DOE persists in this misguided course,

which I hope they won’t.

Mr. FOSTER. One way that I view this and hold this debate here

is what—you’re all familiar with the McKenzie report that basically

says, look at all the ways we know how to mitigate carbon in the

atmosphere, and what is the net present value of all of these different systems. And I was wondering—one of the things I struggle

with is the fact that there isn’t a trusted third party to actually report the real-world cost of this. We have our proponents’ cost estimates and different things with wildly different views of the real

cost of capital project costs associated with project risk. Is there

any trusted third entity? Or who would you on the panel prefer as

the—to be established as the trusted third party to actually come

up with a fair apples-to-apples comparison of the cost of producing

electricity by all of these?

Mr. Spencer.

Mr. SPENCER. It might not be the answer you’re looking for, but

there is a trusted third party that assesses real-world cost, and it

is the marketplace. That is the problem with Washington deciding

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which of these things to do. You’re taking, instead of the

millions——

Mr. FOSTER. But that completely ignores all of the externalities

and indirectly imposes costs on there.

Mr. SPENCER. The market alone will take all of those into consideration in a much better way than Washington. If Washington

were the best place to do it, we should just have a command-andcontrol economy.

Mr. FOSTER. No. It is simply—the free market has no way of

dealing with the external costs imposed by various solutions.

I yield back.

Mr. KUCINICH. The gentleman’s time has expired.

What I would like to do is, does Mr. Towns have a question on

this round? OK.

Well, we will pick up on that point which Mr. Foster raised. And

I was intrigued with Mr. Spencer’s answer. And actually you may

find surprising occasionally in this committee about who may concur with your answer, because if—as someone who voted against

the bailouts. Why is this industry having trouble getting financing

from Wall Street? I mean, if the market is the arbiter, as you say—

you know, they are asking for tens of billions of loans and guarantees from the Federal Government. Why can’t they get that money

from Wall Street? Help me out with that.

Mr. SPENCER. I agree that subsidies are not the way to go. My

belief—because I believe in the potential of nuclear energy—is that

we need to address the underlying problems, which I believe are

an antiquated regulatory process. I believe we don’t have a waste

management system that brings any sort of predictability to the

process. I believe that there is overdependence on government.

These are the underlying issues that create the whole basket of unpredictability that leads to the need for subsidies, and it is not just

nuclear. I think that wind and solar, these other things, fall victim

to the same thing, sir. That is the whole problem with Washington

dictating this process. We need to throw it out there, throw it to

the marketplace. Maybe someone comes up with a new wind technology that is great and affordable, then it will be nuclear.

Mr. KUCINICH. Let me ask Ms. Kass. You know, the nuclear industry is asking for tens of billions of dollars in loans and loan

guarantees from the Federal Government. It can’t get financing

from Wall Street. Why should the taxpayers take on risks that the

private investment community is afraid of?

Ms. KASS. We have a structural imbalance in this country because of the size of our utilities. It is one of the few things that

Dr. Makhijani and I will agree upon is that the size of our utilities

is relatively small compared to that capital spending I mentioned

of $11⁄2 to $2 trillion that has to happen between now and 2030 to

upgrade and clean up our electricity infrastructure. So given that,

it is very difficult for the companies to raise enough capital. And

Wall Street has supported small charges of capital for the projects.

Like NEAG went for a bond offering that was specifically highlighted for the nuclear project. We have had some other smaller

capital offerings.

But when you come to a guarantee of this size—and again, this

is our first time coming back to construction in many years with

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the new regulatory regime—there is some nervousness, but long

term there is a structural problem. EDF in France and Tepco in

Japan, they are very large, and they can fund these on balance

sheet because they have hundreds of billions dollars on their balance sheet. We don’t have that here in the United States. The largest electric utility is in the roughly $30 to $35 billion range.

Mr. KUCINICH. We have had some earlier discussions here about

the issue of risk. And if Southern Co. defaults on its $8.3 billion

loan, what would happen to the taxpayers? What would be the result to the taxpayers?

Ms. KASS. It all gets down to recovery, what you assume the recovery rate is, and the probability of default. Southern Co. has put

their balance sheet behind this transaction, and they also have significant equity, again, and a first-loss position. They have other

partners——

Mr. KUCINICH. Here is the thing that concerns me. What concerns me is that I’m asking—you’re here representing the industry.

I have that. I’m very clear on that. I’m wondering what sympathy

you have for the U.S. taxpayers, and I don’t hear that.

Ms. KASS. I am a U.S. taxpayer, sir.

Mr. KUCINICH. But you’re not going to fork up billions of dollars

yourself. I’m just looking for some kind of sentiment on your part

of your concern for what the U.S. taxpayers here have at stake.

That’s why I’m just trying to figure out where you are coming from

on this.

Ms. KASS. Well, I think when you look at the analytics and, as

I mentioned, the risks versus the possibilities of what we have to

do here, I as a taxpayer am concerned that we are going to come

up with energy cost so high that it crushes our economy as we try

to go to a clean-energy economy. That’s my concern.

Mr. KUCINICH. Ms. Kass, I want to go to Mr. Bradford.

What happens if there is a default? What is the impact here?

Mr. BRADFORD. Well, if there is a default, at that point presumably the project is going to either change hands or stop, and the

components will be sold off. There will be a net loss, and that net

loss will be charged to the taxpayers.

But I wonder if I could comment on this issue of the size of the

utilities, because it doesn’t seem to me to be remotely the problem

that the industry asserts it is in justifying loan guarantees. All

that is needed is to match a consortium to build a plant with the

size of the project being undertaken. If the buyers are there, and

the plant can produce an output at a reasonable price, it is

financeable. We finance bigger projects than nuclear plants in the

country. But the difficulty is—lies in mismatches between what is

being undertaken and the size of the individual companies.

The Florida companies are trying to find buyers for their shares

of plants. Other utilities aren’t interested in buying in because it

is too expensive. And the way we have built nuclear plants in the

past is by putting consortia companies together. There are consortia backing each reactor design that have assets and gross sales

bigger than 100 countries combined. It is about risk, and it is about

costs.

And that is true also incidentally with regard to this issue of the

regulatory process. I mean, for God’s sake, Ralph Nader has not

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been appointing the Nuclear Regulatory Commissioners for the last

30 years. The regulatory process about which Ms. Kass is concerned has been designed—has been made up of Presidential appointees, not one of whom her organization opposed until Commissioner Jaczko a few years back.

So what are we to believe, this group of Presidential appointees

has come up with a regulatory process that is hosting the industry?

No. This is a regulatory process of the industry’s design and choosing for three decades.

Mr. KUCINICH. Thank you, Mr. Bradford.

The chair recognizes Mr. Jordan.

Mr. JORDAN. Thank you.

It’s about risk. It seems to me—and Mr. Spencer raised that—

the risk of what you do with the waste has to be something that’s

factored in, and the current administration’s decision concerning

Yucca Mountain, that has to contribute to the cost and the uneasiness of investors to take that risk.

Ms. Kass, would you agree with that?

Ms. KASS. As far as the waste is concerned, it certainly has not

helped the risk perceived from Wall Street. What I will say is that

the waste is currently safely stored on our sites. The industry supports the Blue Ribbon Commission and looks forward to being able

to move forward and have——

Mr. JORDAN. But obviously some certainty on that question

would help with potential investors taking a stronger look at investing in one of your facilities.

Ms. KASS. Yes. Having certainty on the waste question will be

very helpful to us.

Mr. JORDAN. I would argue that when you think about our entire

economy, having some certainty about what’s going to happen with

our energy policy, I think the uncertainty of are we going to have

a cap-and-trade, the uncertainty—are we going to have other policies, I would argue that’s a big factor in why our economy’s not

growing and responding the way we would like as we come out of

this recession.

Mr. Bradford, you and the doctor are not in favor of the loan

guarantee program for nuclear plants. Are you in favor of loan

guarantees or subsidies for other forms of energy, ethanol, wind,

solar? Do you support those programs that taxpayer money is currently being put at risk with right now, Mr. Bradford?

Mr. BRADFORD. I think the process by which we choose and allocate Federal support for energy technologies is deeply flawed. And

I’ll join with Mr. Spencer in wishing that we paid a good deal more

attention to market verdicts, tempered, however, by attention to

externalities. And there are various ways one can incorporate

them.

Mr. JORDAN. I appreciate that.

Mr. BRADFORD. That said, I’m much more comfortable with support at the research and development level for technologies that

seemed to promise carbon reductions and other benefits quickly

than I am with support for commercialization of large——

Mr. JORDAN. Which is it? Go back to my question. Yes or no? Do

you support help for alternative energy?

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Mr. BRADFORD. In the R&D sector, based on the potential to alleviate the various problems in terms of energy security and environmental protection, yes, I would be supportive of a substantial program in that area. When it comes to commercialization—that is,

actually taking projects and building them for the large private entities who would normally build it for themselves—I have reservations across the board about the way we’d do that.

Mr. JORDAN. You would be against the other commercial—when

you get to the commercial portion, you would be against that for

any—for ethanol, for solar, for anything?

Mr. BRADFORD. I’d rather——

Mr. JORDAN. I’m just trying to figure out——

Mr. BRADFORD. If you want to take the time to go criterion by

criterion, project by project, I would be glad to do it. I kind of think

you don’t.

Mr. JORDAN. Do you support government picking winners and

losers?

Mr. BRADFORD. I would be much happier with the government

playing a much lighter role in the commercialization of all alternative energy technologies. I wouldn’t say no role at all.

Mr. JORDAN. Doctor.

Mr. MAKHIJANI. Well, actually, Congressman, in my testimony on

page 11, I say that in my opinion, government loan guarantees are

not a suitable way to encourage development of any energy source.

And I say, especially ones that are very risky due to

combinations——

Mr. JORDAN. What about other forms of government support?

Mr. MAKHIJANI. Yeah. Now, I am actually not a proponent of

subsidies. I think we’ve got a very complicated thing where some

very old industries, like nuclear and coal and so on, have some subsidies, and you’ve got wind and solar that now have investment tax

credits and production tax credits. I actually think that these production tax credits should be phased out in 8 or 10 years with this

sunset, you know, whatever the legislation is. And the best way to

support a new energy marketplace by government is for the government, Federal, State and local, to put its own house in order.

I have been a proponent in my book and in other forums.

What I’m saying here is that if the government made its buildings and infrastructure, cars, vehicles more efficient, if the government at State and Federal levels simply put out a purchase order

for the kind of energy sources that it wanted each year, I think

even much of the R&D will take care of itself, because people

would compete to develop new energy sources to supply the government with low CO–2 energy sources or energy sources with other

similar attributes.

So I think the government should put its own clean energy house

in order, and I am not a big proponent. I am actually fairly much

a fiscal conservative in that I am not a proponent of big government subsidies for anything.

Mr. JORDAN. OK. Thank you, Mr. Chairman.

Mr. MAKHIJANI. And certainly not prolonged subsidies. I think

nuclear has had R&D and subsidies for 50 years and continues to

enjoy subsidies, and I think more than enough.

Mr. KUCINICH. The chair recognizes Mr. Foster.

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Mr. FOSTER. I would put a price on carbon. That is the only thing

I would add to what I said before. Well, the carbon is one example

of an externality that we have to figure out how we’ll deal with.

Another one is obviously the waste problem. You can’t say that,

oh, it’s the free market, and if I want, I can set up a waste repository in my backyard without consulting my neighbors.

So we have to deal with the reality that it’s a mixture of a regulated and a free-market environment that we’re always going to be

in. I actually see possibly that you actually agree in principle here.

And it’s something that’s very much like what the approach taken

in the Mackenzie report and other ways where you just do a hard

economic analysis of what is the cost of producing energy, the

levelized costs, the total project cost, factor it all in. But do the calculation right, OK? And with the exception of externalities, which

we’re going to have to argue about and get settled, that is the way

that actually this should be handled.

And that those who advocate nuclear, I think that when you do

that analysis right, you’re going to show that—the Mackenzie report showed it was pretty much net present value neutral, as I recall, investments in nuclear. They viewed many of the renewable

things had a very positive cost to the GDP, and they reviewed

things like efficiency improvements as massively negative in terms

of saving the economy money.

And I think that—do any of you really have an objection to that

as the basic approach for setting policy here? And that what we

really need to do is get these numbers right and set up some entity

that we all trust to go through the real costs of these things.

I guess I’ll start to the right here. Yes, Ms. Kass.

Ms. KASS. Thank you.

We obviously, our utilities, look at the levelized cost of electricity,

and that’s how they make their investment decisions for their precious capital as well. The third party I would recommend is the National Academy of Sciences. The National Research Council, for instance, put out a report in 2009 actually—yeah, in 2009, they have

a draft report out that looks at the levelized costs across all technologies and shows that—for instance, nuclear’s in the competitive

range, as are many other technologies.

And the thing we get into is there’s no single point estimate because every project has unique characteristics whether you’re relying on natural resources, which is how windy is it somewhere, or

whether you are looking at what the site geology and how much

you have to compensate for that or transmission in your construction. So we find the National Academy of Sciences. We find EIA.

And there are studies out there that I think are very helpful and

accurate.

Mr. FOSTER. I believe the EIA has recently—in the last few years

has actually stopped doing year-by-year reporting of these, and actually we have a piece of legislation where we’ve prepared in our

office to try to reverse that. I think that was a very valuable part

of the puzzle that’s actually sort of ceased to exist and shouldn’t

have. Does anyone else want to try to——

Mr. SPENCER. If we’re going down the line, it depends on who the

who is that is using this information. I would disagree that——

Mr. KUCINICH. Do you want to bring that mic a little closer?

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Mr. SPENCER. It depends on who the who is that is using that

information. I would disagree, for example, that the government

should use that information to develop an energy mix that they

would then mandate. If, however, the nuclear industry or wind industry or the utilities use that information as a variable in the considerations of where they place their investments, then that’s fine.

So it just depends on who is using that for information and what

for.

Mr. MAKHIJANI. Well, I recommend in my book that there should

be a standing committee as part of the Scientific Advisory Board

of the EPA on energy and climate. And I think that they have a

pretty diverse representation on their Science Advisory Board. I

have served on their Radiation Advisory Committee. They produce

good reports generally and I think that would probably be—one

possible venue, the National Academy, could be another.

Mr. FOSTER. So you’d like to institutionalize the report of the real

levelized costs of electricity for whatever—whatever—as R&D proceeds on these different things, as we get better data for different

classes and nuclear plants, whatever it is, to just have some third

party sit there every year and say, OK, what does it look like this

year with this year’s cost of nickel and this year’s cost of cement

and everything that will cause you to reestimate a bunch of things.

Mr. MAKHIJANI. Cost is just one thing. I think energy and climate is a very complicated thing. And I think—and I think the

public and Congress and the executive branch should have an annual report on energy and climate which covers cost issues, which

looks out at R&D questions, but which also looks at the marketplace, which looks at CO–2 questions and whether we need to

tighten CO–2 regulations or loosen them, and things are not as bad

or worse than we thought. So I think we need a panel with the adequate expertise and public confidence in its independence that

would report to the public each year and that has a requisite level

of independence.

Mr. BRADFORD. Mr. Foster, with all due respect, I am in a different place, I’m afraid. You won’t find a panel that can, as you put

it, get it right for further into the future than this time next week.

The costs of different energy sources, the cost of nuclear 10, 20

years in the future, no matter how sophisticated the models and

how well intentioned the panel, the only thing you can be sure

about their forecasts is that they’ll be wrong.

What you need are systems that make the least damaging errors,

systems that have the greatest degree of flexibility in responding

to changes and events. You’ve got to get the principles right and

not the prophecies, because we just don’t have prophets that good.

Mr. FOSTER. I was referring to just this year’s results. The actual

true numbers for this, I think, should be knowable, level playing

field.

Mr. BRADFORD. History is much easier to deal with than the future. Yes.

Mr. KUCINICH. The gentleman’s time has expired.

Mr. Welch, do you have any questions right now? We’re going to

have another round.

Mr. WELCH. I will wait. Thank you.

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Mr. KUCINICH. We’re going to have one more round of the witnesses.

In thinking in terms of the risk here and what’s confidential, it

occurs to me that there ought to be a discussion about the economics of nuclear power plants and what would be the effect. I’d like

Mr. Bradford and Mr. Makhijani—as a matter of fact, both panels

might be able to answer this question. What will be the effect on

the nuclear power plants if we experience decades of relatively

weak prices for natural gas that the Energy Information Administration is predicting and as was reported in the March 11th issue

of The Economist? So we are looking at decades of relatively weak

prices for natural gas. What is going to be the effect, or what could

be the effect, of this on the economics of nuclear power plants?

Mr. BRADFORD. It would be pretty devastating. I mean—because

right now new nuclear is looking to sell 12-cent kilowatt hours into

a 5 or 6-cent market. That’s what today’s natural gas prices are

producing in the power markets in those parts of the country that

use power markets. The gap of 5, 6 cents in those power markets

and the 12 cents that’s about the lowest responsible forecast I’ve

seen for new nuclear is bigger than even loan guarantees can

bridge, and so it would be hard to build nuclear plants at all in

those parts of the country that use power markets. In those parts

of the country that are regulated, where the costs can be charged

to customers willy-nilly , you might still see a plant or two built.

That would be primarily the Southeast. But at low gas prices, you

won’t see many.

Mr. KUCINICH. Dr. Makhijani.

Mr. MAKHIJANI. Yeah. Actually much more than nuclear waste,

the thing that killed nuclear power in the 1980’s and 1990’s was

low gas prices. Everybody was—and in this decade, in the last decade, everybody was building natural gas power plants because they

were cheaper than anything else, and now——

Mr. KUCINICH. So if you have weak gas prices, what happens?

Mr. MAKHIJANI. If you have weak gas prices and loan guarantees, you are going to have a high likelihood of default on the loan

guarantee, especially for merchant plants where they have to sell

their power output on the open marketplace, in a deregulated marketplace. They won’t be able to sell their power or won’t be able to

sell a significant fraction of it, which will drive up the fraction of

the rest of it, because most of your costs in a nuclear plant is a

fixed cost, whereas in a gas-fired power plant, most of your costs

are in the fuel cost, so you can afford to remain flexible.

Mr. KUCINICH. Thank you, Doctor.

Mr. Spencer.

Mr. SPENCER. I think all things being equal, that’s probably true.

You decrease the demand for nuclear power. But all things will not

be equal. And if we change the policies that would allow nuclear—

new technologies to be developed and brought to the marketplace,

that might have an impact on it.

And also, I think there is a case to be made that utilities may

choose to just be more diversified, not be so dependent on natural

gas, because we can’t guarantee that prices will remain low forever.

And I think that’s something that nuclear really does bring to bear.

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It’s 100 years or 70 or 80 years of reliable, inexpensive power generation once you get those capital costs.

Mr. KUCINICH. Do you think, though, that given these dynamics,

would it be less likely that Wall Street would decide to get back

into the nuclear game then?

Mr. SPENCER. Well, I think we’re going to build some power

plants regardless.

Mr. KUCINICH. Who’s ‘‘we?’’

Mr. SPENCER. The United States. I think the United States will

build a handful, five or six or seven nuclear power plants no matter

what, because the Nuclear Policy Act of 2005 created enough subsidies or incentives or whatever we want to call them to make that

worthwhile.

If natural gas remains low, I don’t know—we shouldn’t build nuclear plants just for the fun of building them, nor should we build

wind or solar just for the fun of building them. But I do think that

there is something to be said for nuclear in terms of it bringing

predictable, affordable power for a good long time, and that—if we

get the policy right—even with low gas prices, depending on how

well and those sorts of things, could yield a pretty good incentive

to continue moving forward with some nuclear bill.

Ms. KASS. Sir, if I could respond, too. Yeah. If we could absolutely predictably say that gas prices were going to remain very

low, and there would be no carbon tax, my members would go gas,

because, as I mentioned, they are very invested in these projects,

and it would be imprudent for them to do it for stakeholders,

shareholders, everybody, and they wouldn’t make that mistake.

But as we—when gas prices are low, we build more gas; the price

spikes, and here we are. And that volatility is very difficult on customers and the economy. So I think they will look at what are the

forecasts, what is the best mix to protect them from both gas volatility and a carbon tax. But if they could—they would be thrilled

to know it would be very low for a very long time.

Mr. KUCINICH. I want to thank each of the panelists for weighing

in on this. I will go to Mr. Jordan in a second here. I raise the

question because The Economist March 11th issue has a prediction

from the Energy Information Administration which relates to decades of relatively weak prices. Decades, they say. So I am glad that

you all weighed in on this.

Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman. I appreciate that line of

questioning, too. And I think Ms. Kass, her last couple of statements, were telling in that she said your members would build gas

plants if the price of gas—they knew the price of gas was going to

stay low and the carbon taxes. So, I mean, how much of it is driven

by the idea that there’s going to be cap-and-trade, there’s going to

be some carbon? That’s got to be driving this movement, in my

mind, to a large degree as well.

Ms. KASS. Absolutely on the uncertainty. If you see in the public

utility filings where they debate this with their public utility commissions in a couple of the rate-regulated States, that’s very much

on their minds. Many of those States in the Southeast have had

gas price shocks that have been very uncomfortable. And also when

they look at the potential for a carbon tax, that changes the game.

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Mr. JORDAN. I’m just curious. What is the operating cost—if you

can give me some idea of the comparison—operating costs for a nuclear facility and a coal or gas facility? And I understand it depends on the price of coal and price of gas, but just kind of in a

general sense.

Ms. KASS. Well, if you look at currently—and our plants are fully

depreciated, as Jack mentioned, they are a 60-year asset right

now—fully depreciated. We are the lowest cost at 1.87 cents per

kilowatt hour, followed up by coal and gas after that. Those two are

very dependent on fuel costs, so they occasionally will trade. But

in the future—MIT did a study on the update of nuclear power,

and they looked at the cost of nuclear versus coal and gas. Without

carbon sequestration, if you gave them all favorable interest rates,

they were all in roughly the 5 or 6 cents per kilowatt range. If you

add a carbon tax, then nuclear remains stable, and then the other

two rise.

Mr. JORDAN. I’m also curious on the construction side how much

more expensive is a nuclear facility versus another type of facility?

Ms. KASS. It depends on size. Certainly our capital cost is much

higher. We tend to have a bigger installation. The smallest units

we’re considering right now are 1,100 kilowatts and up—excuse

me—1,100 megawatts and up, sorry. And we have all the safety

systems and redundancy, and they are far more expensive on a

capital front.

But when you start adding some of the environmental controls

and look at some of the coal plants with IGCC plants and some of

the plants that would have carbon-captured sequestration, then

they start coming into the capital market we’re in.

Mr. JORDAN. Does your agency take a position on subsidies for

other forms of energy, wind, solar, ethanol, biofuels?

Ms. KASS. We are just looking for a level playing field. We found

that the loan guarantee program—we’re happy with the way it’s

structured, but we do need more loan volume—would be very effective for us. We believe it’s going to take the full energy mix, and

in the current environment our utilities again are also building

wind farms, also building solar. What is it going to take to bring

all these technologies to bear so they can keep up with demand,

but also meet the mandate for clean energy.

Mr. JORDAN. Mr. Spencer, I raised the Yucca Mountain issue in

the previous round, and you had sort of brought that in front of the

committee, and I didn’t give you a chance to talk about that. If you

would like to elaborate on the uncertainty that not having a place

to put the waste, and the cost, that you see that adding to potential

investors’ willingness to invest in these projects.

Mr. SPENCER. I think it’s a substantial issue on a number of levels. First, in order to have a nuclear power plant license, we need

to have a place to put the waste. Now, the Blue Ribbon Commission is supposed to give us that, but one of my fears is that by potentially killing Yucca Mountain before having a plan be in place,

it could bring some uncertainty there. And that is real uncertainty

that would have an impact on costs.

Then there’s the longer-term impact of having the government in

charge of nuclear waste. It really removes the economic incentives

for those who would have the most need to come up with the waste

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solution. The utilities, they are the ones who need a waste solution

in order to sell their product.

I think that putting more responsibility on the utilities to develop a nuclear waste solution that includes Yucca Mountain as an

alternative there would help bring those same market pressures

and downward-priced pressures and competition both on the waste

management side, but also on the nuclear technology side, because

if you are responsible for your waste, you start caring about how

that waste is produced. Keeping the government in charge of that

nuclear waste really, I think, is one of the detriments to really getting us to where we need to be on the nuclear front that allows nuclear to be competitive with everything else even absent carbon

caps potentially.

Mr. JORDAN. Thank you, Mr. Chairman.

Mr. KUCINICH. Thank you.

The Chair recognizes Mr. Welch of Vermont.

Mr. WELCH. I’m sorry I got here late. It’s great to see Mr. Bradford from Vermont.

Mr. Spencer, you probably testified about this, but how would we

deal with the waste issue as you proposed it, very succinctly, because I don’t want to put my colleagues through hearing that again

if you’ve answered it.

Second, would it be a prerequisite to the future of nuclear power

that be dealt with before plunging in with these huge investments?

Mr. SPENCER. Well, I think we have a plan in place already

where the waste goes to Yucca Mountain. That works for the time

being, but that doesn’t give us the comprehensive, I think, longterm sustainability that we need.

Mr. WELCH. But it’s not working at Yucca Mountain.

Mr. SPENCER. I think that it could work. I don’t think there’s

anything that——

Mr. WELCH. Well, that’s my question.

Mr. SPENCER. Let me try to answer your question in 30 seconds,

which I’m not going to be able to do because the red light’s going

to go on here. But here is what I think we need to do. The utilities

should be in charge of their own nuclear waste. If they are in

charge of that, then you start to create a marketplace for waste

services.

I think Yucca Mountain or some geologic repository somewhere

should be critical to that. Geologic repository space would then be

looked at as a finite commodity. As it fills up, that sends the signal

out to the marketplace you need to reprocess or do something else.

I think that there’s a way that we can introduce market forces into

waste management that would get the politics out and allow us to

come up with a long-term solution.

Mr. WELCH. All right. So would that have to be done first, and

then that would make it possible for the market to proceed and

make nongovernment-based—nonsubsidized decisions about investing in these massive assets?

Mr. SPENCER. I think that having a sustainable solution to nuclear waste will allow us to develop a long-term, economically viable nuclear industry. I don’t think that we need to have that solution before we build or permit a new power plant.

Mr. WELCH. Mr. Makhijani.

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Mr. MAKHIJANI. Thank you, Mr. Welch.

The Yucca Mountain question from the point of view of the utilities was really settled, at least as it was thought then, by the 1982

Nuclear Waste Policy Act. Ratepayers paid a tenth of a cent a kilowatt hour, and utilities had some certainty. When that certainty

didn’t come to pass, they sued the government, and the taxpayer

is actually picking up the cost, at least in those suits that have

been successful, and I believe that the government did violate its

contracts. So the taxpayers are paying for the additional storage

that will be required, and that liability is actually mounting. I don’t

think the industry is looking to significant extra costs because of

this default, because the taxpayers are now on the hook for that

money, and it’s not coming out of the nuclear waste fund.

I am a supporter of a deep geologic repository, but I happen to

think that Yucca Mountain, in my opinion, has been the worst single site that has been investigated in this country.

Mr. WELCH. Yeah. I’m going to stop you there. We don’t need to

go into it because those arguments are inevitable. Whatever, it’s a

huge NIMBY issue. Wherever you’re going to be, there’s going to

be enormous opposition, and it really has raised the question in my

mind as to whether or not there’s a political capacity on the part

of Congress to actually have a legislative outcome rather than have

it be endless fights.

Let me go to Mr. Bradford. Your view on this? Thank you.

Mr. BRADFORD. Well, there’s a lot to be said for Mr. Spencer’s

view, and I wish the program had unfolded that way from the beginning. In many ways the commitment to take the nuclear waste

that the Federal Government has made which is unique to the nuclear industry—after all, the Federal Government doesn’t offer to

take the waste from any other industry—could be said to be one

of the largest of all the subsidies that were—that was given to nuclear energy, and it’s played out very badly for them. But it is a

commitment that’s in place now, and it’s hard to see how we could

develop a deep geological repository, all the transportation necessary to get it there, without a central role of some sort for the

government, not necessarily the Department of Energy. Conceivably a differently constituted authority would be more successful.

I just don’t see us able to get from where we are to market principles today, although it would perhaps have been very desirable

to have been there from the beginning.

With regard to the role of a waste repository in the context of

new reactors, I agree that you can’t really make a case that six or

seven more plants change the nature of the waste dilemma in any

fundamental way. In fact, it’s less than operating the existing

plants for additional years. We’re going to be using pools and dry

casks, and the only serious question is whether we centralize the

dry cask storage somewhere in the next decade or two. I do think

it’s fair to say that before a major expansion beyond the so-called

first mover plants, that it’s reasonable to seek a higher degree of

assurance than we have now that we know where the waste is

going.

Mr. WELCH. Thank you. I yield back.

Mr. KUCINICH. I thank the gentleman.

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Without objection, I am going to ask that this article from The

Economist, the March 11th issue of The Economist, which says the

Energy Information Administration, the statistical arm of America’s Department of Energy, predicts decades of relatively weak

prices for gas, that this be included in the hearing record.

[The information referred to follows:]

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Mr. KUCINICH. And I want to thank this panel. I think that it’s

been an important discussion. The market economics are not a

small matter here in trying to determine which way this might go,

and I want to thank each of you for participating.

So we’re going to go to the next panel now. Thank you, Mr. Bradford, Dr. Makhijani, Mr. Spencer and Ms. Kass. Thank you.

We are going to take a 3-minute recess until the room is prepared for the second panel.

[Recess.]

Mr. KUCINICH. That buzzer does not signify a meltdown. We are

waiting. The committee is going to come to order.

I want to thank all of you who are present. I am going to introduce the second panel of witnesses and begin with Dr. Mark Cooper.

Thank you for being here.

Dr. Cooper is a senior fellow for economic analysis at the Institute for Energy and the Environment at Vermont Law School. He

is the author of dozens of articles and six books on energy, technology and telecommunications. He’s provided expert testimony in

over 250 cases for public interest clients including State attorneys

general and citizen intervenors before State and Federal agencies

and courts. Dr. Cooper received his Ph.D. from Yale University.

Mr. Henry Sokolski, welcome.

He was the executive director of the Nonproliferation Policy Education Center from 1989 to 1993. Mr. Sokolski served in the Bush

administration, the Office of the Secretary of Defense. Previously

he served as senior military legislative aide to Senator Dan Quayle

and a special assistant on nuclear energy matters to Senator Gordon Humphrey. He’s also had an association with the Heritage

Foundation and the Hoover Institute. Mr. Sokolski is the author

and editor of several books and numerous papers.

Mr. Richard Caperton, thank you for being here, is energy policy

analyst at the Center for American Progress, where he’s concentrated on the analysis of financing mechanisms and incentive

structures intended to encourage clean-energy technology. Previously he’s worked at the National Rural Electric Cooperative Association. He’s a graduate of Pomona College and Georgetown University’s McDonough School of Business.

Mr. Michael Scott, thank you for being here, is managing director at the investment bank Miller Buckfire, and heads its U.S. Government advisory practice. Previously Mr. Scott was senior adviser

to SEC Chairman Christopher Cox. Before that he was managing

director and head of the U.S. Government entities at Bank of

America Securities, where he advised companies on Federal loan

guarantees to build a proposed Alaska natural gas pipeline, as well

as those associated with advanced energy facilities, including the

Energy Policy Act of 2005.

Before that, Mr. Scott served for 5 years at the U.S. Department

of Treasury as senior adviser. There he was principal architect of

the Federal credit policy. He negotiated and structured programs

that provided Federal credit to a wide range of industries, including airlines, banks, rural telecommunications and energy companies. He was also responsible for Treasury’s role in the Air Transportation Stabilization Board, where he structured and negotiated

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loan guarantees supporting the $429 million unsecured loan to

America West Airlines.

And finally, Mr. Christopher Guith is vice president for policy at

the U.S. Chamber of Commerce Institute for 21st Century Energy.

Thank you for being here.

Previously Mr. Guith served as the Deputy Assistant Secretary

For Nuclear Energy at the U.S. Department of Energy and represented the Bush administration during the drafting of the Energy Policy Act of 2005. Before that he was legislative director for

former Congressman Bob Barr. He is a graduate of Syracuse University School of Law and University of California at Santa Barbara.

Again, I want to thank each and every one of the witnesses for

being here. This is indeed a distinguished panel, as was our previous panel. I want to thank you and also tell you that it is the

policy of our Committee on Oversight and Government Reform to

swear in all witnesses before they testify. I would ask that you rise

and please raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

answered in the affirmative.

I would ask that each witness give a brief summary of your testimony. Please try to keep the summary under 5 minutes in duration. Your entire written statement will be included in the record

of the hearing.

Dr. Cooper, our first witness on the panel, I would ask you to

proceed.

STATEMENTS OF MARK COOPER, SENIOR FELLOW FOR ECONOMIC ANALYSIS, INSTITUTE FOR ENERGY AND THE ENVIRONMENT, VERMONT LAW SCHOOL; HENRY SOKOLSKI,

FORMER DEPUTY FOR NONPROLIFERATION POLICY, OFFICE

OF THE SECRETARY OF DEFENSE, PRESIDENT AND EXECUTIVE DIRECTOR, NONPROLIFERATION POLICY EDUCATION

CENTER; RICHARD CAPERTON, POLICY ANALYST, CENTER

FOR AMERICAN PROGRESS; MICHAEL D. SCOTT, MANAGING

DIRECTOR, MILLER BUCKFIRE & CO., LLC; AND CHRISTOPHER GUITH, VICE PRESIDENT OF PUBLIC POLICY, U.S.

CHAMBER OF COMMERCE

STATEMENT OF MARK COOPER

Mr. COOPER. The fundamental economics of nuclear power

should determine whether a new generation of reactors is constructed in the United States. In my testimony I show the basic

supply and demand fundamentals of new nuclear reactor economics

that have led Wall Street to refuse to put up the funds to finance

new reactors, and why policymakers in Washington should not

force taxpayers to do what the capital markets will not.

I answered four questions posed to me by the committee. First,

cost overruns in the construction of nuclear power plants are not

a thing of the past. They are an occurring present-day problem.

Cost escalation and overruns afflicted the industry in the 1970’s

and 1980’s when the final reactors built were seven times as expensive as the initial cost estimates for that round of construction. The

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escalation in projected costs since the beginning of the so-called nuclear renaissance has rivaled that historical experience. In less

than a decade the projected costs have more than quadrupled.

The causes of this escalation are well known. Reactor design is

complex, site-specific and nonstandardized. In extremely large,

complex megaprojects that are dependent upon sequential and complementary activities, delays tend to escalate into interruptions.

These one-of-a-kind specialized projects have few suppliers, so any

interruption or delay in delivery cannot be easily accommodated,

and any increase in demand or disruption in supply sends the cost

of components skyrocketing.

Material costs have been rising, and skilled labor is in short supply. The energy-intensive materials and construction processes that

are involved in nuclear reactors entail processes that are likely to

be deeply affected by any carbon policy, so the cost escalation will

be built in. The current costs of nuclear reactors are extremely expensive, uneconomic, and those costs are likely to escalate, not decline, if these reactors are ever built.

Second, we do not currently have such demand for electric power

plants that we need to rush into the construction of multiple nuclear reactors. We have time to experiment and to see what does

and doesn’t work before we proceed, whether or not climate policies, enacted efficiency in several widely available renewables, are

substantially less expensive than nuclear reactors. They can push

out any need for these facilities for decades. So the rational approach is to build the low-cost, low-hanging fruit available, and

take the time to develop alternative low-cost options.

Third, Wall Street won’t invest in nuclear power plants for very

good reasons. In addition to the supply and demand factors I have

already mentioned, these plants are subject to dozens of risks—

technology risks, policy risks, regulatory risks, execution risks,

marketplace risks—which make them a bad investment. A combination of these risks are what created the financial disaster in

the last round of nuclear construction. Given these risks, Moody’s

is right to have declared investments in these projects a ‘‘bet-thefarm’’ decision, and other analysts want a return on investment, a

risk premium two or three times as large as the normal premium.

That is why Wall Street will not invest in these projects.

Finally, increased loan guarantees for nuclear power plants misdirect resources that could be better used for energy efficiency and

renewables. Loan guarantees induce utilities to develop the wrong

resources. They choose high-cost, high-risk, capital-intensive

projects that pump up their rate base—that’s how they make

money—and leave behind the more economic, less costly facilities.

The result is a dramatic increase in the consumer’s bill.

You heard a suggestion that Georgia Power/Southern Co. estimates a $15 to $20-million-a-year savings from the loan guarantee.

The excess costs of those facilities is between $500 million and $1

billion a year. It’s a bad deal for the ratepayer.

The rejection of financial markets that has afflicted nuclear reactors is not an example of market failure. It is, in fact, a market

success, an instance—and frankly there have been too few lately—

where the marketplace has properly evaluated risk and refuses to

put private capital on the table. If Congress were to override that

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decision, ignore the indication of Wall Street, it would place ratepayers and taxpayers at severe risks that I think would amount in

the end to trillions, not billions or even hundreds of billions, of dollars.

Thank you.

[The prepared statement of Mr. Cooper follows:]

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Mr. KUCINICH. I want to make sure for the record that I have

the pronunciation of your name. The copy that I have in front of

me says ‘‘Sokoloski.’’ Now, your name card says ‘‘Sokolski.’’ Help

me out here.

Mr. SOKOLSKI. I kind of prefer the latter.

Mr. KUCINICH. OK. Well, that’s what it is. It’s Sokolski. Well,

where I’m from in Cleveland, Sokolski is a well-known name. And

the copy here did say Sokoloski. But it’s Mr. Sokolski. Welcome.

Mr. SOKOLSKI. I don’t make helicopters either.

Mr. KUCINICH. Welcome.

STATEMENT OF HENRY SOKOLSKI

Mr. SOKOLSKI. Thank you, Mr. Chairman and members of the

committee, for allowing me to testify before you today on whether

or not creating additional Federal loan guarantees for new civilian

nuclear energy plants is advisable. My short answer is it’s a bad

idea.

Mr. KUCINICH. Pull that mic a little closer.

Mr. SOKOLSKI. This is based upon the findings of a 2-year study

that my center just completed on nuclear economics, the key findings of which I am releasing today. I’d ask the committee if I could

present this as an exhibit along with two other short op-eds.

Mr. KUCINICH. So ordered, without objection.

Mr. SOKOLSKI. In general, my views are like that of many of the

panelists you’ve already heard. I think the key problem new nuclear power plants have is that to become economically competitive,

they have to reduce their capital construction costs considerably. I

think piling on more government financial incentives beyond those

you’ve already voted for and approved to promote commercial deployment of nuclear power is only likely to reduce market pressures on the industry to meet this critical goal of reducing capital

costs.

This then brings me to the committee’s four questions. Are cost

overruns and the construction of nuclear power plants a thing of

the past? I think if we understand what’s happening in Finland,

France, Canada and the United States, the answer is no. In addition to the Finnish and American cases you’ve already heard, we

have the French case of EDF struggling to keep construction of a

similar plant to that being made in Finland on schedule. And in

France, the project’s now running more than 20 percent over budget and at least 2 years behind schedule. In Canada, the government of Ontario put its power plans on the table to build two large

reactors and decided to put them on hold after receiving a $26 billion bid that was nearly four times higher than the $7 billion bid

the government set aside for the project only 2 years before. As you

heard, in the United States, projects at an advanced stage of planning have seen their cost projections soar fourfold in less than a

decade and are still rising.

Why won’t Wall Street invest in nuclear power plants, and why

does Moody’s call them ‘‘bet-the-farm’’ investments? Three reasons.

First, projections of new nuclear power plant construction costs are

far higher today than several nonnuclear alternatives, while the

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erators, nuclear or nonnuclear, could easily decline as a result of

energy technology innovations.

Betting nuclear power will make money through 2080, when nuclear power plants clearly cost far more to build now and take far

longer to construct than cheaper alternatives, is too large of a gamble for private investors. Like U.S. spending on canals in the early

1800’s, which was undercut by the advent of steam locomotives, the

risk of investing in expensive nuclear plants is that energy innovations in the storage, generation, distribution or use of electricity

could easily wipe out the value of whatever commercial nuclear investments are made.

You have already heard about the history and how unkind it’s

been to nuclear power projects in the past. I think this is the reason why the nuclear industry is seeking more Federal loan guarantees.

Finally, the value of Federal loan guarantees is so uncertain, and

the ability of the utilities to cover their risks with their own capital

is so low that even with loan guarantees, private investors are

leery.

I would like to associate myself with the recommendations already made that you really need to make sure the Congress demands that DOE supply Congress with answers to the questions

about the costs of these loan subsidy fees that you need to get

clear. Without that, the private industry’s going to be very leery

about getting involved even with loan guarantees.

You asked, do increased loan guarantees for nuclear power

plants misdirect resources that could be better used for energy efficiency and renewable power projects? I will keep my comments

short. The short answer is yes. Experience with syn fuel, breeder

reactors, ethanol mandates and the like should teach us all not to

repeat.

Finally, do increased loan guarantees for nuclear power plants

misdirect U.S. financial resources for the benefit of other countries?

Here the short answer again is yes. AREVA and EDF, who design

and build the Evolutionary Power Reactors planned for the United

States, are key beneficiaries along with Hitachi and Toshiba, the

Japanese firms who have teamed up with Westinghouse and General Electric, who now have a controlling or a significant ownership

portion of these companies. URENCO, a European consortium that

is building an enrichment plant in New Mexico, also stands to benefit, as does AREVA, which is building enrichment plants in Idaho.

Almost all of the manufacturing jobs associated with these plants

and construction will either be done abroad or in plants owned by

these firms.

The bottom line: if renewable natural gas and carbon prices were

all clearly rising, and the technologies for electricity storage, distribution were static, the case for government intervention in promoting commercial nuclear power, although wrong in principle and

practice, would at least be stronger. Yet just the opposite seems to

be the case. I believe getting into this further than we already have

is risky business, and pure risk at that. I think the losses are quite

possible, and the gains simply are not there.

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Thank you very much.

Mr. KUCINICH. Thank you very much, Mr. Sokolski.

[The prepared statement of Mr. Sokolski follows:]

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Mr. KUCINICH. Mr. Caperton, you may proceed.

Mr. CAPERTON. Thank you, Mr. Chairman.

Mr. KUCINICH. Keep that mic close so we can hear you.

STATEMENT OF RICHARD CAPERTON

Mr. CAPERTON. Members of the committee, thank you for inviting

me to testify before you this afternoon. My name is Richard

Caperton. I am a policy analyst on the energy team for the Center

for American Progress, a think tank here in Washington, DC.

As you know, nuclear power currently generates about one-fifth

of American electricity. Nuclear power is a low-carbon baseload carbon source that will continue to play an important role in America’s clean energy future.

It’s vitally important that we explore all potential energy sources

that reduce our carbon emissions, but this should not force taxpayers to bear inordinate amounts of risk. The President has proposed incentivizing new nuclear construction by issuing $54 billion

in new loan guarantees. The terms of these guarantees must include adequate protections for taxpayers. Most important, the credit subsidy fee must be properly calculated.

In my comments today, I will describe what the credit subsidy

fee is, how it’s calculated, and what an appropriate fee might be.

When the government issues a loan guarantee, they are committing to use taxpayer money to pay back the loan if the borrower

defaults. The government must account for the increased risk it

now bears, which it does by calculating the credit subsidy cost. In

the nuclear loan guarantee program, the credit subsidy cost is paid

by the borrower in the form of a credit subsidy fee. If the fee

charged is too low, it will increase the risk to taxpayers. At the

same time, if the fee charge is too high, it will unnecessarily decrease the number of reactors financed.

Credit subsidy cost is calculated by a proprietary model at the

Office of Management and Budget, and although the actual calculation is highly technical, the basis for the calculation is straightforward. Essentially, the credit subsidy cost is the present value of

the expected pay-outs that the government will have to make on

the loan if the utility should default. First, determine the likelihood

the builder of the reactor won’t be able to pay the loan at the default rate. Second, determine the percentage of total reactor costs

that will be covered by the loan guarantee. In a nuclear program,

the guarantee can cover up to 80 percent of the total cost of the

project. Third, determine the amount of the total costs that will be

recovered in the event that the borrower defaults and the reactor

is sold in liquidation, the recovery rate. The first three steps give

a total payout that the U.S. Government will have to make. Spread

these pay-outs over the lifetime of the loan based on when expected

defaults will occur. And finally, discount the pay-outs in the future

years to determine a present value of the total pay-outs. This is the

credit subsidy fee.

Each of these steps requires an input that can vary widely based

on technical details, which makes precise calculations very difficult.

Estimates of what this fee should be run the gamut from 1 percent

or less to 30 percent or more of the total loan guarantee.

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The surveys of these widely divergent estimates have done some

simple calculations of their credit subsidy costs given certain inputs. The two most important factors in determining the credit

subsidy costs are the default rate and the recovery rate. Of course,

every project is different and should be evaluated independently,

but widely publicized data from CBO, GAO and Standard & Poor’s

indicates that the expected default rate for a generic new nuclear

reactor is 50 percent. Data from the same sources indicate that the

expected recovery rate in liquidation is also 50 percent.

Next slide, please.

Simple calculations indicate that the credit subsidy fee on a nuclear loan guarantee program that has the predicted characteristics, that is 50 percent default and recovery rates, should be about

10 percent of the total value of the guaranteed loan. The appropriate fee goes up as the expected default rate goes up and as the

recovery rate goes down.

This table shows what the credit subsidy fee should be, given any

combination of expected default and recovery rates. And to put this

in perspective, each 1 percent of the entire $54 billion in loan guarantees that the President has proposed represents $540 million.

That is, if DOE undercharges loan guarantee recipients by just 1

percent, the President’s proposal will cost taxpayers $500 million.

It’s impossible to say what the credit subsidy fee on a specific

loan guarantee should be without looking at details of specific nuclear projects. The administration must keep in mind, however,

that credit subsidy fees should be set at a rate that protects taxpayers not at an artificially low rate as a handout to private businesses. DOE will only be able to protect taxpayers from bearing the

risk of new nuclear reactors if the charge is an accurate credit subsidy fee.

Thank you.

Mr. KUCINICH. Thank you for your testimony.

[The prepared statement of Mr. Caperton follows:]

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Mr. KUCINICH. Mr. Scott.

STATEMENT OF MICHAEL D. SCOTT

Mr. SCOTT. Chairman Kucinich, Ranking Member Jordan, members of the committee, thank you for the opportunity to testify here

today. My name is Michael Scott, and I head the U.S. Government

investment banking business at Miller Buckfire.

In creating Title XVII, Congress recognized that there was a private market failure to finance new clean-energy technologies that

reduce greenhouse gas emissions, and that this market failure encompassed a broad range of technologies. Congress also recognized

the importance of getting these clean technologies constructed and

into operation; however, given the costs of the various eligible technologies, the U.S. Government was unlikely to have the budget dollars necessary to appropriate the Title XVII projects in amounts

sufficient to achieve the purposes of the program. So Congress provided a unique path among Federal credit programs to finance

enough projects to get a technology into general use, with the private sector paying the full cost of the guarantees.

Prior to the Federal Credit Reform Act, the costs of Federal credit programs were only evaluated and appropriated at the time of

default. This approach did not provide legislators or policymakers

with the true budget impact of the Federal credit program, and

was inconsistent with the budgeting process in the noncredit

spending programs of the U.S. Government.

The Federal Credit Reform Act is designed to calculate the net

present value of the long-term cost to the U.S. Government of any

Federal credit program. Properly and faithfully implemented, the

Federal Credit Reform Act considers all the cash-flows over the entire lifetime of the loan, including defaults, fees, recoveries, as well

as contractual and structural protections.

With potential tenures of 30 years, the entire lifetime-of-the-loan

analysis is very important and substantially different from the

scoring of noncredit spending programs of the U.S. Government

that do not analyze, measure or otherwise calculate the costs beyond the 10-year budget window.

Each project is subjected to extensive due diligence and statutory

and role requirements that protect the taxpayer and fully price the

risk assumed in providing a loan guarantee.

The President and Congress have a very powerful policy tool in

Title XVII that is unique and important in the current economic

environment, especially with the U.S. Government facing the

stresses and difficult choices involved with our significant budget

deficits. Title XVII can drive economic growth due to the development of clean-energy infrastructure projects that are built and fully

paid for by the private sector; provide significant short-term and

long-term construction and manufacturing jobs; provide long-term

operating jobs; promote the development of new U.S.-based manufacturing, particularly significant in the case of manufacturing that

will develop from a robust new nuclear build; develop environmentally clean and secure domestic energy supply capacity, particularly in the case of carbon-free baseload generation from new

nuclear; correct the private market failure to finance clean and innovative energy technologies; and, finally, provide well-qualified

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project sponsors with the confidence that credible projects can receive a Federal loan guarantee, which is an important signal for

private-sector project sponsors to pursue these substantial investments because of the up-front costs that they bear before any application and, significantly, before any closing on a Federal loan guarantee.

Significantly, the President does not need new legislative authority or new appropriations to make Title XVII work, as Title XVII

provides for the credit subsidy and the administrative costs to be

fully paid for by the borrower, and substitutes the borrower payments for the appropriations. This means that the Federal budget

is not affected by the issuance of the loan guarantees under section

1703, and that the level of risk assumed by the U.S. Government

is fully compensated for as measured by the Federal Credit Reform

Act.

The calculation for this risk is completed in the same manner as

if this was a traditional Federal credit program where the U.S.

Government paid the credit subsidy cost.

In summary, Title XVII provides a means to achieve the priorities and policies of the President and Congress pertaining to jobs,

the economy, clean and secure domestic energy capacity and the

environment. It does so through a clean-energy infrastructure bill

that is fully funded by the private sector. This bill will also be the

engine of growth in the investments that develop our domestic supply chain manufacturing base in supporting industries such as iron

and steel.

The key to all of this is operationalizing Title XVII. The President and his administration can accomplish these critical objectives

by removing the current improper rule-based impediments, elimination of the arbitrary maximum loan guarantee authority levels,

and calculating the credit subsidy in a manner that is faithful to

the statute.

I’m pleased to answer any questions you may have. Thank you.

Mr. KUCINICH. Thank you very much, Mr. Scott.

[The prepared statement of Mr. Scott follows:]

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Mr. KUCINICH. Mr. Guith, please proceed.

STATEMENT OF CHRISTOPHER GUITH

Mr. GUITH. Thank you, Chairman Kucinich, Ranking Member

Jordan, and thank you for the opportunity to contribute to this discussion today. I serve as the vice president for policy and the managing director at the Institute for 21st Century Energy, an affiliate

of the U.S. Chamber of Commerce. The Chamber is the world’s

largest business federation, representing the interests of more than

3 million businesses and organizations of every size, sector and region.

The underlying issue presented at this hearing is a valid one: Is

the Federal Government properly balancing the protection of the

American taxpayers with its joint responsibility to improve our Nation’s energy security?

I think it is important to remember how this program came to

exist over the past 4 years. The idea of a loan guarantee program

originated in Congress with the intent to accelerate private investment into new and clean energy technologies. It was a unanimous,

bipartisan and bicameral voice of the floor conference managers

that ensured inclusion of the loan guarantee program in EPAct, the

Energy Policy Act of 2005, fully acknowledging the importance of

this program to the building of new nuclear facilities.

This program initially elicited skepticism from senior leaders of

the Bush administration. Frankly, many had doubts about whether

the government possessed the necessary experts or understanding

of the capital markets to sufficiently protect the taxpayer. However, building on the Federal Credit Reform Act and OMB guidance, DOE sought to create a program centered around a rigorous

review of proposed projects that would utilize every possible resource to minimize taxpayer exposure.

DOE spent the next 3 years at the loan guarantee office, staffing

it with esteemed subject matter experts who had spent entire careers in project finance, risk mitigation and lending. They utilized

the expertise of credit agencies, commercial lenders, engineering

contractors and legal consultants, to name a few, also producing

the final rule this past December. Spanning two administrations,

DOE, the Department of Treasury and OMB all exerted significant

input and oversight into the evolution of the final rule.

Additionally, Congress has played, as this hearing demonstrates,

and continues to play a significant role by way of authorization and

oversight. In fact, many senior congressional leaders have taken

issue with the amount of time it has taken to begin issuing guarantees, which I think is a testament to the careful and deliberate nature underpinning the implementation of this program.

In measuring taxpayer risk, I think it is very important to acknowledge and understand the magnitude of risk a company accepts when it decides to build a new reactor. Even with a Federal

guarantee, each company understands that if a new project were

to actually default, it would likely be the demise of that business.

When a company does make a decision to build a new reactor, it

will not be until it has completed an exhaustive review of its own

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termined that risk to sufficiently minimize to effectively, as has

been stated before, bet the company on the project.

The Federal Government has a greater responsibility to Americans than just to minimize their exposure to risk. It must also craft

and implement broader policies that further the taxpayers’ interest,

while also mitigating risk.

Energy touches on every single business and household every

day, and fostering the deployment of clean-energy technologies is a

major component of fulfilling the government’s obligation. And the

loan guarantees are an integral tool in doing this.

To date, the Nuclear Regulatory Commission has received a net

of 26 license applications to build new nuclear units. While the first

license is not expected to be issued until next year, industry has

already invested in excess of $5 billion in preparation of building

new reactors and generated more than 15,000 new jobs. If all 26

of these proposed reactors are built, we estimate that as many as

240,000 direct and indirect jobs will be created by 2030, jobs paying

about 36 percent above the local average.

Nuclear plants each purchase $430 million in goods and services

from the surrounding community and provide $40 million in salaries and nearly $100 million in tax revenues. That is each unit or

each plant. This is one of the primary reasons for nuclear power—

for nuclear—why nuclear power polls highest in communities that

already host nuclear facilities. And it is worth mentioning that the

Nation’s support for nuclear power has climbed to 62 percent in

Gallup’s annual survey, the highest mark since it began asking the

question in 1994.

While the legislative and regulatory focus in Washington continues to be on greenhouse gases, it is important to acknowledge that

nuclear power not only emits no greenhouse gases, it emits no hazardous air emissions at all. Other countries are well aware of the

economic and environmental benefits of nuclear power; 55 reactors

today are currently under construction around the world in 13

countries with another 140 planned in the very near future.

The International Atomic Energy Agency estimates that there

could be up to 25 nations with operating reactors by 2030 that do

not currently have a nuclear program, yet this country hasn’t licensed the operation of a new reactor in over 30 years. Many opponents of nuclear power seize on announcements of other countries

making investments in renewable power generation, but usually

fail to note that these investments are but a fraction of what the

world community is making in new nuclear generation.

So what is it that makes—so what is it that these countries know

that the United States seems to be missing? These countries realize

that nuclear power must play an increasing role in meeting projected increases in the demand for power and reducing greenhouse

gas and hazardous air emissions, and doing so in an efficient, economical and reliable manner.

While the governments in many of these countries directly finance the construction of the reactors, we rely predominantly on

investor-owned utilities as well as municipal and cooperative ventures to do it. However, without a Federal loan guarantee program

to help secure financing for the first bunch of these new reactors,

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we will likely not see enough nuclear generation to even make up

for the lost generation of retiring reactors in the next 30 years.

It has become fashionable to argue that the United States is

missing the proverbial boat on the clean energy revolution around

the world. While it is almost never this speaker’s intention to include nuclear power in this mix, they are correct that every year

that goes by, where we debate whether to support new nuclear

builds, we are missing out on the largest component of the global

clean energy market.

Thank you.

[The prepared statement of Mr. Guith follows:]

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Mr. KUCINICH. I thank the gentleman and each member of the

panel. It is much appreciated, your presence here. Having had the

chance to review your testimony, I have to say it is greatly valued,

and I think it will be very helpful for members of this subcommittee to read and review carefully the testimony of each and every

individual here.

I would like to go to the members of the panel now and ask what

is your opinion of a credit subsidy fee that is secret, not disclosed

to the taxpayers?

Mr. Cooper.

Mr. COOPER. Well, it is quite remarkable that this administration, which had prided itself on transparency and open government, would come forward and suggest that something as important as the liability to which taxpayers are being exposed will be

a trade secret between the Department of Energy and those utilities. As Mr. Bradford pointed out in theory, the Public Service

Commission might get a chance to look at that or might not. And

that will influence the rates people pay. But it would seem to be

a desire to hide the truth, which is that the taxpayer is being hosed

in these transactions.

Mr. KUCINICH. Mr. Sokolski.

Mr. SOKOLSKI. I don’t know. I would ask for my money back. I

wouldn’t make the loan. You have to know that. You are the executors of this effort as it is. I mean, we have—we are not talking

about doing this or not doing this. We are asking do we do more

of this. We are in the business now of doing it. I would say you

need to really get the facts and figures on what we are doing before

you pile on more.

Mr. KUCINICH. Mr. Caperton.

Mr. CAPERTON. There are three things that are secret now, the

model that is used to calculate the credit subsidy fee, the inputs

to it for each loan guarantee, and the results of the model, what

that fee actually is. I can certainly see that the first of those, the

model, should be made public, and the fee should likely be made

public. There would certainly be trade secrets involved in what

goes into the model. So I could see elements of that being kept proprietary.

Mr. KUCINICH. I studied your testimony, and you actually did a

kind of reverse engineering of the Office of Budget and Management model by saying it is essentially the present-day value of the

expected payouts that the government will have to make on the

loan if the utility should default?

Mr. CAPERTON. That’s correct.

Mr. KUCINICH. Mr. Scott.

Mr. SCOTT. It is actually unnecessary for them not to disclose it,

because the applicant will end up disclosing it in SEC filings anyway. So it is going to become public, assuming that they are an

SEC applicant. And if you’re doing that, you might as well do it

for all of the projects.

Mr. KUCINICH. It is an interesting point that you raise, and that

is if OMB says it is proprietary, does the SEC give the applicant

a waiver on that?

Mr. SCOTT. I doubt that they would, and I don’t think that any

of the companies would——

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Mr. KUCINICH. It is an interesting question.

Mr. Guith.

Mr. GUITH. I think it is important to note that Congress does

have access to this. The appropriators who create the authorization

for this have asked for annual reports, and they are fully informed

as to what this is. And I’m sure that—I won’t speak on behalf of

the Department, but when I was there, we never would not disclose

that information to the Congress.

Second, I think the model itself should definitely be disclosed. I

think that created much consternation over the last 2 years that

nobody in any industry could figure out what OMB was doing. And

frankly, those of us who worked in other agencies couldn’t figure

out what OMB was doing, and Congress certainly couldn’t figure

out what OMB was doing.

Mr. KUCINICH. Let me ask you. Bondholders and shareholders, is

there a legitimate reason for keeping the credit subsidy cost from

them?

Mr. GUITH. The ultimate cost itself?

Mr. KUCINICH. The credit subsidy cost. Should bondholders and

shareholders have a right to that information?

Mr. GUITH. This is one of those ‘‘when did you stop beating your

wife’’ questions, because—absolutely not. Everything should be

transparent. But the question is, is what does a specific number in

addition to other information actually lead you to? I mean, this

issue has come up more in the nonnuclear loan guarantees than it

has in the nuclear loan guarantees because as other competing

power generation sponsors or applicants have gone through this

process, they don’t want to necessarily have their information disclosed to other competitors.

Mr. KUCINICH. Surely you recognize that this Congress has had

brought before it in the last year many issues where shareholders

were not adequately informed of the transactions that were being

undertaken by the management of their companies. That is why I

raise the issue.

Mr. GUITH. And as I said, on its face everything should be transparent. It is in what context and what other information is disclosed. And certainly in this case, Congress is fully informed as to

what the number, the process is certainly as well as anyone.

Mr. KUCINICH. I can hope so.

Now, it reminds me of an old story about how we have a system

of checks and balances. The administration writes the checks, and

Congress doesn’t know what the balance is. Now, for the panel,

does the Department of Energy’s track record justify public confidence in its ability to fairly and accurately price the value of the

credit subsidy of loan guarantees to the nuclear industry in order

to protect taxpayers from a large bailout of the nuclear power industry, and is the Department of Energy more likely to overestimate the cost of the credit subsidy, or are they likely to underestimate it?

Mr. Cooper.

Mr. COOPER. I don’t think the Department of Energy has much

of a record. I have been around long enough to remember the synfuels program, and we were adamantly opposed to that, the notion

that the Department of Energy is substituting its judgment for the

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judgment of Wall Street—it may be hiring some consultants, there

are a lot of them out of work these days—to help them work

through some of these numbers.

From my point of view, the program was a small program. They

should have left bad enough alone. The administration has thrown

a lot more money into the pot. We hear rumors of unlimited loan

guarantees. In the end, this could make the synfuels program look

like a walk in the park.

Mr. KUCINICH. Mr. Sokolski, do you want to respond to that?

Mr. SOKOLSKI. Synfuels, the breeder reactor, the mandates for

ethanol where they miscalculated suggests someone needs to come

up with the alternative record where they have done well.

I think the other thing is my understanding is the number of analysts working due diligence within DOE is a pale reflection of the

numbers you would find in a competent, reputable large bank.

Now, I don’t think a reputable large bank has been doing so well.

So I just wonder.

Final point. There could be a conflict of interest. The DOE was

intimately involved in not just promoting, but helping to pay for

the design of the reactors we are talking about seeing built in the

case of Westinghouse. So I don’t think that is the place you want

to have your analysis done.

Mr. KUCINICH. Thank you.

I would like to just get brief answers from the rest of the panel,

and then we are going to go to Mr. Jordan.

Mr. CAPERTON. This is a unique program. So I don’t know how

much previous DOE experience is going to be effective in judging

their ability on this one. But the Congressional Budget Office has

clearly stated that they think DOE will underestimate the cost of

these loans by at least 1 percent for a variety of reasons, including

that utilities who are borrowing this money, who are applying for

the guarantees, if they think it is a bad deal, they won’t take the

guarantee. So only borrowers who think it is a good deal will take

the guarantee.

Mr. KUCINICH. Thank you.

Mr. Scott.

Mr. SCOTT. In this particular program today, we don’t have much

of a record, and we won’t for a number of years, with respect to

any closing on a nuclear because the loan guarantee actually won’t

close for 2 to 3 years before they fulfill the conditions precedent.

And it is actually at that point that OMB calculates the credit subsidy.

Historically, if you go back to other programs that are targeted

toward corporate America, the ATSB after—the airline program

after 9/11, OMB had estimated and CBO had estimated between a

30—or a 30 and 35 percent credit subsidy rate at the—we ended

up making six loan guarantees. At the end of the program, we netted about $300 billion in fees after three technical defaults and one

$20 million compromise. So that brings the credit subsidy down to

a negative 18 percent.

So the track record under the Federal Credit Reform Act is fairly

good at predicting the costs. I’m actually less concerned about

OMB’s ability to accurately measure the cost in some of the other

participants.

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Mr. KUCINICH. Finally, Mr. Guith.

Mr. GUITH. I agree that since most of the examples that have

been cited on this panel have been prior to the passage of FCRA,

which was 1990, which has completely reshaped the loan guarantee

process agency—or governmentwide, whether it is USDA, whether

it is Eximbank, whether it is DOE.

Mr. KUCINICH. I recognize Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman.

I’m just interested in the panel, particularly our first three—you

know, I think it is kind of interesting that the Chamber supports

the program, but the academic and the two think tanks are opposed to it. Not something you always see. And the Bush administration individual, I believe, is somewhat supportive based on what

I gathered. And I understand various reasons and things associated

with all of that, but for our first three in particular who talked

about how bad this program was and shouldn’t be in it, and market

forces should be at work, and etc., where are you at on taxpayer

assistance subsidies, loan guarantees, whatever, for other areas of

energy, other resources? I think Mr. Sokolski’s statement was—you

said that they misdirect resources. So do you support subsidies for

ethanol, biodiesel, solar panel?

We will start with Mr. Cooper, and we will just go down the

whole panel.

Mr. COOPER. If I could get a subsidy-free energy environment, I

would take it. I would prefer to live there than in the mess I have

here. But since I can’t—and the interesting thing in the previous

panel, people missed the biggest subsidy of all, which is the PriceAnderson limit on liability to the industry. And so you have the existing—you have the Federal commitment to waste, which was

pointed out as a subsidy to the industry. And so you have embedded subsidies all over the place.

So I would rather talk about the principles by which subsidies

should be awarded to various sectors, and the principles ought to

apply to all the technologies. So, one, the public policy should target an identifiable market failure. If you can’t show me the market

failure, then you shouldn’t—the government shouldn’t be in the

policy business. Let the market do it.

Two, we should have a level playing field, and we haven’t had

one in the energy sector for an awfully long time.

Three, the policy outcome should be very clear. And as a consumer advocate, I like least costs, I like the biggest bang for the

buck. Diversity also is a good proposition. You’ve heard people

speak to that.

Fourth, there has to be fiscal responsibility. And as I see the loan

guarantee programming being rolled out, it would appear to be

that the sky is the limit, especially when I have secrets about the

cost.

And fifth, there has to be administrative accountability. Given

that I have to live in an environment that is riddled with subsidies,

I have to start making sure that they work for the public interest.

Mr. SOKOLSKI. My grandma had an expression for answering

questions like that. She would say, ‘‘Enough already.’’ We are up

to our gills in this. This country is becoming a little broke. I think

we need to stop. We need to stop this. We made a lot of mistakes,

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in my opinion, in bailing out companies we knew were failing, and

they should have maybe used a little money to let them fail gracefully, but not save them.

Two more comments.

Mr. JORDAN. No disagreement from the chairman and the ranking member on that.

Mr. SOKOLSKI. Say again?

Mr. JORDAN. No disagreement from the chairman and the ranking member on that.

Mr. SOKOLSKI. Well, there oughtn’t to be amongst Americans on

that. We are in trouble, sir.

Mr. JORDAN. I agree.

Mr. SOKOLSKI. Now, it seems to me—two other comments might

add some value. First, when I get principled environmentalists in

a room who are economists, they say things like you heard, but

even further. They join with fiscal conservatives in saying subsidies, even for wind, solar, etc., will hurt their cause. And the reason why is when you put the subsidies out there, the biggest pigs,

coal, nuclear, are going to not only eat the most, but they are going

to set the rules in that playpen for a long time. You need to experiment. So that’s the last thing you want.

The last comment. The only role for government, and it is why

we have the Department of Energy—and it is a problem, because

it is not a great actor, in my opinion—is that State regulations

don’t allow people to capture the rents associated with fuel efficiencies. And so to do R&D, you have to be out of your mind, and

that is the reason the government does it. We don’t do a great job

of it. I think regulatory reform would go a long, long way in solving

that problem.

I suppose I should close on one point. I served on a congressional

commission that you put me on to prevent WMD proliferation and

terrorism, and one of the things we unanimously, bipartisan, supported was we should discourage the use of financial incentives to

promote nuclear power. And the reason why isn’t because of problems here, but because you lose your moral authority to talk to

countries like Iran, who, after all, point to us and say, ‘‘we will do

the same.’’ You want to subsidize; so do we. Who cares if it is economic? I think we should care.

Mr. CAPERTON. To clarify, we are not opposed to these loan guarantees. We are supportive of a fully functioning Title XVII loan

guarantee program. Now, I think there is some characteristics that

we should look at to judge whether or not a loan guarantee is effective. First, does it address a market failure? In that case we can

look further. Then we want to look at exploring technologies and

promoting technologies that provide clean, cost-efficient, safe energy to American consumers. There are potentially some instances

where nuclear programs meet those criteria. There are certainly instances where wind and solar meet those criteria and other technologies meet those criteria.

Mr. SCOTT. Title XVII has 10 very broad categories of technologies that are eligible. If you implement the program under

1702(b)(2), which is the borrower pay provision, it is actually technology-neutral in the sense that you don’t have to allocate Federal—scarce Federal dollars to any particular technology. And it is

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more a function of how long does it take the technology to get into

general use, which is then the——

Mr. JORDAN. But we have other subsidies that—we have the tax

credit available for the ethanol industry. We have other ways that

taxpayers finance other forms of energy.

Mr. CAPERTON. Sure, sure.

Mr. JORDAN. And you are supportive of—do you disagree with

that, or are you opposed to that?

Mr. CAPERTON. I am here to talk about Title XVII.

Mr. JORDAN. Fine.

Mr. GUITH. We had the privilege of testifying, my boss, in front

of your colleagues, in front of the Ways and Means Committee last

week on fiscal policy as to—I think it was the green economy expansion. And while we certainly support fiscal policy as one of the

tools, I mean, we do have to take into account where we are in the

entire economic perspective, which is right now we are running

record deficits and projected use over some time. And there are

things, much like concessionary financing, like loan guarantees, as

well as perhaps the CEDA proposal that both the House and the

Senate have looked at, in addition to, as was mentioned in the previous panel, regulatory reform that can be done without any taxpayer dollars. And I think that is, especially in this resource-constrained environment, where Congress should be looking.

Mr. JORDAN. Thank you.

Thank you, Mr. Chairman.

I want to thank the panel.

Mr. KUCINICH. We are just going to go for a few more questions.

Mr. JORDAN. Fire away.

Mr. KUCINICH. OK. Thank you, Mr. Jordan, for participating.

Mr. Caperton and Mr. Scott, hypothetical. If there is a default in

one of the loan guarantees relating to the construction of a nuclear

power plant, such as may be caused by weak natural gas prices,

the market falls apart. Could that indicate a greater likelihood that

a default will occur in one of—more of the others? In other words,

possible defaults may not be independent results; instead they may

be interdependent on the overall—on energy markets?

Mr. CAPERTON. I’m not quite sure I follow you.

Mr. KUCINICH. We have established in the last panel that the

Energy Information Agency says there is going to be weak natural

gas prices for decades, relatively weak. That is—do fluctuations in

the larger energy environment create consequences for these investments in nuclear power plants that actually establish a relationship between the investment in those plants and a larger energy market? Is this something that people should take heed of?

Mr. CAPERTON. I think that—I want to make sure I answer your

question. The two nuclear reactors aren’t necessarily connected,

and a default in one shouldn’t necessarily affect a default risk in

another one. The underlying economics of energy markets—in this

case, low natural gas prices—could certainly affect all sorts of nuclear reactors. So I would think that what causes a default in one

could very well be indicative of what might cause a default in another. But the defaults themselves likely don’t cause each other.

Mr. COOPER. Mr. Kucinich, let me try that, because I actually

looked at that in the case of Florida at the Public Utility CommisVerDate 11-MAY-2000 14:16 Jun 09, 2011 Jkt 000000 PO 00000 Frm 00187 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65123.TXT KATIE PsN: KATIE
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sion, and if you looked at the moment when they made the decision

to issue a certificate of need, there are a key series of assumptions

the utility made to justify the economics of the plant. In the ensuing 2 years, three of the most fundamental assumptions changed

dramatically. The cost of the plant went up, the cost of natural gas

went down, and the phenomenal low growth projection evaporated.

The utility now sitting there, having committed the plant to

spending hundreds of millions of dollars, now is faced with a whole

new set of economic conditions, and in order to justify continuing

with this project, they begin to change their 10-year plan. They

start pulling out natural gas plants, because they don’t need them

anymore, to make room for the nuclear plant, whose economics

have been undermined. They launch a campaign to oppose energy

efficiency and reduce it in the integrated resource plan to make

room for the nuclear reactor.

So in a 2-year period, the economics changes dramatically. And,

of course, some people will say we are doing this for 20 or 30 years,

but in a time of uncertainty, the one thing you want in your investment portfolio is flexibility.

Mr. KUCINICH. But in terms of energy flexibility, I just want—

we have to—do we also of necessity have to factor in the time it

takes to put an energy facility on line so that it melds into the

overall energy supply?

Mr. COOPER. If you look at the case of Florida, the projected date

when they thought they would need the reactor was 2017. When

you bring in the change in demand, if you actually look at climate

legislation, that same peak would not have occurred for 20 years.

That means that you—what you want to do is wait before you commit to this massive project, a prudent decision that says wait; I can

wait for 5 years, I can wait for 10 years. And as a prudent investor,

you want things in your portfolio that give you that opportunity.

And so the inherent nature of these projects with their long lead

time raises their cost of capital, raises their risk, and has exactly

the effect—and natural gas has exactly the effect that you suggest.

Mr. KUCINICH. I’m looking at independent variables here. For example, new technologies come in. I mean, last year the wind—the

American Wind Energy Association has said that they have added

about 10,000 megawatts of new wind-generating capacity in a year.

Some say, ‘‘well, that is the equivalent of 10 nuclear power plants.’’

That is an independent variable that changes markets, OK?

In the meantime, if you can move a new technology in, then you

have other technologies that won’t move as quickly in because of

their capital-intensive nature and the time it takes to build a plant

let alone repair a plant that might have a problem. So I just wondered in terms of the totality of energy markets and the variables

that you have to consider, does that start to drive the risk factors

of some technologies as opposed to others? In this case we are talking nuclear.

Anybody else want to try?

Mr. GUITH. Mr. Chairman, yes, it certainly does, which is why

you don’t see any utilities right now rushing out to build a reactor.

It is still very uncertain. I think it cannot be overstated that at the

end of the day, the risk that is placed upon these individual companies is so significant that they are not going to rush into it has efVerDate 11-MAY-2000 14:16 Jun 09, 2011 Jkt 000000 PO 00000 Frm 00188 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\65123.TXT KATIE PsN: KATIE
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fectively been implied willy-nilly , unless they know the demand is

going to be there.

Obviously, the economic situation over the last 2 years has

changed the entire energy landscape for the near term, but we still

have significant projections in electricity demand in this country

and certainly around the world.

And just to make one point about your—the EIA natural gas projections. I think it is important to understand what EIA does and

what EIA does not do. EIA does not model based on any assumptions that are currently not in law, which is to say they are limited

by rule, by congressional rule, as to what they can assume. Therefore they are going to assume that every single tax credit that exists is going to grandfather out because the law says so; that every

single subsidy is going to grandfather out, which is to say that—

I think you look at where Wall Street is going right now and where

investment money, it is going into natural gas. It is not not going

into natural gas, and it is going in there because they expect prices

to increase.

Mr. KUCINICH. You raise a question about why Wall Street is not

rushing in right now. And it gets into this potential of the moral

hazard discussion that we had on bailouts. Now, Mr. Jordan and

I both voted against the bailout. And if Wall Street looks at the

risk factors here and just says, ‘‘we don’t really want to go there

right now’’—I mean, I will tell you, from the Cleveland area we had

a company by the name of the Cleveland Electric Illuminating Co.,

which was a top-rated company, blue chip stock. They brought in

the nuclear power, and it wasn’t too long, you know, within a decade or so, they started to run into serious financial trouble. Wall

Street isn’t taking the risk.

So what we are doing, the risk factors that are laid out here

today are essentially being taken up by the taxpayers. Whether

you’re for nuclear power or not, we are just talking economics here,

they are being taken by the taxpayers. In a constantly changing

energy environment—new technology is being brought on, old ones

are starting to either get renewed, energy drilling policy or the energy bill that passed. That is why this issue of transparency, the

issue of trying to figure out what the government’s exposure might

be is not a small matter in a climate where everyone wants to

know how much something is going to cost, can we make some reasonable projections, what is our exposure here.

Anybody else want to comment on that before I move on?

Mr. Scott.

Mr. SCOTT. Mr. Chairman, all of the factors that you raised,

whether it is natural gas prices or other competing technologies,

end up being evaluated both by the project sponsors, by DOE, by

OMB, by the ratings agencies. And, you know, practically speaking,

the agency may have views on assumptions about electricity prices

or gas prices that are different than our project sponsors’ that ultimately gets reflected in the underwriting of the project. Now, they

may or may not be right. The companies may not be right. The government may not be right. But you fast-forward when—in particular around nuclear, if you think about when a loan guarantee

would actually close, because they have to meet the conditions

precedent, you remain 2 to 3 years away before you’re going to see

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an actual closing, and it is the assumptions at that closing time

that are going to be relevant to the evaluation of the business plan

both by the rating agency as well as by OMB on the credit subsidy

side. So at the end of the day, you end up with the best information

that you have when you need to make that decision and when

you’re actually exposing the taxpayer on the Federal loan guarantees.

Mr. KUCINICH. It is interesting because, you know, there are the

familiar anchor points which we have to try to come to a level of

analysis that would say, ‘‘this is our best estimate.’’ We have started to see in the last couple of years some changes in the status.

You mentioned credit rating agencies, OK? You look at the credit

default swaps and some of the information that the credit rating

agencies really had a responsibility to disclose, but there was a conflict. We see the latest Abacus case involving Goldman Sachs. Credit-rating agencies again come into play with raising questions

about the information they are providing to the public. We see that

shareholders are not being given information they were entitled to,

they didn’t get it, lack of transparency. We see even in this environment Congress having trouble fighting for a bill that would

bring about financial reform and bring in a new measure of transparency.

So in that kind of an environment—you will have to forgive this

chairman for being a little bit cautious about how much more of an

exposure in a risk—highly risk-filled environment we want to provide for the taxpayers. That is why this is a very important discussion. Because I looked at your resume, Mr. Scott. You have been,

as much as anybody, over all of these issues related to credit availability, credit guarantees. You know, I happen to believe that there

are some cases in which it is an appropriate role. I think that R&D

in particular is a great place to—that we can incentivize all kinds

of possibilities for the government to start things happening. But

when we—instead of buying a few implements, we buy the farm,

it starts to become a little bit more problematic.

And I want to thank each of you for being here today. We have

had a—excuse me.

Mr. Cummings, thanks for joining us. Do you have any questions?

Mr. CUMMINGS. Mr. Chairman, I thank you for calling the hearing, and I will submit my questions for the record.

Mr. KUCINICH. I appreciate that. The members of the committee

have 5 legislative days in which to submit questions. And I would

ask the members of the panel and the previous panel to please be

available to respond in writing to any questions that Members may

have.

Again, very impressive panel. You have really given all of us in

Congress a lot to think about. And we will make sure you testimony gets widely distributed. This is the Domestic Policy Subcommittee of Government Oversight and Reform. This committee

has been about nuclear loan guarantees. We will probably have one

or two more hearings on this.

This committee stands adjourned. Thank you.

[Whereupon, at 4:46 p.m., the subcommittee was adjourned.]

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