Bad Reactors: Sub-prime Nuclear Loans

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Washington Monthly

Bad Reactors: Sub-prime Nuclear Loans

by
Mariah Blake

In July 2007, Baltimore-based UniStar Nuclear Energy made history by applying for a permit to build a new 1,600-megawatt reactor on Maryland's Chesapeake Bay-the first application the Nuclear Regulatory Commission had seen in nearly three decades. It has since sought approval for an additional three plants in Missouri, New York, and Pennsylvania.

Behind these bold plans is a rare and complicated business model. UniStar, a limited liability corporation, is a joint venture of two major utilities: EDF of France and Constellation Energy, a Fortune 125 company and America's largest supplier of wholesale electricity. UniStar has also spun off a subsidiary, Calvert Cliffs 3 Nuclear Project, LLC, to build the Maryland project-a structure that gives its corporate parents two layers of protection against financial meltdown.

In its promotional materials, UniStar touts this arrangement, saying it is "powering the nuclear renaissance" through "effective risk management." But its approach carries substantial risks for the American public. According to UniStar estimates, the reactors will cost between $4,000 and $6,000 per kilowatt capacity to build, for a total of up to $38 billion. (Projections from Moody's Investment Services put the costs closer to $48 billion, roughly the same amount the United States spent on the Iraq War in 2006.) Yet UniStar's parents have only provided it with about $400 million in assets and capital, not nearly enough to tackle a project of this size. And there is a reason for this: its plan for financing these projects rests entirely on government-backed loans.

According to testimony UniStar executives gave before the Maryland Public Service Commission, the U.S. Treasury is expected to backstop 80 percent of the total costs through the Department of Energy loan guarantee program (designed largely to encourage the building of new nuclear power plants) and possibly to put up funds via its Federal Finance Bank arm. To cover the remainder, UniStar plans to seek loans from the French import/export bank COFACE. (Both Japan and France-the two countries with the capacity to manufacture new reactors-are expected to offer guaranteed loans to companies that build nuclear plants using suppliers in their countries, so other U.S. utilities will likely be eligible for this kind of support, too.) Under no circumstances do Constellation or EDF intend to dip into their own coffers to fund the project. "Without the federal loan guarantees, this whole thing will come to a stop," UniStar CEO George Vanderheyden told reporters before a community meeting about the Calvert Cliffs plant.

The Department of Energy is still weighing UniStar's loan guarantee applications, but if all goes as planned, the firm's corporate parents will have little or nothing at stake, while taxpayers are on the hook for tens of billions of dollars. And UniStar is not alone in its ambitions. Most, if not all, of the seventeen companies with applications for new reactors before the NRC are counting on federal loan guarantees-an unsettling scenario given that the Congressional Budget Office has found the risk of default on guaranteed loans for reactors to be "very high-well above 50 percent."

Mariah Blake is an editor of the Washington Monthly. Research support for this article was provided by the Investigative Fund of the Nation Institute.

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