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Letters to the Editor

Fortnightly Magazine - September 1 2003

$16 billion figure put forward by the congressional analysts and claimed as too costly. A bare majority of senators saw through the distorted numbers, defeating a proposed amendment to eliminate the nuclear provisions in a close 50-48 vote on June 10, ably led by Sen. Pete Domenici.

To clarify, the federal credit approach does not automatically grant loan guarantees for reactors. Instead, based on the Federal Credit Reform Act of 1990, a federal agency can be authorized by Congress to negotiate financial assistance, subject to independent credit evaluation (by Moody's or S&P). DOE has some limited loan guarantee authority under its acquisition regulations (DEAR 932.70). Projects with a 50 percent default rate presumed by the Congressional Budget Office (CBO) and nuclear opponents simply would not be approved by either industry or the federal agency. Instead, different terms would be negotiated. In the name of caution and outdated analysis, CBO incredibly rated reactor construction projects here on a level with Argentina's economy.

Already, many U.S. government agencies, such as DOA and DOT, use federal credit for rural utility projects, transportation infrastructure, and water resource development. Federal loans are not "bailouts," nor are they full subsidies from the Treasury like tax credits or grants, as ladled out for solar, wind, and ethanol. Loan agreements can be better tailored to specific projects, and are always combined with private funding. Moreover, estimates quoted by CBO and CRS in evaluating the outlook for reactors were based on projects 20 to 30 years ago, and fail to incorporate any engineering advances and current construction experience abroad. A prudent 10 percent to 20 percent default rate on $1 billion in federal loan assistance would trigger $100 million to $200 million in budget exposure, not a wildly inflated $16 billion figure!

Recent analysis for the American Nuclear Society by John Redding of GE Nuclear shows that with the first advanced boiling water reactors built in Japan in the 1990s, the United States could benefit from construction learning curves, such that reactors could be built after 2010 in the $1,800 to $1,400 per KWe range, and then brought into the range of $1,200 with multiple orders. The timing would coincide very well with replacing over 120,000 MWe of aging coal plants in the United States, which by 2010-2015 would exceed 40 years in operating life and likely face stiffened emissions requirements before then. But, with substantially higher demand, plus transportation constraints, natural gas prices in the United States have moved to a $4 to $6 range with higher price spikes. Hence, the first few reactors with capital costs in a range of $1,600 to $1,750 could be close to competitive, particularly in regions where regulated long-term electric contracts are more the norm, and with some federal credit.

Federal credit helps fulfill the public sector objectives of curbing air emissions and improving energy security through a diverse national generation portfolio. Financing for nuclear power deserves to be in the energy bill, with federal support for national benefits.


To the Editor:

New construction starts in nuclear power will certainly require overcoming the issues