The size of the “credit subsidy” payment that the recipient of a federal loan guarantee has to make to the guaranteeing agency can make or break the viability of the transaction. This is certainly the case for Southern Company as it negotiates with the U.S. Department of Energy (DOE) regarding a multi-billion dollar loan guarantee to finance the construction of two new nuclear reactors in Georgia.
According to an article in the February 17, 2010, New York Times:
"Industry officials have said an upfront credit subsidy payment of 1 to 2 percent of the loan amount would be manageable, but a significantly higher number would kill the proposed new reactor projects."
The magnitude of that payment, whatever it turns out to be, is not going to be shared with the public. That information, according to Ebony Meeks, Press Assistant at DOE, is “proprietary” to Southern Company and “will remain confidential.” The reason it will not be made public, she said, was to avoid a situation where one company getting a loan guarantee has grounds to complain that it didn’t get as fair a deal as another company getting one.
Also today, an official at the Office of Management and Budget (OMB) sent Etopia News this statement regarding the relationship between that agency and DOE in determining the size of the credit subsidy:
“As is typically the case, OMB is working with the relevant agency, DOE in this instance, to come to agreement on the underlying assumptions and models, and work together to develop accurate cost estimates, taking all applicable information into account.”
Ms. Meeks at DOE said that the size of the credit subsidy payment would be determined through “a negotiation” involving OMB, DOE, and Southern Company. She agreed that the final figure would be determined by a “consensus” among the three members of this “partnership.”
Meanwhile, Southern Company has taken out a full-page ad in March 13, 2010, issue of The Economist magazine to announce that it is “investing $6 billion in clean, reliable, affordable energy.” The ad shows a happy worker with a lunch pail walking in front of high-tension distribution towers and says, in part: “Nuclear power is cost-competitive and clean, and it adds fuel diversity to our nation’s energy resources. The two new units under construction at Plant Vogtle, located near Augusta, Georgia, represent a multibillion-dollar capital investment in the state and will create 3,500 construction jobs and 800 permanent jobs.”
No mention is made of the fact that the bulk of the money for this investment, according to Southern Company spokesperson Steve Higginbottom, will be coming from federal taxpayers. See the March 4, 2010, Etopia News article, “Utility expecting billions in taxpayer funding for two new nuclear reactors,” in which he says that “it’s our understanding that the funding will come from the Federal Financing Bank (FFB).” The FFB is an agency of the U.S. Treasury Department.