Rapid Response: Rep. Ed Markey's Criticism of Loan Guarantees for Nuclear Power Projects, Sept. 23, 2011
In a Sept. 23, 2011, letter, Rep. Ed Markey (D-Mass.) raises questions about the nuclear energy industry’s role in the process of developing the regulations that govern the clean energy loan guarantee program authorized by the 2005 Energy Policy Act.
Specifically, Mr. Markey raises questions about the issue of subordination, and the nuclear energy industry’s position on this issue. NEI has never suggested that the U.S. Department of Energy should accept a subordinate position with respect to any other lender under the DOE loan guarantee program.
Mr. Markey’s letter demonstrates convincingly that he does not understand financing or the rules governing the loan guarantee program. Here are the facts:
Many of the clean energy projects eligible for DOE loan guarantees have multiple sources of debt financing—some debt guaranteed by the Department of Energy, some from other sources. In the case of certain nuclear power projects, for example, it was expected that other countries’ export credit agencies would provide debt financing side-by-side with the DOE-guaranteed debt.
The original rule promulgated by the Department of Energy in 2007 reflected a flawed interpretation of the 2005 Energy Policy Act, and asserted that DOE must have a “superior right” (i.e., the department must be in a first lien position) on the entire project, whether or not it was the only provider of debt financing. Under the 2007 rule, other lenders would have been forced to accept a subordinate position to DOE. This runs counter to standard financing protocols and made financing impossible.
The nuclear energy industry drew DOE’s attention to this flaw in the rule, as did the other clean energy technologies eligible for DOE loan guarantees.
In a March 2, 2009, letter to Energy Secretary Steven Chu, the American Wind Energy Association urged DOE to change the 2007 rule to “allow DOE to share collateral pari-passu (i.e., equally and without preference) with all non-guaranteed project lenders.”
In a May 19, 2009, letter to President Obama, seven clean energy trade associations (representing the wind energy, solar energy, geothermal energy, combined heat and power, nuclear energy, biomass energy and hydropower industries) urged DOE to “[c]orrect the current requirement under the 2007 regulations that DOE must have a first lien on all project assets … and permit DOE discretion as to the scope of a given project’s collateral package. The regulations must allow for more flexible collateral-sharing arrangements, including pari passu treatment of the collateral shared among co-lenders.”
In brief, the change to the rule governing the DOE loan guarantee program referenced by Mr. Markey was advocated by all the clean energy industries eligible for loan guarantees. This was not a nuclear energy industry initiative, but a broad-based effort to make the loan guarantee program workable.