Powering Up

 | Feb 13, 2012 | 4:30 PM EST
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Last week, the nation finally heard from the Nuclear Regulatory Commission (NRC), which finally issued construction permits for The Southern Company's (SO) two new nuclear power plants at its Vogtle facility in Georgia. The NRC not only approved the construction of two new nuclear units, they also approved Southern to operate these new plants, under a permit called a combined license (COL)

The NRC previously certified Westinghouse's design for their AP1000 nuclear system. NRC's certification allows Westinghouse to sell AP1000s to any NRC-qualified utility without additional regulation. With the NRC's design certification in hand, Southern's COL completes the federal licensing process. After construction is completed, they can immediately begin commercial operations.

Another utility lined up to build two more AP1000s is Scana (SCG). Like Southern, Scana plans to build two new AP1000s at its V.C. Summer facility. There is no doubt Scana will receive NRC's coveted COL license; as an existing nuclear operator, they are obviously qualified. The question is when and the betting is within the next ten months.

Vogtle's owners secured a Solyndra-type loan guarantee from the Department of Energy (DOE). According to World Nuclear News, DOE is providing Vogtle partners a loan guarantee of $8.3 billion ($3.07 billion to Georgia Power, $3.07 billion to Oglethorpe Power and $360 million to the City of Dalton). DOE is authorized to approve nuclear loan guarantees under the Energy Policy Act of 2005, signed into law by George W. Bush in August 2005.

Another Vogtle partner, the Municipal Electricity Authority of Georgia (MEAG) announced that $2.48 billion would come from the issuance of Build America Bonds and $54 million would come from tax-exempt bonds. Build America Bonds is another federal subsidy that has the U.S. Treasury underwriting the interest paid on the taxable bonds. Build America Bonds were created under the American Recovery and Reinvestment Act that President Barack Obama signed into law in 2009.

While Scana does not have a federal loan guarantee, its VC Summer facility shares other federal subsidies with Vogtle. According to the Nuclear Energy Institute (NEI), new nuclear power plants are entitled to receive production tax credits. Both Vogtle and V.C. Summer qualify for up to $1 billion of federal tax credits ($2 billion total) spread over 8 years. These same tax credits are not available to solar power facilities and will soon expire for new wind facilities.

Vogtle and V.C. Summer share a new federal subsidy called, Standby Support. According to NEI, Standby Support is risk insurance that covers delays caused by factors outside a company's control. It appears Vogtle is entitled to $1 billion and VC Summer is entitled to $500 million of federal subsidies to help pay their debt service should a qualifying event disrupt their construction schedules. Standby Support subsidies were created by the Energy Policy Act of 2005.

While this seems like a lot of federal subsidies, it is not as aggressive as it may appear. Congress limited its subsidies to the nuclear power industry. The first two new nuclear plants are entitled to the most subsidies. The next four plants are allowed fewer subsidies. Subsequent plants are entitled to even less. Congress's idea was to reduce the financial risk of first-of-a-kind nuclear power plants and stimulate the construction of badly-needed base-loaded plants.

As these subsidies are currently constructed, Southern will benefit the most. It is the first out of the gate and entitled to the most generous portion of Congress's energy policy. Scana will be able to secure the second most generous basket of subsidies. All other utilities will earn less.

As attractive as these subsidies may seem, they are not enough to motivate most utilities. Duke Energy (DUK), Progress Energy (PGN), NextEra Energy (NEE) Dominion Resources (D), Constellation Energy Group (CEG) and NRG Energy (NRG) all started their licensing processes at the NRC. All have delayed or suspended their construction plans. The remaining subsidies are not enough.

There is little argument the nation needs new power plants. Most utility executives believe the nation needs a diversity of supply, which includes nuclear, coal, natural gas, wind and solar. With that goal in mind, Congress needs to clean up their loan guarantee, tax credit and subsidy policies. As it stands today, the current policy has Congress picking winners and losers by choosing some forms of energy over others.

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