• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

Don't Unplug the Energy Department

Those who would do away with the DOE have no idea what it really does.
By GLENN WILLIAMS
Nov 28, 2011 | 03:00 PM EST
Stocks quotes in this article: SO, SCG, NEE, PGN, DUK

Few people understand the Department of Energy, including some presidential candidates who want to get rid of it. But before it is completely abolished, the candidates might want to take a closer look and understand what's under the DOE's hood.

They may be surprised to find that the nation's nuclear weapons and naval reactors are owned by the DOE, not the Department of Defense. So abolishing the DOE means candidates want to terminate the National Nuclear Safety Administration, the office that manages the nation's nuclear weapons and naval reactors. It seems odd that some candidates want to dismantle the nation's nuclear defense systems while promising to keep America strong.

One candidate suggests that he would abolish most DOE programs and transfer critical ones to other agencies. Let's start with NNSA. Which federal agency should own the nation's nuclear weapons programs? Don't suggest DOD -- since the 1940s it's been the will of the nation to keep nuclear weapons in civilian hands.

NNSA is a big program. President Obama's proposed budget for DOE's fiscal year 2012 is $29.6 billion. Within that budget, NNSA and related defense activities represent $18.1 billion, or approximately 60% of the DOE's budget.

DOE's other big-ticket item is energy programs. These programs amount to approximately $12.1 billion, or 40% of the budget. Energy programs are civilian offices that manage government responsibilities to decontaminate and decommission nuclear facilities and dispose of nuclear waste from hospitals, universities and non-defense facilities (taxpayers do not pay to dispose of nuclear waste from commercial power plants).  Energy programs also include funding the Energy Information Administration, the strategic petroleum reserve, the naval petroleum reserve, home heating oil reserves, electricity delivery and energy reliability, energy efficiency and renewable energy (EERE), and science.

Science alone represents $5.4 billion, 45% of the energy program's budget and 18% of the DOE's overall budget. In DOE-speak, science means national defense laboratories, including the Sandia, Lawrence Livermore, Los Alamos, Argonne, Jefferson, Fermi, Oak Ridge, Savannah River, and Brookhaven facilities.

Altogether, 80% to 85% of the DOE's functions would be considered critical by most voters -- and some would say all of it is essential. Candidates should explain to voters why they believe a majority of DOE functions are non-essential and what they would do with the nation's nuclear bombs, naval reactors, research facilities, petroleum reserves, EIA and so on.

We know some candidates will not transfer DOE's functions to the Departments of Commerce, Transportation, Interior or Education because candidates want to eliminate some of those agencies as well. The question remains: Where would they transfer 85% to 90% of DOE?

They don't know. They have no idea what DOE does. They incorrectly assume DOE is filled with flower children focused on crazy projects and ignoring traditional energy sources. They are wrong. DOE is technologically agnostic. For the several decades, DOE has managed each energy source independently; each fuel has its own office. This includes the offices of fossil fuels, nuclear, electricity and EERE.

Within those offices, many projects take advantage of public-private partnerships where shareholders and taxpayers share financial risks on several large projects. In 2005 Congress expanded national policy to provide loan guarantees and public-private partnerships as a critical tool to promote investment in innovative projects such as Solyndra and new nuclear power. The idea was to offer federal loan guarantees to eliminate risk for bondholders.

From shareholders' perspective, federal loan guarantees are no panacea. Only after a company is forced into full liquidation will the federal government step in to guarantee any remainder liabilities to debt holders. To reach this step, the shareholder had already been abandoned and left with nothing.

Nevertheless, some utility companies are moving ahead to secure loan guarantees to build new nuclear power plants. Southern Co. (SO) has already obtained a conditional Solyndra-type guarantee to help it build two nuclear power plants. Those plants are expected to cost approximately $14.5 billion.

Southern is not alone. SCANA (SCG,) NextEra Energy (NEE), Progress Energy (PGN) and Duke Energy (DUK) also want to build nuclear power plants and will need federal loan guarantees to protect bondholders.

Presidential politics, bashing loan guarantees and trying to destroy the entire DOE introduces new risks for utilities and developers of new nuclear power plants. Adding the political risk may make the price for federal guarantees too expensive. It may be prudent for nuclear utilities to delay investments until the political season has passed and politicians' rhetoric cools off.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Williams had no positions in any of the stocks mentioned.

TAGS: Investing | U.S. Equity | Energy | Utilities | Politics

More from Energy

Don't Waste Energy Divining Energy's Future; Ride With LNG Shippers Instead

Jim Collins
Jan 21, 2021 10:30 AM EST

A hot market for liquefied natural gas makes companies that transport the fuel sensible plays at a time when oil is demonized.

Renewable Energy Group Is Set to Drive to New Highs

Bruce Kamich
Jan 21, 2021 10:08 AM EST

REGI is the nation's largest biodiesel maker.

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

Time to Nail Down Some Profits on Halliburton

Bruce Kamich
Jan 14, 2021 10:47 AM EST

Our latest technical analysis and trading strategy for the oil services stock.

A Rising Tide Is Going to Lift LNG Shippers in a Very Cold Winter

Jim Collins
Jan 14, 2021 10:30 AM EST

Also, my take on Jack Dorsey and Twitter, along with Facebook.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:52 AM EST GARY BERMAN

    INDU/DIA 20 DMA

    Fibocall: The DIA has the 20 DMA @ 307.81 and w...
  • 08:04 AM EST GARY BERMAN

    Monday Morning Fibocall for 1/25/2021

    SPX (Long-Term View) The 1/21/21 NEW high @ 3861...
  • 11:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    I discuss price targets in my Saturday column.
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login