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.