Solving the energy crisis and ending bailouts- for real!

April 17, 2009 at 1:00 pm by Chris Hrabovsky

For those of us growing weary of hearing about the energy crisis, coupled with the concept of more bailouts for corporations such as AIG and the rest of Wall Streets finest, we may finally have the “pick-me-up” you’ve been craving, in the form of green sustainability.

The truth is, “bailouts”, are not just limited to Wall Street thieves. Energy Companies like Progress Energy have been granted a “pre-emptive bailout”, for a boondoggle that hasn’t even been built yet. No longer do corporations have to screw up and gamble away their money in order to have the government hand them more of our hard earned cash. Now they can be given the right to reach into our wallets, to subsidize their gambling schemes before they even get started. It’s called Advanced Cost Recovery and the proposed Levy County nuclear plant is the first of more to come. Progress Energy started adding 25% to their customer’s bills this January of 2009, in part to pre-pay for their nuclear power project. They are taxing citizens for this corporation’s private gain.

But wait, where’s the “pick me up”, I referred to earlier? Like you, the only thing that makes me more weary, than hearing of another bailout, is hearing another person complain about it without offering any hope or solutions. Well, this time we have both. I have been researching this issue for some time now and have uncovered several solutions.
Let’s begin with the most ambitious. We can create Municipal Utility Companies in each and every Chartered City in Florida. Right now Florida has 34 Muni’s according to the FMEA, some producing their own power and others buying power from abroad. The most shining example of a well functioning Muni, is the Gainesville Regional Utility Company. They use some of the revenue they collect to pay for the City’s police, fire, and parks and recreation (lowering taxes instead of lining the pockets of a corporate CEO). The GRU is also the country’s first municipality to introduce the Feed In Tariff to pay for Solar Panels for their residents. This is the method Germany used to help encourage homeowners to install Photo-Voltaic (PV) panels on their homes- The homeowner gets paid 32 cents for every kilowatt produced by their solar panels and then only has to pay 12 cents for every kilowatt used in the home. This allows residents to become entrepreneurs, making a profit from sunshine (for more details visit FARE).

How then, you ask, does a city that is covered by a monopoly, like Progress Energy, TECO, or Florida Power & Light, do this? One way is to do what the City of Winter Park did. They broke free from Progress Energy, when their franchise agreement was up, and now the City of Winter Park has control over its own power. They are currently issuing bonds to help put the power lines underground. They will have the opportunity and the option to move toward wind and solar power to help meet their city’s energy needs. They could then place solar panels on the land that currently holds the large type, high tension transmission line towers. Thousands of acres of land, which is already maintained and is currently unused, can be utilized and covered by PV panels, which can deliver power directly to the grid. This will prove more efficient than a large centralized production facility because there will be less loss in the transmission of the power, as it will be spread out along the many miles of land that these towers and lines already occupy.

We are currently researching many franchise agreements between Progress Energy and various cities throughout Florida, in order to help other cities obtain their freedom from corporate monopolies. So far we have noticed a trend, of diminishing rights for city residents. For example, in Tarpon Springs’ 1961 Franchise agreement with PE, the City had the right to buy back the power grid (like in Winter Park), and in the current agreement that provision is missing. Also missing in the current agreement is the right for the city to renegotiate the 30 year contract every 10 years. Valuable information is being uncovered as we pour over the lengthy legal documents. More to come as the records requests keep pouring in. This is where you can get involved. Contact your local City Representatives and ask about your City’s Franchise Agreement, and take a look at your City’s Electric Bill. Start conversations with your neighbors about what it might be like to have your own Muni Power Company, who answers to the people, instead of out of town shareholders. Call Winter Park and Gainesville, and ask them. Also call the City of Belleair and ask about their experience trying to get the same freedom from Progress Energy. Every chartered City can do this by referendum. Do the research and start the petitions.

Another potential solution to both our energy needs and our need to be free from bailing out corporate energy producers is, the Berkeley Model. In Berkeley California, they have implemented a program for issuing Bonds that can be used to buy solar panels for a home. The city pays the upfront costs and the property owners repay the costs over 20 years through a special assessment on their property tax bills. This model allows the cost to remain with the house, so if sold or even foreclosed on, the house and the solar panels would go to the new owner, and the monthly tax increase would go along too, as well as the savings of course due to no electric bill. Again, contact your Mayor and Representatives, and demand that they study this option. This can be done in your city.

Yet another potential solution actually allows a corporation to be the savior: I call this the SunRun Model, after the SunRun solar company in San Francisco California. This is an example of a corporation paying all of the upfront costs and ongoing maintenance for solar systems on each home. The home owner, then pays a monthly fee, either for the electricity used or the fee could simply be used to pay back the loan for the systems cost (a hair splitting detail that may have to be ironed out due to Florida’s laws in regard to who is allowed to sell electricity). Even this model will help break the grip of dirty oil, coal and nuclear corporate monopolies. The way to help make this happen is for you to encourage the passage of solar friendly local ordinances, and state laws, like the Feed-in Tariff. Then call European, California-based and local Florida companies and tell them we have new markets opening due to the passage of these new incentives. Thus, new Green Jos are created (40,000 in Germany)!

We can produce clean, safe, and renewable energy locally. We can complete our energy producing projects more quickly and efficiently than their proposed nuclear plants, as well as create local green jobs in the process. And we can do it for much less money. Let us ween ourslves off of the corporations that we have entrusted with too much, for far to long. No more bailouts for corporate private profits. It’s time to bail ourselves out of the mess that greedy corporations have put us in.

Let’s create our own energy. And in doing so, we shall energize our economy, our neighborhoods, and ourselves. Let’s take back our power, literally!

http://blogs.creativeloafing.com/dailyloaf/2009/04/17/solving-energy-crisis-ending-bailouts-for-real-2/

How did $50B high-risk, job-killing nuclear loans get in the stimulus? Fraudulent budget gimmickry.

[I urge readers to stick their head in a vise before reading this.]

I have previously discussed the non-job-creating $50 billion in nuclear loan guarantees the Senate put into the stimulus (see “Can Obama stop the nuclear bomb in the Senate stimulus plan?” For the record it was Sen. Robert Bennett (R-UT), which I point out merely because R-UT perfectly describes thinking behind this farce.

(Sorry to be the bearer of very bad news...Obama is NOT going to stop a damn thing, because he is part of the problem...a frontman for the energy and other corporate interests. )

Not only won’t these loans generate any jobs in Obama’s first term, but as Peter Bradford, former member of the Nuclear Regulatory Commission, explained to me, it could actually kill jobs. How?

The capital markets are not swimming in credit. If you have billions in taxpayer backed loans for your project, even for a project that will take years to finalize and see actual jobs, you may well suck up money that might be otherwise be available for, say, wind projects that are shovel ready now. Bradford called the nuke loans “straw ready.”

Worse, utilities that actually use these loans to build a nuclear plant would face an all but certain drop in their credit rating — see “Warning to taxpayers, investors — Part 2: Nukes may become troubled assets, ruin credit ratings.” That means we are setting ourselves up to take over more trouble assets, since the Congressional Budget Office estimates the likely default rate of these loans at over 50%. If you liked nationalizing banks and insurance companies, you’ll love nationalizing nuclear utilities!

But here is where it gets particularly farcical: The loans only got snuck into the bill by budget gimmickry that replicates the high-leverage, fraudulent risk analysis that got us into the subprime mortgage and credit default swap mess. Some leading nuclear energy experts explained this to me Tuesday, and I will do my best to explain it to you.

[I must warn you again that continuing to read this post puts you at great risk of uncontrolled cranial expansion.]

The Washington Post explained (not quite completely) last week:

Bennett’s amendment took $500 million away from $10 billion initially allotted to a new loan guarantee program for renewable energy and electric transmission projects and moved it to an existing loan guarantee program established under the Energy Policy Act of 2005. The existing program covers a much wider variety of energy projects, including “advanced nuclear” power plants, plants that “gasify” coal or turn it into liquid form, and plants that capture and bury carbon dioxide, a greenhouse gas produced by coal power plants.

Moving the money allows the government to stretch its loan guarantees further. Because of different accounting methods used in the two programs, a $500 million appropriation would permit approximately $5 billion in loan guarantees under the renewable program but $50 billion under the broader, existing program.

Yes, the $500 million switch cost the nation $5 billion in renewable and transmission loans but somehow gained $50 billion in nuclear loans. Does this mean nuclear power plants are 10 times less risky? Does this mean that nuclear power plants have a 1% default rate?

No.

The Congressional Budget Office itself explained in a 2003 report:

CBO considers the risk of default on such a loan guarantee to be very high–well above 50 percent. The key factor accounting for this risk is that we expect that the plant would be uneconomic to operate because of its high construction costs, relative to other electricity generation sources.

Ouch!

But wait. The CBO does believe that there is some recoverable value in a defaulted plant. Don’t ask my why, since I have no idea how they get value from some uneconomic, half-built plant that is probably the subject of major lawsuits (see “Nuclear meltdown in Finland“). I’m just a physicist, after all, and they are economists:

CBO estimates that the net present value of amounts recovered by the government on its loan guarantee from continued plant operations following a default and the project’s technical and regulatory risk would result in a subsidy cost of 30 percent.

I would note that the July 2008 report by the Government Accountability Office on the Loan Guarantee Program (LGP) assumed “a default rate of 50.85 percent and a recovery rate of 50 percent, which result in a loss rate of 25.42 percent when multiplied together.”

So why is $50 billion in loans being scored as having a $500 million cost, when, in fact, CBO says that the subsidy is closer to 30% ($15 billion) and GAO says it is 25% ($12.5 billion)? This is where you have to enter the Alice-in-Wonderland world [or is that the Bernie-Madoff world] of budgetary scoring.

The LGP is built around the requirement/assumption that the industry getting these loans will pay, upfront, the equivalent value of the subsidy. I kid you not. The GAO explains:

The subsidy cost, as defined by the Federal Credit Reform Act (FCRA) of 1990, is the government’s estimated net long-term cost, in present value terms, of direct or guaranteed loans over the entire period the loans are outstanding (not including administrative costs). In calculating the subsidy cost for a guaranteed loan program, agencies estimate (1) payments from the government to cover interest subsidies, defaults, delinquencies, or other payments, and (2) payments to the government, including fees, penalties, and recoveries on defaults. Under FCRA, DOE would estimate the expected subsidy costs before issuing loan guarantees and is generally required to annually update, or reestimate, this cost to reflect actual loan performance and changes in expected future loan performance. To the extent that DOE underestimates subsidy costs and does not collect enough fees from borrowers, taxpayers will ultimately make up the difference.

The reason $50 billion in loans are being scored as $500 million is because the CBO is assuming that the DOE will only underestimate the subsidy (i.e. the default rate and recovery-on-default rate) by 1%. Don’t believe the CBO could be that credulous? Here’s the GAO:

The Congressional Budget Office (CBO) has estimated that DOE will charge companies fees at least one percent lower than costs, on average.

Does anybody on the entire planet outside of CBO think that? The GAO doesn’t appear to. And who pays if the DOE screws up:

To the extent that DOE underestimates the costs of the program and does not collect sufficient fees from borrowers to cover the true costs, taxpayers will ultimately bear the costs of shortfalls.

But it is much worse than all that.

The nuclear industry has no intention whatsoever of paying, upfront, 25% to 30% of the loan to cover the subsidy. Remember, as it is currently written, the loan program is only for a maximum of 80% of the cost of the plant. That means, for, say, a $10 billion, 1200 MW plant, the nuclear industry would have to put up the $2 billion not covered by the loan plus up to $3 billion for the subsidy. Not gonna happen.

The nuclear industry will be working hard over the coming year to insert language into legislation, most likely whatever energy bill comes out of Congress, that forces the tax payer to cover the cost of the subsidy. And I suspect they’ll try to get the loan guarantees to cover 100% of the cost.

Again, if you liked nationalizing banks and insurance companies, you’ll love nationalizing nuclear utilities!

One last thing. I’m also told that the nuclear industry may try to actually borrow the money for the loan itself from the Treasury — i.e. you and me — but I just can’t contemplate that possibility without risking a Scanners-like fate:

The only good news is that there is some small chance this $50B in loans may be dropped in the conference.

You may remove your vise.

http://climateprogress.org/2009/02/11/nuclear-loan-guarantee-program-stimulus/

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• The Self-Limiting Future of Nuclear Power
• Nuclear Pork — Enough is Enough
• Turkey’s only bidder for first nuclear plant offers a price of 21 cents per kilowatt-hour
• Nuclear power, Part 2: The price is not right
• Nukes, Part 1.5: Nuclear Bomb
• How much of a subsidy is the Price-Anderson Nuclear Industry Indemnity Act?
• Nuclear storage at Yucca jumps 38% — to $96B
• Nuclear cost study 3: Responding to Heritage’s staggeringly confused ‘rebuttal’
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