[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
 NUCLEAR POWER'S FEDERAL LOAN GUARANTEES: THE NEXT MULTIBILLION-DOLLAR 
                                BAILOUT?

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON DOMESTIC POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 20, 2010

                               __________

                           Serial No. 111-138

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       JOHN J. DUNCAN, Jr., Tennessee
WM. LACY CLAY, Missouri              MICHAEL R. TURNER, Ohio
DIANE E. WATSON, California          LYNN A. WESTMORELAND, Georgia
STEPHEN F. LYNCH, Massachusetts      PATRICK T. McHENRY, North Carolina
JIM COOPER, Tennessee                BRIAN P. BILBRAY, California
GERALD E. CONNOLLY, Virginia         JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois               JEFF FLAKE, Arizona
MARCY KAPTUR, Ohio                   JEFF FORTENBERRY, Nebraska
ELEANOR HOLMES NORTON, District of   JASON CHAFFETZ, Utah
    Columbia                         AARON SCHOCK, Illinois
PATRICK J. KENNEDY, Rhode Island     BLAINE LUETKEMEYER, Missouri
DANNY K. DAVIS, Illinois             ANH ``JOSEPH'' CAO, Louisiana
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
JUDY CHU, California

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland         JIM JORDAN, Ohio
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
DIANE E. WATSON, California          DAN BURTON, Indiana
JIM COOPER, Tennessee                MICHAEL R. TURNER, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FORTENBERRY, Nebraska
PETER WELCH, Vermont                 AARON SCHOCK, Illinois
BILL FOSTER, Illinois
MARCY KAPTUR, Ohio
                    Jaron R. Bourke, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 20, 2010...................................     1
Statement of:
    Bradford, Peter, former member, U.S. Nuclear Regulatory 
      Commission, former chairman, New York State Public Service 
      Commission, former chairman, Maine Public Utilities 
      Commission, adjunct professor, Vermont Law School; Arjun 
      Makhijani, president, Institute for Energy and 
      Environmental Research; Jack Spencer, research fellow in 
      nuclear energy, Thomas A. Roe Institute for Economic Policy 
      Studies, the Heritage Foundation; and Leslie Kass, senior 
      director of business policy and programs, Nuclear Energy 
      Institute..................................................    11
        Bradford, Peter..........................................    11
        Kass, Leslie.............................................    39
        Makhijani, Arjun.........................................    21
        Spencer, Jack............................................    22
    Cooper, Mark, senior fellow for economic analysis, Institute 
      for Energy and the Environment, Vermont Law School; Henry 
      Sokolski, former Deputy for Nonproliferation Policy, Office 
      of the Secretary of Defense, president and executive 
      director, Nonproliferation Policy Education Center; Richard 
      Caperton, policy analyst, Center for American Progress; 
      Michael D. Scott, managing director, Miller Buckfire & Co., 
      LLC; and Christopher Guith, vice president of public 
      policy, U.S. Chamber of Commerce...........................    72
        Caperton, Richard........................................   139
        Cooper, Mark.............................................    72
        Guith, Christopher.......................................   170
        Scott, Michael D.........................................   152
        Sokolski, Henry..........................................    92
Letters, statements, etc., submitted for the record by:
    Bradford, Peter, former member, U.S. Nuclear Regulatory 
      Commission, former chairman, New York State Public Service 
      Commission, former chairman, Maine Public Utilities 
      Commission, adjunct professor, Vermont Law School, prepared 
      statement of...............................................    15
    Caperton, Richard, policy analyst, Center for American 
      Progress, prepared statement of............................   141
    Cooper, Mark, senior fellow for economic analysis, Institute 
      for Energy and the Environment, Vermont Law School, 
      prepared statement of......................................    75
    Guith, Christopher, vice president of public policy, U.S. 
      Chamber of Commerce, prepared statement of.................   173
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of Ohio, prepared statement of.......................    48
    Kass, Leslie, senior director of business policy and 
      programs, Nuclear Energy Institute, prepared statement of..    41
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio:
        Article dated March 11, 2010.............................    66
        Prepared statement of....................................     4
    Scott, Michael D., managing director, Miller Buckfire & Co., 
      LLC, prepared statement of.................................   154
    Sokolski, Henry, former Deputy for Nonproliferation Policy, 
      Office of the Secretary of Defense, president and executive 
      director, Nonproliferation Policy Education Center, 
      prepared statement of......................................    95
    Spencer, Jack, research fellow in nuclear energy, Thomas A. 
      Roe Institute for Economic Policy Studies, the Heritage 
      Foundation, prepared statement of..........................    25


 NUCLEAR POWER'S FEDERAL LOAN GUARANTEES: THE NEXT MULTIBILLION-DOLLAR 
                                BAILOUT?

                              ----------                              


                        TUESDAY, APRIL 20, 2010

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:07 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis J. 
Kucinich (chairman of the subcommittee) presiding.
    Present: Representatives Kucinich, Cummings, Welch, Foster, 
Jordan, Issa, and Towns (ex officio).
    Staff present: Jaron R. Bourke, staff director; Jean Gosa, 
clerk; Charisma Williams, staff assistant; Ron Stroman, chief 
of staff, full committee; Leneal Scott, IT specialist, full 
committee; Lawrence Brady, minority staff director; Adam Fromm, 
minority chief clerk and Member liaison; Stephanie Genco, 
minority press secretary and communication liaison; Christopher 
Hixon, minority senior counsel; and Brien Beattie and John 
Ohly, minority professional staff members.
    Mr. Kucinich. Thank you very much for being here. The 
Domestic Policy Subcommittee of the Oversight and Government 
Reform Committee will now come to order. Today's hearing is the 
first of several Domestic Policy Subcommittee hearings on the 
topic of the $54 billion loan guarantee program for a new wave 
of nuclear power plants. Today the subcommittee will hear from 
nongovernmental proponents and critics of the Federal loan 
guarantee program. Without objection, the chair and ranking 
member will have 5 minutes to make opening statements, followed 
by opening statements not to exceed 3 minutes by any of the 
Members that seeks recognition.
    Without objection, Members and witnesses may have 5 
legislative days to submit a written statement or extraneous 
materials for the record.
    American taxpayers have very recent experience with the 
cost of bailing out businesses. Today's hearing evaluates the 
likelihood that taxpayers will be saddled with a new bailout. 
This time the bailout would be for the nuclear power industry.
    During the 1970's and the 1980's, economics halted the 
spread of the nuclear power industry. Cost overruns in building 
nuclear power plants averaged more than 200 percent. Utilities 
abandoned 100 plants during construction, around half the 
plants they had planned. Taxpayers and ratepayers reimbursed 
utilities for most of the more than $40 billion cost of these 
abandoned plants. Ratepayers bore well over $200 billion in 
cost overruns for completed nuclear plants. In 1985, Forbes 
Magazine called this, ``the largest managerial disaster in 
business history, a disaster on a monumental scale.''
    Now, the nuclear industry wants to have a renaissance. They 
assert that new technologies and standardized plant designs 
will produce results that are totally different from their 
prior history of mismanagement, cost overruns and taxpayer or 
ratepayer bailouts. They say that the cost of planned 
construction will be lower, that there will be no cost 
escalations or construction delays, and that the problem of 
disposal of nuclear waste will be resolved.
    Well, Wall Street isn't buying it. The nuclear industry 
can't get private capital to fund its rebirth. So to have any 
comeback, they need tens of billions of dollars in Federal 
loans and Federal loan guarantees backed by American taxpayers. 
The government appears ready to provide it. On June 30, 2008, 
the Department of Energy asked for applications for $18\1/2\ 
billion in loan guarantees for nuclear plant construction. The 
current administration is seeking to triple that amount to 
$54\1/2\ billion. The Department of Energy announced its first 
nuclear loan guarantee on February 16, 2010, an $8.3 billion 
loan guarantee to the Southern Co. for construction for two 
reactors in Georgia.
    Not to worry. The nuclear industry and the U.S. Department 
of Energy say the risks to taxpayers are low. However, the 
Congressional Budget Office estimated in 2003 that a nuclear 
power plant project would have a, ``well above 50 percent,'' 
chance of defaulting on its loan guarantee. And that was for a 
plant that was estimated then to cost only $2\1/2\ billion, 
with only 50 percent of that cost covered by a loan guarantee. 
Cost estimates increased substantially after the CBO report in 
2003, and Standard & Poor's predicted on October 15, 2008, that 
the construction costs of nuclear power plants would soar even 
further. Moody's has referred to the construction of a new 
nuclear power plant as a ``bet-the-farm'' investment for most 
companies.
    The purpose of this hearing is to determine whether 
taxpayer-financed loan guarantees for a nuclear power plant are 
necessary to jump-start the nuclear renaissance, whether they 
are being priced correctly, and whether they are likely to 
create a multibillion-dollar liability for the taxpayer and a 
multibillion-dollar bailout for the nuclear industry.
    As my Republican colleagues have pointed out in their 
February 3, 2010, policy brief, ``While loan guarantees can 
help utilities with near-term financing, they also create 
taxpayer liabilities, dole out preferential treatment and 
distort capital markets.'' We will hear today from witnesses 
from all parts of the political spectrum, Democrats and 
Republicans, conservatives, moderates, liberals.
    Finally, a source for a March 5, 2010, article in the Los 
Angeles Times described the situation the subcommittee is 
examining in the following way: ``Consider buying a car. The 
salesman has a long history of telling lies, covering up 
mistakes and breaking promises. He is trying to sell you a car 
that doesn't exist yet, so he is not sure what it will look 
like. It is likely to cost at least two, maybe three times what 
it says on the sticker. It almost certainly will take much 
longer to deliver it than he says it will. So the question 
before us: Why would anybody buy that car?''
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

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[GRAPHIC] [TIFF OMITTED] T5123.002

[GRAPHIC] [TIFF OMITTED] T5123.003

[GRAPHIC] [TIFF OMITTED] T5123.004

[GRAPHIC] [TIFF OMITTED] T5123.005

    Mr. Kucinich. The chair recognizes Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    When I travel around our district and our State talking 
about the future of our country, the issue of energy always 
comes up, and I like to frame it like this. Americans 
instinctively know that the world is a better place when 
America leads. We can lead economically, militarily only if we 
have access to reliable and affordable sources of energy. That 
is why I'm an advocate for a commonsense, ``all of the above'' 
American energy solution.
    Everyone here agrees that Americans need cost-effective 
energy, especially in these tough economic times. 
Unfortunately, some of my friends on the other side of the 
aisle take a position on energy policy that is unrealistic at 
best and disingenuous at worst. On the one hand, they tell us 
we have to reduce carbon emissions or the sky will fall because 
of man-made global warming. On the other hand, they impose such 
draconian regulatory burdens on building new nuclear power 
plants, the only zero carbon source we have, that no nuclear 
power plant has been approved in over 30 years. At the same 
time, they continue to pour billions of dollars we don't have 
into windmills and solar panels that alone cannot deliver the 
energy we need.
    We cannot power our lives and our economy relying solely on 
sources of power like windmills and solar panels. Even this 
Congress can't pass a law that makes the wind blow or the sun 
shine. Does this mean that wind and solar should not be part of 
the energy mix in the country? Not at all. We need an 
affordable energy that is available around the clock. We need 
an ``all of the above'' energy policy where consumers, 
businesses and the free market, not bureaucrats and politicians 
in Washington, make energy choices.
    I am skeptical of all government subsidies because I don't 
think Washington has the wisdom or, frankly, the ability to 
pick the right solutions for our Nation's energy needs. That's 
what the free market does so well. I do not want the arrogance 
and the abuse of power we saw with the government takeover of 
health care turn into the blueprint for restructuring the 
energy sector of our economy.
    The real reason we are here today is because some people 
are ideologically opposed to nuclear power, and the only reason 
these loan guarantees exist is to offset the cost of burdensome 
regulation that has been imposed by those who seek to impose 
their agenda on America's energy future. The best thing we can 
do as legislators is to clear away the thicket of regulations 
and subsidies that frustrate the market's ability to find the 
right mix of affordable energy solutions that our country 
needs. The solution, quite simply, is less hubris, less 
government and more humility from Washington politicians.
    Thank you, Mr. Chairman. I yield back our time.
    Mr. Kucinich. I thank the gentleman.
    For those that just joined us, the topic of the hearing is 
the $54 billion loan guarantee program for a new wave of 
nuclear power plants.
    The chair recognizes Mr. Foster.
    Mr. Issa.
    Do you want to check in the cloakroom? OK. Fine. OK.
    If there are no more opening statements, I'm pleased to 
announce that the subcommittee will now receive testimony from 
the witnesses who are before us. I want to start by introducing 
our first panel. Mr. Peter Bradford is a former member of the 
U.S. Nuclear Regulatory Commission, former chairman of both the 
New York State Public Service Commission and the Maine Public 
Utilities Commission. He currently chairs Vermont's public 
oversight panel on the reliability of the Vermont Yankee 
nuclear power plant. He was a member of the 2007 Keystone 
Center Collaborative on Nuclear Power and Climate Change and 
the 2006 National Academy of Sciences panel evaluating 
alternatives to continued operation of New York's Indian Point 
nuclear plants. And he has also advised several international 
bodies on nuclear issues. He is a graduate of Yale University 
and Yale Law School.
    Welcome, Mr. Bradford.
    Next is Dr. Arjun Makhijani. He is the president of the 
Institute for Energy and Environmental Research. He earned his 
Ph.D. in nuclear fusion at the University of California in 
Berkeley. He is the author of numerous books and studies, 
including, ``Carbon Free and Nuclear Free: A Roadmap for U.S. 
Energy Policy.'' That was in 2007. He is a fellow of the 
American Physical Society and has served as a consultant to the 
Tennessee Valley Authority, Lawrence Berkeley Laboratory and 
several agencies of the United Nations.
    Welcome, Dr. Makhijani.
    Mr. Jack Spencer is a research fellow in nuclear energy at 
the Heritage Foundation's Roe Institute for Economic Policy 
Studies, where he concentrates on subsidy policies, technology 
issues and nuclear waste management. Previously Mr. Spencer 
worked at the Babcock & Wilcox Companies on commercial, 
civilian and nuclear energy issues, and that would be military 
nuclear energy issues.
    Thank you for being here.
    Finally for this panel, Ms. Leslie Kass. Ms. Kass is senior 
director of business policy and programs of the Nuclear Energy 
Institute, where she is responsible for developing and managing 
programs related to the business and financial aspects of the 
nuclear industry. Ms. Kass has 17 years in the industry, having 
worked for utilities and a uranium enrichment company. She 
holds a bachelor's degree in materials science and engineering 
from MIT and an MBA from Duke University's Fuqua School of 
Business.
    I want to thank all of the witnesses for appearing before 
the subcommittee. It is the policy of the Committee on 
Oversight and Government Reform to swear in our witnesses 
before they testify. I would ask that you please rise and raise 
your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Thank you very much.
    Let the record reflect that each of the witnesses answered 
in the affirmative.
    I would ask each witness to give a brief summary of your 
testimony, and to please keep this summary under 5 minutes in 
duration. Your entire written statement will be included in the 
record. And I am grateful for your presence here.
    Mr. Bradford, you will be our first witness on the panel. 
You may proceed.

   STATEMENTS OF PETER BRADFORD, FORMER MEMBER, U.S. NUCLEAR 
 REGULATORY COMMISSION, FORMER CHAIRMAN, NEW YORK STATE PUBLIC 
  SERVICE COMMISSION, FORMER CHAIRMAN, MAINE PUBLIC UTILITIES 
   COMMISSION, ADJUNCT PROFESSOR, VERMONT LAW SCHOOL; ARJUN 
 MAKHIJANI, PRESIDENT, INSTITUTE FOR ENERGY AND ENVIRONMENTAL 
  RESEARCH; JACK SPENCER, RESEARCH FELLOW IN NUCLEAR ENERGY, 
   THOMAS A. ROE INSTITUTE FOR ECONOMIC POLICY STUDIES, THE 
   HERITAGE FOUNDATION; AND LESLIE KASS, SENIOR DIRECTOR OF 
     BUSINESS POLICY AND PROGRAMS, NUCLEAR ENERGY INSTITUTE

                  STATEMENT OF PETER BRADFORD

    Mr. Bradford. Thank you, Mr. Chairman, members of the 
committee.
    Without concern over climate change, the 30-year verdict of 
U.S. power markets that new nuclear reactors were too expensive 
and too economically risky would remain undisturbed. Instead, 
some now assert that a massive effort to build new reactors by 
having taxpayers and customers----
    Mr. Kucinich. Do you want to bring that mic a little bit 
closer? A little bit more. People can't hear you in the back.
    Mr. Bradford [continuing]. Take the risks that investors 
and lenders are refusing to assume will reduce climate change. 
The opposite is true. Such an undertaking will undermine the 
fight against climate change by diverting money and attention 
from the resources that offer much larger atmospheric pollution 
reductions much sooner and less expensively.
    One must begin by understanding the reason that new nuclear 
plants have not been built in the United States for decades. It 
has nothing to do with the U.S. reactor licensing or regulatory 
processes, which licensed more plants than the next several 
countries combined. It has everything to do with cost and with 
risk. Competitive power procurement as adopted in free-market 
economies over the last 25 years shifts the economic risk of 
all new power plant construction, risks such as plant 
cancellations, cost overruns and emergence of cheaper 
competitors, from the customers to investors and lenders. Aware 
that each of these risks had hit the nuclear industry hard in 
the recent past, investors and lenders would not put their own 
money at risk by committing to competitive prices and delivery 
schedules for new reactors.
    Loan guarantees are the centerpiece of the present effort 
to reverse the successful 30-year evolution of competitive 
power markets by shifting the risks to taxpayers. But loan 
guarantees do not lower any actual costs in the way that 
cheaper steel or concrete would do. For example, the savings 
that the recently announced $8.3 billion loan guarantee 
appeared to produce for Georgia's proposed Vogtle reactors are 
offset by a new taxpayer risk exposure of almost $100 taken on 
by every family in America. And every additional $10 billion in 
taxpayer-backed loan guarantees will add another $100 to this 
exposure.
    At its peak in 2008, the nuclear renaissance consisted of 
23 existing and projected applications for 34 new reactors. 
Since 2008, reality has set in. Nuclear cost estimates have 
risen, demand has fallen, as have the cost estimates for most 
major alternatives. Several nuclear projects have been canceled 
outright. Most of the remaining 16 applications for 24 reactors 
have experienced combinations of major cost overruns and major 
delays. Most, indeed probably all, of these reactors will not 
be built without loan guarantees. The economic and political 
impact of trying to charge the full cost to the customers is 
just too great. Customer backlash in Florida and in Texas has 
already demonstrated this.
    By way of response to the subcommittee questions directed 
to me, I will summarize as follows. First: Are the cost 
overruns in the construction of nuclear power plants a thing of 
the past or a present-day problem? While we have no current 
U.S. nuclear construction experience on which to base an 
answer; however, the trebling of U.S. nuclear cost estimates in 
less than a decade is not encouraging. Experience in 
Newfoundland and in France with the design that Areva proposes 
for Maryland's Calvert Cliffs, a loan guarantee finalist, is 
also not encouraging. In Finland the Areva reactor, originally 
scheduled to be on line last summer, has doubled Areva's cost 
estimate and fallen at least 3 years behind a 4-year schedule.
    Some Asian nations claim more success in building to 
schedule and budgets. Energy Secretary Steven Chu asserts that 
if the proposed loan guarantees result in plants that come on 
line on time and on budget, private capital for new nuclear 
will then become available. But this is wrong. Today's ``on 
budget'' is so high in relation to the price of alternatives to 
the prices projected in our power markets and to the price of 
energy efficiency that even if new U.S. reactors come on line 
on budget, the financial community will not invest.
    Second: Do we currently have such a demand for electric 
power that we need to rush into construction of multiple 
nuclear plants? The United States has little or no demand for 
wholesale electric power, and new nuclear is forecast at a 12 
to 20-cent-per-kilowatt-hour price range. If we make wise use 
of far less expensive energy efficiency, renewables and natural 
gas, we will not face electricity shortages, even if we adopt 
policies that put a meaningful price on greenhouse gas 
reductions.
    Third: Do increased loan guarantees for nuclear power 
plants misdirect resources? Yes. Those who argue that we have 
to subsidize many new reactors along with all of the 
alternatives ignore the economic reality of limited resources 
and the fact that new nuclear reactors cannot produce near-term 
greenhouse gas reductions.
    Furthermore, I can attest from my own experience regulating 
in Maine and New York that entities in States committed to 
building large nuclear projects will deemphasize and even 
resist alternative sources. One need only look at New 
Hampshire's 1980's resistance to Hydro-Quebec Power where the 
opposition of Maine utilities to renewable cogeneration and 
energy efficiency while the region's utilities struggled to 
finish Seabrook and Millstone 3 to see this effect clearly. The 
same was true in New York while Shoreham and Nine Mile Point 2 
preoccupied the State's utilities, and the same is true in 
Florida today.
    However, the problem of misdirected resources is much 
broader than this. Loan guarantees do not create new capital; 
they merely create a favored class of borrowers who will have 
easier access to the available capital than will all other 
would-be borrowers. Murray Weidenbaum, who was later chairman 
of President Reagan's Council of Economic Advisors critiquing 
the failed program to manufacture synthetic fuel from coal many 
years ago, noted a basic function that credit markets are 
supposed to perform is that of distinguishing credit risks and 
assigning appropriate risk premiums. This function is the 
essence of resource allocation by credit markets. As an 
increasing proportion of issues coming to credit markets bears 
the guarantee of the Federal Government, the ability of the 
market to differentiate credit risks inevitably diminishes.
    Fourth: Will the proposed Clean Energy Deployment 
Administration adequately deal with the risk of defaults? The 
answer is not as presently written. The Senate version of CEDA, 
because it has the potential to underwrite unlimited nuclear 
loan guarantees, is particularly problematic. Secretary Chu 
recently estimated that the price to be charged for a loan 
guarantee would range between half of 1 percent and 1\1/2\ 
percent of the face value of the guarantee. For the conditional 
loan guarantee recently approved for the Vogtle units, this 
would mean that the average family would receive between 50 
cents and a $1.50 for its $100 exposure.
    Other estimates of a reasonable credit subsidy fee are 
considerably higher. For example, the Congressional Budget 
Office estimated 30 percent in 2003, Standard & Poor's 
estimated 4 to 6 percent. The Center for American Progress 
recently did an analysis concluding that the payment should be 
10 percent. Underpricing of risk is, of course, a root cause of 
the current financial crisis.
    To make matters worse, the Department of Energy apparently 
intends to keep secret the credit subsidy fee charged to each 
guaranteed recipient. The people disadvantaged by this secrecy 
will be first the public, who will not be able to quantify the 
extent to which DOE has exposed American families to 
uncompensated risk; second, builders of other forms of power 
generation and energy efficiency, who will not be able to prove 
what now seems very likely, that DOE intends to charge less for 
guarantees to highly risky nuclear ventures than it will charge 
for loan guarantees to more secure renewable and solar 
ventures; third, State utility regulators, who may be unable to 
set rates based on actual costs since loan recipients may 
allege that they cannot disclose these costs in a public forum.
    In conclusion, whatever the appeal of offering a limited 
number of loan guarantees to a few first mover plants, meaning 
six or seven, as part of a bargain that succeeds in passing a 
meaningful cap-and-trade program, the discussion of loan 
guarantees in Congress seems to have spun far outside of that 
orbit. A larger commitment would proclaim new reactors to be a 
climate change winner when all meaningful economic evidence is 
to the contrary. It would put energy and climate policy at the 
service of nuclear power. Sound public policy works the other 
way around.
    Thank you very much.
    [The prepared statement of Mr. Bradford follows:]

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    Mr. Kucinich. Dr. Makhijani.

                  STATEMENT OF ARJUN MAKHIJANI

    Mr. Makhijani. Thank you, Mr. Chairman. I really appreciate 
the opportunity to testify before you. And I just want to take 
this personal opportunity to thank you for reading my book, 
``Carbon Free, Nuclear Free,'' and for making it part of your 
Presidential campaign. Thank you very much.
    You asked me six questions, and I will just go question by 
question and summarize my testimony along those lines. The 
first question was, why won't Wall Street invest in nuclear 
power plants, and why does Moody's call them ``bet-the-farm'' 
investments?
    Now, I will just give you some examples. Starting with a 
quote from the CEO of General Electric, Mr. Immelt, he was 
quoted in the Financial Times as saying, if you were a utility 
CEO and looked at your world today, you would just do gas and 
wind. You would say they are easier to site, digestible today, 
I don't have to bet my company on any of this stuff. You would 
never do nuclear. The economics are overwhelming.
    Now, he was promoting loan guarantees because you couldn't 
do nuclear without betting the company. What does ``betting the 
company'' mean? Let us take some examples. Progress Energy 
wants to build two reactors in Florida with estimated costs of 
$17 billion. Now, these are company estimates. Progress 
Energy's market capitalization when I wrote this testimony last 
month was $10.85 billion. That is, the cost of the project is a 
lot more than the market capital of the company. Florida Power, 
a little bit better. Its price tag is $14 billion for two 
reactors, and its market capitalization last month was $19.41 
billion, but still quite close to the market capitalization of 
the company. If you look at CPS Energy, which is one of the 
country's largest publicly owned utilities, a municipal utility 
for the city of San Antonio, its entire assets, gas, electric, 
buildings, transmission, distribution, the net value of those 
assets at the end of its last fiscal year in January 2009 was 
$6.4 billion. And it had at one time 50 percent of two reactor 
projects in south Texas, and that 50 percent, one reactor, is 
now estimated costs of $9.1 billion, quite a bit more than the 
net worth of the whole company on the books, on its own books.
    Now, Wall Street has flatly refused to finance these 
projects. There are three problems. It is not just the high 
cost; it is the long lead time compared to alternatives, which 
also compounds the risk. And it is the large unit size, which 
also compounds the risk.
    And I just would like to add that Mr. Bradford mentioned 
that nuclear would squeeze out alternatives, and one reason it 
squeezes out alternatives is that when you put more than the 
value of your company on one project, and that project isn't 
going to return a dollar to you for 8 or 10 years, you can't 
afford to put another comparable investment in anything else.
    Now, in Florida, ratepayers are paying in advance for these 
reactors without any assurance that they are going to get any 
electricity in return. The legislature there passed a 
construction work in progress law. And it is not just home-
owning ratepayers that are protesting; businesses are also 
protesting. Here is what the Washington Post said: Utilities 
advance payments are consumer losses, and businesses such as 
Georgia Industrial Group and Georgia Textile Manufacturing have 
joined consumer and environmental groups in combating State 
laws and higher rates.
    Now, the four reactors in Florida are in some question as a 
result of this ratepayer protest, including ratepayers--
business ratepayers who are not against nuclear power. They 
just say, ``We don't want to pay in advance,'' and they have no 
guarantee they are going to get anything for this money. It is 
like giving a builder an advance to build you a house, but you 
have no contract that says they are actually going to build it 
and give you the keys. If they abandon the project halfway, you 
will have no recourse.
    Now, the San Antonio case is actually very interesting 
because the city spent--the city's utility spent about $370 
million on paperwork and initial engineering. They don't have a 
price, a final price. They won't have a final price until 2012. 
And the part--its partners, NRG Energy and Toshiba, were 50/50 
initially in this project. There was an alleged cover-up of the 
cost overruns. Initially the company had said $5.4 billion and 
then $6 billion and then $7 billion when I arrived on the scene 
in San Antonio in March 2008. When I assessed the project, I 
felt the cost would be between $12 and $17 billion in round 
numbers, as you have said, Mr. Chairman, two to three times 
what the company said at the time. By last fall it seemed clear 
that their cost estimate was going to be something like $18 
billion, a little bit more than my high end. Now the project is 
in something of a mess because CPS Energy wants to withdraw.
    You asked me about new reactor designs.
    Mr. Kucinich. I would just ask the gentleman if you could 
wrap up your testimony and then maybe we could get to some of 
the other points in the questioning period.
    Mr. Makhijani. Sure. Should I wrap it up now, or do you 
want me to go over----
    Mr. Kucinich. If you would make the last point you wanted 
to make, and then we will have to move on.
    Mr. Makhijani. OK. The last couple of points are that there 
is no reactor that we have that is proposed to be built that is 
fully certified as of now because the certified reactors have 
design modifications they've asked for. And I would say that 3 
or 4 years ago, I believed that it would be impossible--
essentially it was an educated guess to make a renewable energy 
system in this country, and I changed my mind when I did the 
research. That is why I wrote my book, ``Carbon Free, Nuclear 
Free.'' I believe it is possible to do an economical energy 
system, and I have debated nuclear energy and nuclear power 
performance on this numerous times since my book was published.
    Mr. Kucinich. Thank you, Dr. Makhijani.
    And members of our committee will have an opportunity to 
get your questions, and some of the other points you wanted to 
make I'm sure you will be able to get in.
    The chair recognizes Mr. Spencer. Thank you for being here. 
You may proceed.

                   STATEMENT OF JACK SPENCER

    Mr. Spencer. Chairman Kucinich, Ranking Member Jordan----
    Mr. Kucinich. Would you pull that mic a little bit closer 
so we can all hear you? Thanks.
    Mr. Spencer. My name is Jack Spencer, and I'm a research 
fellow for Nuclear Energy Policy at the Heritage Foundation. 
The views I express in this testimony are my own and should not 
be construed as representing any official position of the 
Heritage Foundation.
    A limited loan guarantee program can help overcome some 
near-term financing obstacles, but President Obama's expansion 
could transform a limited program into a broader one that 
threatens to institutionalize both the existing systemic 
challenges as well as inefficiencies that subsidies ultimately 
create.
    By subsidizing a portion of the actual cost of a project, 
nuclear or otherwise, through a loan guarantee, the government 
is actually distorting the allocation of resources by directing 
capital away from more competitive projects.
    These subsidies have four market-distorting properties that 
I would like to discuss. First, the loan guarantee artificially 
discounts the cost to build a project, which allows the 
recipient's project to be market viable at a point where it 
otherwise would not be. This allows the recipient to focus on 
other measures, even securing the next subsidy, rather than 
addressing cost-inflating issues.
    Second, this artificial price reduction removes the 
incentive to look for less expensive or more competitive 
options. It also hurts competition within the nuclear industry. 
A utility that cannot afford a large subsidized reactor might 
be able to afford multiple smaller ones. This would create 
competition, and the subsidized technologies would either have 
to reduce costs or lose market share.
    Third, a major problem facing nuclear power in the United 
States is not that it lacks subsidies, but that the regulatory 
environment does not promote growth, innovation or competition. 
Regulatory reforms could substantially reduce the investor 
risk, which would be reflected in lower financing costs. 
Guaranteeing the loans reduces near-term pressure to fix this 
ongoing problem.
    And finally, they suppress private-sector financing 
solutions. Companies routinely invest in projects with 
substantial risks without government loan guarantees. Finding a 
way to develop an investment is at the heart of free 
enterprise, but loan guarantees distort this process and remove 
the incentive to come up with better long-term solutions.
    If loan guarantees are expanded, they must be coupled with 
reforms and conditions. Any expansion of the loan guarantee 
program should be accompanied by the following five conditions, 
which would help reduce their market-distorting effects, 
protect the taxpayer, and ensure a strong, market-viable 
nuclear industry in the long term.
    First, end loan guarantees and capital subsidy programs. 
Stopping the program at $54\1/2\ billion in total loan 
guarantees, which is the President's total, would at least 
limit the damage and provide a deadline whereby industry and 
government must have resolved their outlying issues.
    Second, ensure that the recipients pay the full cost of the 
subsidy. While the President's budget did not request funds to 
pay for the subsidy cost, legislation introduced over the past 
year has. This should be avoided. An accurate financial 
assessment should provide a market incentive to reform the 
policies that give rise to the risks to begin with. This will 
occur, however, only if the true cost of the subsidy is 
assessed, and if guarantee recipients are responsible for 
paying that cost.
    Third, make recipients privately refinance within 5 years 
of project completion. Rather than a long-term financing 
option, the loan guarantee program should be viewed as a bridge 
program to protect investors against project failure during its 
most vulnerable stages. Upon completion, loan recipients should 
privatize liability by refinancing without support of 
additional taxpayer backing.
    Fourth, limit loan guarantees to no more than two plants of 
any reactor design. Completing the permitting process for two 
plants that share a single reactor design should be sufficient 
to establish regulatory integrity. This condition would also 
ensure that no one reactor design monopolizes the program, and 
that Federal regulators diversify their regulatory experience.
    And finally, limit to two-thirds of the loan guarantee 
program that can support a single technology. Because 
regulatory support is a necessary prerequisite to reactor use, 
and the regulatory environment favors large light water 
reactors, nuclear investors tend toward this technology as it 
poses the least regulatory risk. Ensuring that the subsidy is 
not consumed by a single reactor type should help break the 
regulatory monopoly currently held by light water reactors by 
lowering the relative risk of emerging commercial nuclear 
technologies.
    If not subsidies, then what? Whether through the promise of 
subsidies, regulatory problems, unworkable waste management 
policies or DOE programs that stifle competition, the current 
policies are not working. The following reforms should be 
pursued instead of subsidies. Reform the permitting process for 
new nuclear power plants. Creating a more efficient and 
predictable permitting schedule should be a top priority, but 
that alone is not enough. The NRC must also be better prepared 
to regulate reactor technologies beyond large light water 
reactors.
    Waste management policy reform. The current system is 
driven by government programs and politics. There is little 
connection between used fuel management programs, economics and 
the needs of industry. Any successful plan must grow out of the 
private sector and be driven by sound economics.
    And finally, supporting the NRC's authority to determine 
the safety of Yucca Mountain. The NRC should be allowed to 
review the Department of Energy's permit application for the 
Yucca Mountain repository and determine if it can be 
constructed and operated safely.
    In conclusion, a true nuclear renaissance cannot be 
micromanaged from Washington, but with the right free-market 
policies in place, nuclear energy has a chance to literally 
change the world. That concludes my testimony. I look forward 
to your questions.
    Mr. Kucinich. Thank you, Mr. Spencer.
    [The prepared statement of Mr. Spencer follows:]

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    Mr. Kucinich. Ms. Kass, you may proceed.

                    STATEMENT OF LESLIE KASS

    Ms. Kass. Thank you, Mr. Chairman.
    Chairman Kucinich, Ranking Member Jordan and members of the 
subcommittee, thank you for your interest in loan guarantees 
for the construction of new nuclear power plants to meet our 
Nation's energy needs and reduce carbon emissions. I appreciate 
the opportunity to speak with you today.
    As the President stated last month at the announcement of 
the conditional commitment for loan guarantees offered to the 
Vogtle nuclear project, ``To meet our growing energy needs, and 
to prevent the worst consequences of climate change, we need to 
increase our supply of nuclear power.'' It is that simple. 
Investing in nuclear energy remains a necessary step. I hope 
that this announcement underscores both our seriousness in 
meeting the energy challenge and our willingness to look at 
this challenge not as a partisan issue, but as a far more--
matter far more important than politics, because the choices we 
make will affect not just the next generation, but generations 
to come.
    To make the necessary transformation to a low-carbon 
economy while we upgrade aging energy infrastructure, consensus 
estimates show that the electric sector must invest between 
$1\1/2\ and $2 trillion by 2030. This will fund new power 
plants, transmission and distribution systems, energy 
efficiency measures and environmental controls.
    To meet the national policy objective of reducing carbon 
emissions, the public and private sectors must work together to 
ensure clean energy is affordable for consumers and businesses 
alike. By reducing the cost of capital, the DOE loan guarantee 
program authorized by the 2005 Energy Policy Act serves the 
public interest by accelerating deployment of clean generating 
technologies at a lower cost to consumers.
    The Federal Government already manages a successful loan 
guarantee portfolio of approximately $1.2 trillion, which on 
balance returns more to the Treasury than it costs the 
taxpayer. The Federal Government uses these credit support 
programs to support shipbuilding, steelmaking, rural 
electrification, affordable housing and many other purposes.
    To ensure the protection of the taxpayer's interest, all 
projects seeking DOE loan guarantees will be subject to 
detailed due diligence and underwriting by a rating agency and 
the DOE. This due diligence evaluates the technical, legal and 
financial attributes of each project.
    The companies building new nuclear power plants will have 
significant shareholder equity, a billion dollars or more per 
project at risk. This equity is in a ``first-loss'' position, 
meaning that the company would forfeit that equity in the event 
of a default. As a result, the companies seeking loan 
guarantees for new nuclear power plants have a powerful 
incentive to ensure that the projects achieve commercial 
success.
    The amount of misinformation about nuclear plant 
construction and loan guarantees is remarkable. One of the more 
egregious examples is the continued use of a 50 percent default 
rate from a 2003 CBO analysis of a different loan guarantee 
program that was never enacted. CBO Director Douglas Elmendorf 
was moved to explain on March 4th that the 2003 report, 
``reflected information about the technical, economic and 
regulatory environment as it existed in 2003, almost 7 years 
ago. Such generalized estimates of credit risk may not apply to 
a guarantee for any particular power plant because of 
variations in the technical, economic, regulatory, and 
contractual characteristics of each project. Without such 
information, much of which would be proprietary, CBO has no 
basis for estimating the cost to the government of any specific 
loan guarantee of this type.''
    Detailed analysis and historical data demonstrate that the 
new nuclear power projects being proposed for DOE loan 
guarantees provide a very high degree of lender protection. A 
realistic analysis of default probability and recovery rate, 
based on project specifics, will produce credit subsidy costs 
sufficient to protect the taxpayers' interest. Credit subsidy 
calculations must be approved by DOE's Credit Review Board, the 
Office of Management and Budget and by the Treasury Department.
    Given the very low probability of losses associated with 
nuclear projects, the benefits far outweigh their risks. 
Electricity consumers will benefit from low-cost, clean energy. 
Southern Co. projects that its $3.4 billion portion of the loan 
guarantees for the two reactors at the Vogtle station would 
save consumers $15 to $20 million in interest costs annually. 
The program will create jobs for American workers. Each plant 
will generate 1,400 to 1,800 jobs during construction, with 
2,400 at peak; 400 to 700 permanent jobs for plant operations; 
and 400 to 700 additional jobs in the community to support the 
plant work force. Construction of new nuclear plants will 
create demand for commodities like concrete and steel and 
hundreds of components, large and small, that benefit American 
manufacturers.
    In addition to the existing U.S. manufacturing supply base, 
the industry is reaching out to manufacturing workshops to help 
businesses identify the opportunities in new plant 
construction. For example, over 300 companies from Ohio 
participated in workshops just last year.
    In conclusion, the nuclear loan guarantee program is an 
opportunity to build the clean-energy facilities necessary to 
support our economy and to put Americans back to work. The 
analytics show that the risk of default are small, and, as the 
President explained, the benefits cannot be ignored.
    Mr. Chairman, thank you again for the opportunity, and I 
look forward to your questions.
    Mr. Kucinich. Thank you very much for being here.
    [The prepared statement of Ms. Kass follows:]

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    Mr. Kucinich. And I would like to start with a question of 
you, Ms. Kass. Department of Energy representatives have been 
quoted as saying that the credit subsidy fee that Southern Co. 
will pay for its $8.3 billion Federal loan guarantee is 
proprietary to Southern Co. and, ``will remain confidential.'' 
Is that the industry's position, that the amount of credit 
subsidy fees for nuclear plant loan guarantees should be kept 
secret and should not be disclosed to the public or to the 
company shareholders and bondholders?
    Ms. Kass. I believe that the process by which we derive the 
credit subsidy cost should be very transparent for all 
stakeholders and for all projects, those that are renewable for 
which the Government is covering the credit subsidy cost, and 
those for nuclear and other technologies where the borrower 
pays. Now, the very project specifics I do believe get into 
confidential information for contracts, so some of those pieces 
of information would need to remain proprietary. And where you 
draw the line, obviously, that is up to DOE and OMB.
    Mr. Kucinich. Mr. Bradford, would you like to comment on 
that question?
    Mr. Bradford. I think the problem----
    Mr. Kucinich. Could you pull the mic closer?
    The question relates to should the credit subsidy fees 
remain confidential. Is it proprietary? Do the people--
taxpayers have no right to know what kind of skin they have in 
this game, or, you know, what do you think?
    Mr. Bradford. I think the proposition is beyond sober 
analysis.
    Mr. Kucinich. What do you mean? I mean, we----
    Mr. Bradford. There is no conceivable justification for 
withholding the credit subsidy fee being charged these 
projects.
    Mr. Kucinich. Wait. You're not answering the question. They 
are saying it is proprietary. You know something about the 
nuclear industry. So is there any justification in terms of 
business sense and its proprietary information?
    Mr. Bradford. Not the credit subsidy fee itself. It can't 
possibly be proprietary. It is the amount that the taxpayers 
are receiving in return for extending the loan guarantee. And 
they are being told, the taxpayers, that they can't know what 
level of protection they are receiving. The justification that 
DOE advanced, that is that other applicants for loan guarantees 
might complain if they felt that they had gotten unfairly 
treated, is, in fact, the exact reason why they should be aware 
of what type of treatment has been extended to their 
competitors. If the solar industry is being charged 10 percent, 
and the nuclear industry is being charged 1 percent, damn right 
they should know it and be able to complain about it.
    Mr. Kucinich. Dr. Makhijani, what is your opinion of a 
credit subsidy fee that is secret and not disclosed to the 
taxpayers?
    Mr. Makhijani. Mr. Chairman, first of all, the subsidy fee 
will give us some idea how the government values the risk of 
default and whether it is realistic or not. In my opinion, the 
risk of default is quite high because nuclear power plants take 
so long to build, they may be economically obsolete before this 
first set goes on line.
    Mr. Kucinich. So why would this subsidy fee need to be made 
public then?
    Mr. Makhijani. We need to know whether the subsidy fee is 
adequately covering the risk and what the risk analysis is that 
leads to a specific sum of money.
    Mr. Kucinich. Mr. Spencer, what is your position on this 
credit subsidy fee? Do you think from a business standpoint it 
ought to be proprietary and should remain confidential?
    Mr. Spencer. I'm not in the business sector, so it is not 
really fair for me to answer.
    Mr. Kucinich. From an economic standpoint.
    Mr. Spencer. From a public policy standpoint, I think that 
we do need transparency over the subsidy cost. And I think that 
it is critical, because really that has a lot to do with, as we 
just heard, what the risk is associated with this. And I think 
it works on both sides. I tend to believe that the risk 
associated with nuclear power would be relatively low, so I 
think that it should be made public. But it is absolutely 
critical that the--that those important business aspects remain 
confidential. So we need to figure out a way to do that.
    Mr. Kucinich. OK. Thank you.
    Ms. Kass, on the back cover of the current National 
Journal, that staff could put the copy up, there is an ad with 
the headline, ``Southern Company Is Investing $6 Billion in 
Clean, Reliable, Affordable Energy.'' My question to you is 
this: Wouldn't it be more accurate if Southern Co. had stated 
that it was investing $6 billion of taxpayers' money, that this 
$6 billion is going to be coming from taxpayers' money from the 
Federal Financing Bank; isn't that right?
    Ms. Kass. Actually, sir, I had in my testimony Southern 
Co.'s portion of the loan guarantee is $3.4 billion. So they 
are getting a guarantee for a $3.4 billion loan, and the rest 
of their portion of the project, they are about a 40--45, 46 
percent owner, would come from owners' equity. So there is 
quite a bit of their own cash invested as well.
    Mr. Kucinich. Is that loan taxpayers' money that they are 
referring to? Is there any taxpayers' money in there at all?
    Ms. Kass. It comes from the Federal Financing Bank because 
that is the way the loan guarantee program rule is written. 
They are required to access that from the Federal Financing 
Bank.
    Mr. Kucinich. And that's taxpayers' money, right?
    Ms. Kass. The Federal Financing Bank. So, yes.
    Mr. Kucinich. The chair recognizes Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman. Let me do some 
housekeeping first. If I could ask unanimous consent to get 
Ranking Member Issa's statement entered into the record?
    Mr. Kucinich. So ordered.
    [The prepared statement of Hon. Darrell E. Issa follows:]

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    Mr. Jordan. Thank you.
    Let me go to Mr. Spencer and Ms. Kass, if I could. Mr. 
Bradford in his testimony stated--and I'm reading from it--the 
reason the new nuclear--that no new nuclear plants have been 
built in the United States for decades has nothing to do with 
the U.S. licensing process and has nothing to do with citizen 
interveners in the court hearings. And yet I think in Mr. 
Spencer's testimony he talked about a 4-year timeframe to get a 
permit for a new reactor. When I look at the memo that the 
staff put together, it is 3 to 5 years, both licensing and 
permitting.
    I mean, do you agree with Mr. Bradford's statement that it 
is not--has nothing to do with the cost of these--building 
these has nothing to do with the requirements that the 
government has in place? Mr. Spencer and then Ms. Kass.
    Mr. Spencer. No. I think that clearly the permitting 
process has more than nothing to do with it, though that is not 
the only problem. And we have seen this historically, really 
starting in the early 1970's, the regulatory burden growing on 
nuclear energy throughout that time period. Certainly into the 
1980's as the regulatory burden grew, there were other systemic 
problems, energy prices changing, the downturn of the economy 
all contributing to the reduction of the use of nuclear energy.
    Mr. Jordan. So is this--for Joe Layman here, is this--it is 
almost like the government chasing its tail. Because we have 
this high regulatory burden which adds cost to the project, 
well, then we need to put taxpayer money at risk so that 
someone will actually undertake the project. And then because 
of that, then we add more burdens because taxpayer money is at 
risk, and it is a bad spiral for energy needs for the country 
and taxpayer dollars that are being put at risk in the first 
place.
    Mr. Spencer. I agree with the way that you just described 
it. Let me be clear. It is not just a regulatory burden. There 
are policy issues with nuclear waste and some other things that 
add to unpredictability into the system that increase the risks 
that then leads to the need for taxpayer support.
    Mr. Jordan. But you would argue that the regulatory burden 
is a factor? Would you say a big factor?
    Mr. Spencer. I would say a significant factor.
    Mr. Jordan. A significant factor. Would you agree, Ms. 
Kass?
    Ms. Kass. Yes. The time to market for nuclear in this 
country right now is about 10 years, and a lot of that is 
licensing. There are currently 54 reactors under construction 
worldwide with several more planned, and other countries are 
moving forward who don't have a similar regime.
    Mr. Jordan. OK. Now, with that being established, what 
specifically needs to change on the regulatory side? I mean, I 
think Mr. Spencer in his testimony, he talked about almost a 
bias the government has for certain types, because the 
regulators get accustomed to approving that type of reactor. 
And I don't know enough to make the distinction. So what needs 
to change on the regulatory side that would help the process?
    Ms. Kass. The thing we need most right now is experience. 
We have a new Part 52 licensing process that allows for designs 
to be certified up front. You can also have a site certified 
environmentally up front, and then you could put in your 
combined license. We believe in the second wave we will be down 
to about 2 years for a combined license, provided that we are 
efficient with the process.
    The industry has some recommendations for making sure that 
we take out some of the redundant reviews between the early 
site permit and the COL, as well as ensuring that the hearing 
process again involves all the public stakeholders, which this 
new process involves everyone up front, which would feel very 
positive and very transparent, but involves them but in a way 
that doesn't lag on.
    Mr. Jordan. OK. Let me ask this. I simply just don't know. 
How long does the process take for a coal--coal-fired plant? 
How long does the process take to approve any type of wind 
project or solar panel project? Is it comparable, or is it much 
shorter, much longer? Give me the comparisons.
    Mr. Spencer. I don't know the answer to that question, but 
I can find it for you. But I do know this, that each of those 
projects that you just brought up are currently facing 
regulatory delays for a lot of the same environmental reasons 
that are facing nuclear, interestingly enough.
    Really, across the board, we are facing a situation where 
our infrastructure construction is being hamstrung because of 
unreasonable regulation. This problem of regulation is not just 
one for the nuclear industry, though that's what we are talking 
about today. It is something that we need to face generally in 
this country.
    Mr. Jordan. I would agree with that. OK.
    Thank you, Mr. Chairman.
    Mr. Kucinich. The chair recognizes Mr. Foster.
    Mr. Foster. Thank you.
    Let's see. I will start with Mr. Makhijani. I was wondering 
if you have an opinion on the suggested design point of 
multiple small nuclear--things that are basically plucked off 
an assembly line, thereby reducing the time between when you 
manufacture the modules and the time that you actually get a 
revenue stream, if you really are optimistic that will have a 
transformative effect on the economics of nuclear projects, 
particularly when they are sited on an existing preapproved 
site where there is already reactor approval?
    Mr. Makhijani. I'm actually not very optimistic, and the 
reason is as follows. There is obviously some advantage to 
saying we are going to manufacture small nuclear power plants 
on an assembly line basis rather than putting together a 
special project each time onsite. However, there is a reason we 
have large reactors. It is because of economies of scale, and 
the economies of scale work as follows. The cost of the 
materials and the construction goes approximately as the 
surface area of the reactor vessel, the containment building. 
And the amount of power you generate goes with the volume of 
the reactor vessel. And the volume increases much faster than 
the surface area when you increase the size of the reactor. 
That is why we have 1,000-megawatt reactors rather than 100-
megawatt reactors. Imagine a ball. The volume of the ball 
increases much faster than the radius or the surface area of 
the ball. Something like that.
    Mr. Foster. But if for a larger--if you're going to argue 
physics or engineering here, but the hoop stress--there is a 
famous result when you are designing a pressure vessel, that 
the total mass of the pressure vessel is sort of independent of 
whether it is a small- or large-radius pressure vessel. So 
there is sort of second-order effects here.
    Anyway, this is--you have to do the whole engineering study 
of the big and small ones to get the answer there. I think it 
is a little more complicated than elementary.
    Mr. Makhijani. If I might add, yeah, it is quite 
complicated. I will just give you one reason why the cost might 
not come down as much as is being advertised.
    And second, with nuclear reactors you have radioactive 
materials inside a high-pressure vessel. And that is why--
that's part of the reason why the cost of reactors are high as 
compared to the cost of an ordinary boiler is because it 
involves very particular risks, and you have to investigate and 
check every weld and so on, and you're going to have to do that 
in the factory as you have to do it at the site.
    Mr. Foster. I guess I had a question. I'm not sure who 
should cover this. But I don't understand exactly how the 
secret interest rate subsidies work. Aren't these regulated 
utilities where your books are pretty much open to the 
universe? How do you succeed in keeping these secret? Is there 
anyone who can help me with this?
    Mr. Bradford. Well, I can try. The Department of Energy has 
announced that they will treat the fee to be charged for the 
loan guarantee as proprietary to the recipient of the loan 
guarantee. So they, who are the ones who decide the fee, have 
no intention of making it public. In the States in which 
generation is still regulated, the commission, of course, can 
ask for it, but they're likely to be told that it is 
proprietary information, and that the Department of Energy has 
so certified. That means they may be able to see it themselves, 
or they may not, but in all likelihood, they won't be making it 
public either. So it will remain secret in those State 
proceedings as well, if DOE persists in this misguided course, 
which I hope they won't.
    Mr. Foster. One way that I view this and hold this debate 
here is what--you're all familiar with the McKenzie report that 
basically says, look at all the ways we know how to mitigate 
carbon in the atmosphere, and what is the net present value of 
all of these different systems. And I was wondering--one of the 
things I struggle with is the fact that there isn't a trusted 
third party to actually report the real-world cost of this. We 
have our proponents' cost estimates and different things with 
wildly different views of the real cost of capital project 
costs associated with project risk. Is there any trusted third 
entity? Or who would you on the panel prefer as the--to be 
established as the trusted third party to actually come up with 
a fair apples-to-apples comparison of the cost of producing 
electricity by all of these?
    Mr. Spencer.
    Mr. Spencer. It might not be the answer you're looking for, 
but there is a trusted third party that assesses real-world 
cost, and it is the marketplace. That is the problem with 
Washington deciding which of these things to do. You're taking, 
instead of the millions----
    Mr. Foster. But that completely ignores all of the 
externalities and indirectly imposes costs on there.
    Mr. Spencer. The market alone will take all of those into 
consideration in a much better way than Washington. If 
Washington were the best place to do it, we should just have a 
command-and-control economy.
    Mr. Foster. No. It is simply--the free market has no way of 
dealing with the external costs imposed by various solutions.
    I yield back.
    Mr. Kucinich. The gentleman's time has expired.
    What I would like to do is, does Mr. Towns have a question 
on this round? OK.
    Well, we will pick up on that point which Mr. Foster 
raised. And I was intrigued with Mr. Spencer's answer. And 
actually you may find surprising occasionally in this committee 
about who may concur with your answer, because if--as someone 
who voted against the bailouts. Why is this industry having 
trouble getting financing from Wall Street? I mean, if the 
market is the arbiter, as you say--you know, they are asking 
for tens of billions of loans and guarantees from the Federal 
Government. Why can't they get that money from Wall Street? 
Help me out with that.
    Mr. Spencer. I agree that subsidies are not the way to go. 
My belief--because I believe in the potential of nuclear 
energy--is that we need to address the underlying problems, 
which I believe are an antiquated regulatory process. I believe 
we don't have a waste management system that brings any sort of 
predictability to the process. I believe that there is 
overdependence on government. These are the underlying issues 
that create the whole basket of unpredictability that leads to 
the need for subsidies, and it is not just nuclear. I think 
that wind and solar, these other things, fall victim to the 
same thing, sir. That is the whole problem with Washington 
dictating this process. We need to throw it out there, throw it 
to the marketplace. Maybe someone comes up with a new wind 
technology that is great and affordable, then it will be 
nuclear.
    Mr. Kucinich. Let me ask Ms. Kass. You know, the nuclear 
industry is asking for tens of billions of dollars in loans and 
loan guarantees from the Federal Government. It can't get 
financing from Wall Street. Why should the taxpayers take on 
risks that the private investment community is afraid of?
    Ms. Kass. We have a structural imbalance in this country 
because of the size of our utilities. It is one of the few 
things that Dr. Makhijani and I will agree upon is that the 
size of our utilities is relatively small compared to that 
capital spending I mentioned of $1\1/2\ to $2 trillion that has 
to happen between now and 2030 to upgrade and clean up our 
electricity infrastructure. So given that, it is very difficult 
for the companies to raise enough capital. And Wall Street has 
supported small charges of capital for the projects. Like NEAG 
went for a bond offering that was specifically highlighted for 
the nuclear project. We have had some other smaller capital 
offerings.
    But when you come to a guarantee of this size--and again, 
this is our first time coming back to construction in many 
years with the new regulatory regime--there is some 
nervousness, but long term there is a structural problem. EDF 
in France and Tepco in Japan, they are very large, and they can 
fund these on balance sheet because they have hundreds of 
billions dollars on their balance sheet. We don't have that 
here in the United States. The largest electric utility is in 
the roughly $30 to $35 billion range.
    Mr. Kucinich. We have had some earlier discussions here 
about the issue of risk. And if Southern Co. defaults on its 
$8.3 billion loan, what would happen to the taxpayers? What 
would be the result to the taxpayers?
    Ms. Kass. It all gets down to recovery, what you assume the 
recovery rate is, and the probability of default. Southern Co. 
has put their balance sheet behind this transaction, and they 
also have significant equity, again, and a first-loss position. 
They have other partners----
    Mr. Kucinich. Here is the thing that concerns me. What 
concerns me is that I'm asking--you're here representing the 
industry. I have that. I'm very clear on that. I'm wondering 
what sympathy you have for the U.S. taxpayers, and I don't hear 
that.
    Ms. Kass. I am a U.S. taxpayer, sir.
    Mr. Kucinich. But you're not going to fork up billions of 
dollars yourself. I'm just looking for some kind of sentiment 
on your part of your concern for what the U.S. taxpayers here 
have at stake. That's why I'm just trying to figure out where 
you are coming from on this.
    Ms. Kass. Well, I think when you look at the analytics and, 
as I mentioned, the risks versus the possibilities of what we 
have to do here, I as a taxpayer am concerned that we are going 
to come up with energy cost so high that it crushes our economy 
as we try to go to a clean-energy economy. That's my concern.
    Mr. Kucinich. Ms. Kass, I want to go to Mr. Bradford.
    What happens if there is a default? What is the impact 
here?
    Mr. Bradford. Well, if there is a default, at that point 
presumably the project is going to either change hands or stop, 
and the components will be sold off. There will be a net loss, 
and that net loss will be charged to the taxpayers.
    But I wonder if I could comment on this issue of the size 
of the utilities, because it doesn't seem to me to be remotely 
the problem that the industry asserts it is in justifying loan 
guarantees. All that is needed is to match a consortium to 
build a plant with the size of the project being undertaken. If 
the buyers are there, and the plant can produce an output at a 
reasonable price, it is financeable. We finance bigger projects 
than nuclear plants in the country. But the difficulty is--lies 
in mismatches between what is being undertaken and the size of 
the individual companies.
    The Florida companies are trying to find buyers for their 
shares of plants. Other utilities aren't interested in buying 
in because it is too expensive. And the way we have built 
nuclear plants in the past is by putting consortia companies 
together. There are consortia backing each reactor design that 
have assets and gross sales bigger than 100 countries combined. 
It is about risk, and it is about costs.
    And that is true also incidentally with regard to this 
issue of the regulatory process. I mean, for God's sake, Ralph 
Nader has not been appointing the Nuclear Regulatory 
Commissioners for the last 30 years. The regulatory process 
about which Ms. Kass is concerned has been designed--has been 
made up of Presidential appointees, not one of whom her 
organization opposed until Commissioner Jaczko a few years 
back.
    So what are we to believe, this group of Presidential 
appointees has come up with a regulatory process that is 
hosting the industry? No. This is a regulatory process of the 
industry's design and choosing for three decades.
    Mr. Kucinich. Thank you, Mr. Bradford.
    The chair recognizes Mr. Jordan.
    Mr. Jordan. Thank you.
    It's about risk. It seems to me--and Mr. Spencer raised 
that--the risk of what you do with the waste has to be 
something that's factored in, and the current administration's 
decision concerning Yucca Mountain, that has to contribute to 
the cost and the uneasiness of investors to take that risk.
    Ms. Kass, would you agree with that?
    Ms. Kass. As far as the waste is concerned, it certainly 
has not helped the risk perceived from Wall Street. What I will 
say is that the waste is currently safely stored on our sites. 
The industry supports the Blue Ribbon Commission and looks 
forward to being able to move forward and have----
    Mr. Jordan. But obviously some certainty on that question 
would help with potential investors taking a stronger look at 
investing in one of your facilities.
    Ms. Kass. Yes. Having certainty on the waste question will 
be very helpful to us.
    Mr. Jordan. I would argue that when you think about our 
entire economy, having some certainty about what's going to 
happen with our energy policy, I think the uncertainty of are 
we going to have a cap-and-trade, the uncertainty--are we going 
to have other policies, I would argue that's a big factor in 
why our economy's not growing and responding the way we would 
like as we come out of this recession.
    Mr. Bradford, you and the doctor are not in favor of the 
loan guarantee program for nuclear plants. Are you in favor of 
loan guarantees or subsidies for other forms of energy, 
ethanol, wind, solar? Do you support those programs that 
taxpayer money is currently being put at risk with right now, 
Mr. Bradford?
    Mr. Bradford. I think the process by which we choose and 
allocate Federal support for energy technologies is deeply 
flawed. And I'll join with Mr. Spencer in wishing that we paid 
a good deal more attention to market verdicts, tempered, 
however, by attention to externalities. And there are various 
ways one can incorporate them.
    Mr. Jordan. I appreciate that.
    Mr. Bradford. That said, I'm much more comfortable with 
support at the research and development level for technologies 
that seemed to promise carbon reductions and other benefits 
quickly than I am with support for commercialization of large--
--
    Mr. Jordan. Which is it? Go back to my question. Yes or no? 
Do you support help for alternative energy?
    Mr. Bradford. In the R&D sector, based on the potential to 
alleviate the various problems in terms of energy security and 
environmental protection, yes, I would be supportive of a 
substantial program in that area. When it comes to 
commercialization--that is, actually taking projects and 
building them for the large private entities who would normally 
build it for themselves--I have reservations across the board 
about the way we'd do that.
    Mr. Jordan. You would be against the other commercial--when 
you get to the commercial portion, you would be against that 
for any--for ethanol, for solar, for anything?
    Mr. Bradford. I'd rather----
    Mr. Jordan. I'm just trying to figure out----
    Mr. Bradford. If you want to take the time to go criterion 
by criterion, project by project, I would be glad to do it. I 
kind of think you don't.
    Mr. Jordan. Do you support government picking winners and 
losers?
    Mr. Bradford. I would be much happier with the government 
playing a much lighter role in the commercialization of all 
alternative energy technologies. I wouldn't say no role at all.
    Mr. Jordan. Doctor.
    Mr. Makhijani. Well, actually, Congressman, in my testimony 
on page 11, I say that in my opinion, government loan 
guarantees are not a suitable way to encourage development of 
any energy source. And I say, especially ones that are very 
risky due to combinations----
    Mr. Jordan. What about other forms of government support?
    Mr. Makhijani. Yeah. Now, I am actually not a proponent of 
subsidies. I think we've got a very complicated thing where 
some very old industries, like nuclear and coal and so on, have 
some subsidies, and you've got wind and solar that now have 
investment tax credits and production tax credits. I actually 
think that these production tax credits should be phased out in 
8 or 10 years with this sunset, you know, whatever the 
legislation is. And the best way to support a new energy 
marketplace by government is for the government, Federal, State 
and local, to put its own house in order. I have been a 
proponent in my book and in other forums.
    What I'm saying here is that if the government made its 
buildings and infrastructure, cars, vehicles more efficient, if 
the government at State and Federal levels simply put out a 
purchase order for the kind of energy sources that it wanted 
each year, I think even much of the R&D will take care of 
itself, because people would compete to develop new energy 
sources to supply the government with low CO-2 energy sources 
or energy sources with other similar attributes.
    So I think the government should put its own clean energy 
house in order, and I am not a big proponent. I am actually 
fairly much a fiscal conservative in that I am not a proponent 
of big government subsidies for anything.
    Mr. Jordan. OK. Thank you, Mr. Chairman.
    Mr. Makhijani. And certainly not prolonged subsidies. I 
think nuclear has had R&D and subsidies for 50 years and 
continues to enjoy subsidies, and I think more than enough.
    Mr. Kucinich. The chair recognizes Mr. Foster.
    Mr. Foster. I would put a price on carbon. That is the only 
thing I would add to what I said before. Well, the carbon is 
one example of an externality that we have to figure out how 
we'll deal with.
    Another one is obviously the waste problem. You can't say 
that, oh, it's the free market, and if I want, I can set up a 
waste repository in my backyard without consulting my 
neighbors.
    So we have to deal with the reality that it's a mixture of 
a regulated and a free-market environment that we're always 
going to be in. I actually see possibly that you actually agree 
in principle here. And it's something that's very much like 
what the approach taken in the Mackenzie report and other ways 
where you just do a hard economic analysis of what is the cost 
of producing energy, the levelized costs, the total project 
cost, factor it all in. But do the calculation right, OK? And 
with the exception of externalities, which we're going to have 
to argue about and get settled, that is the way that actually 
this should be handled.
    And that those who advocate nuclear, I think that when you 
do that analysis right, you're going to show that--the 
Mackenzie report showed it was pretty much net present value 
neutral, as I recall, investments in nuclear. They viewed many 
of the renewable things had a very positive cost to the GDP, 
and they reviewed things like efficiency improvements as 
massively negative in terms of saving the economy money.
    And I think that--do any of you really have an objection to 
that as the basic approach for setting policy here? And that 
what we really need to do is get these numbers right and set up 
some entity that we all trust to go through the real costs of 
these things.
    I guess I'll start to the right here. Yes, Ms. Kass.
    Ms. Kass. Thank you.
    We obviously, our utilities, look at the levelized cost of 
electricity, and that's how they make their investment 
decisions for their precious capital as well. The third party I 
would recommend is the National Academy of Sciences. The 
National Research Council, for instance, put out a report in 
2009 actually--yeah, in 2009, they have a draft report out that 
looks at the levelized costs across all technologies and shows 
that--for instance, nuclear's in the competitive range, as are 
many other technologies.
    And the thing we get into is there's no single point 
estimate because every project has unique characteristics 
whether you're relying on natural resources, which is how windy 
is it somewhere, or whether you are looking at what the site 
geology and how much you have to compensate for that or 
transmission in your construction. So we find the National 
Academy of Sciences. We find EIA. And there are studies out 
there that I think are very helpful and accurate.
    Mr. Foster. I believe the EIA has recently--in the last few 
years has actually stopped doing year-by-year reporting of 
these, and actually we have a piece of legislation where we've 
prepared in our office to try to reverse that. I think that was 
a very valuable part of the puzzle that's actually sort of 
ceased to exist and shouldn't have. Does anyone else want to 
try to----
    Mr. Spencer. If we're going down the line, it depends on 
who the who is that is using this information. I would disagree 
that----
    Mr. Kucinich. Do you want to bring that mic a little 
closer?
    Mr. Spencer. It depends on who the who is that is using 
that information. I would disagree, for example, that the 
government should use that information to develop an energy mix 
that they would then mandate. If, however, the nuclear industry 
or wind industry or the utilities use that information as a 
variable in the considerations of where they place their 
investments, then that's fine. So it just depends on who is 
using that for information and what for.
    Mr. Makhijani. Well, I recommend in my book that there 
should be a standing committee as part of the Scientific 
Advisory Board of the EPA on energy and climate. And I think 
that they have a pretty diverse representation on their Science 
Advisory Board. I have served on their Radiation Advisory 
Committee. They produce good reports generally and I think that 
would probably be--one possible venue, the National Academy, 
could be another.
    Mr. Foster. So you'd like to institutionalize the report of 
the real levelized costs of electricity for whatever--
whatever--as R&D proceeds on these different things, as we get 
better data for different classes and nuclear plants, whatever 
it is, to just have some third party sit there every year and 
say, OK, what does it look like this year with this year's cost 
of nickel and this year's cost of cement and everything that 
will cause you to reestimate a bunch of things.
    Mr. Makhijani. Cost is just one thing. I think energy and 
climate is a very complicated thing. And I think--and I think 
the public and Congress and the executive branch should have an 
annual report on energy and climate which covers cost issues, 
which looks out at R&D questions, but which also looks at the 
marketplace, which looks at CO-2 questions and whether we need 
to tighten CO-2 regulations or loosen them, and things are not 
as bad or worse than we thought. So I think we need a panel 
with the adequate expertise and public confidence in its 
independence that would report to the public each year and that 
has a requisite level of independence.
    Mr. Bradford. Mr. Foster, with all due respect, I am in a 
different place, I'm afraid. You won't find a panel that can, 
as you put it, get it right for further into the future than 
this time next week. The costs of different energy sources, the 
cost of nuclear 10, 20 years in the future, no matter how 
sophisticated the models and how well intentioned the panel, 
the only thing you can be sure about their forecasts is that 
they'll be wrong.
    What you need are systems that make the least damaging 
errors, systems that have the greatest degree of flexibility in 
responding to changes and events. You've got to get the 
principles right and not the prophecies, because we just don't 
have prophets that good.
    Mr. Foster. I was referring to just this year's results. 
The actual true numbers for this, I think, should be knowable, 
level playing field.
    Mr. Bradford. History is much easier to deal with than the 
future. Yes.
    Mr. Kucinich. The gentleman's time has expired.
    Mr. Welch, do you have any questions right now? We're going 
to have another round.
    Mr. Welch. I will wait. Thank you.
    Mr. Kucinich. We're going to have one more round of the 
witnesses.
    In thinking in terms of the risk here and what's 
confidential, it occurs to me that there ought to be a 
discussion about the economics of nuclear power plants and what 
would be the effect. I'd like Mr. Bradford and Mr. Makhijani--
as a matter of fact, both panels might be able to answer this 
question. What will be the effect on the nuclear power plants 
if we experience decades of relatively weak prices for natural 
gas that the Energy Information Administration is predicting 
and as was reported in the March 11th issue of The Economist? 
So we are looking at decades of relatively weak prices for 
natural gas. What is going to be the effect, or what could be 
the effect, of this on the economics of nuclear power plants?
    Mr. Bradford. It would be pretty devastating. I mean--
because right now new nuclear is looking to sell 12-cent 
kilowatt hours into a 5 or 6-cent market. That's what today's 
natural gas prices are producing in the power markets in those 
parts of the country that use power markets. The gap of 5, 6 
cents in those power markets and the 12 cents that's about the 
lowest responsible forecast I've seen for new nuclear is bigger 
than even loan guarantees can bridge, and so it would be hard 
to build nuclear plants at all in those parts of the country 
that use power markets. In those parts of the country that are 
regulated, where the costs can be charged to customers willy-
nilly , you might still see a plant or two built. That would be 
primarily the Southeast. But at low gas prices, you won't see 
many.
    Mr. Kucinich. Dr. Makhijani.
    Mr. Makhijani. Yeah. Actually much more than nuclear waste, 
the thing that killed nuclear power in the 1980's and 1990's 
was low gas prices. Everybody was--and in this decade, in the 
last decade, everybody was building natural gas power plants 
because they were cheaper than anything else, and now----
    Mr. Kucinich. So if you have weak gas prices, what happens?
    Mr. Makhijani. If you have weak gas prices and loan 
guarantees, you are going to have a high likelihood of default 
on the loan guarantee, especially for merchant plants where 
they have to sell their power output on the open marketplace, 
in a deregulated marketplace. They won't be able to sell their 
power or won't be able to sell a significant fraction of it, 
which will drive up the fraction of the rest of it, because 
most of your costs in a nuclear plant is a fixed cost, whereas 
in a gas-fired power plant, most of your costs are in the fuel 
cost, so you can afford to remain flexible.
    Mr. Kucinich. Thank you, Doctor.
    Mr. Spencer.
    Mr. Spencer. I think all things being equal, that's 
probably true. You decrease the demand for nuclear power. But 
all things will not be equal. And if we change the policies 
that would allow nuclear--new technologies to be developed and 
brought to the marketplace, that might have an impact on it.
    And also, I think there is a case to be made that utilities 
may choose to just be more diversified, not be so dependent on 
natural gas, because we can't guarantee that prices will remain 
low forever. And I think that's something that nuclear really 
does bring to bear. It's 100 years or 70 or 80 years of 
reliable, inexpensive power generation once you get those 
capital costs.
    Mr. Kucinich. Do you think, though, that given these 
dynamics, would it be less likely that Wall Street would decide 
to get back into the nuclear game then?
    Mr. Spencer. Well, I think we're going to build some power 
plants regardless.
    Mr. Kucinich. Who's ``we?''
    Mr. Spencer. The United States. I think the United States 
will build a handful, five or six or seven nuclear power plants 
no matter what, because the Nuclear Policy Act of 2005 created 
enough subsidies or incentives or whatever we want to call them 
to make that worthwhile.
    If natural gas remains low, I don't know--we shouldn't 
build nuclear plants just for the fun of building them, nor 
should we build wind or solar just for the fun of building 
them. But I do think that there is something to be said for 
nuclear in terms of it bringing predictable, affordable power 
for a good long time, and that--if we get the policy right--
even with low gas prices, depending on how well and those sorts 
of things, could yield a pretty good incentive to continue 
moving forward with some nuclear bill.
    Ms. Kass. Sir, if I could respond, too. Yeah. If we could 
absolutely predictably say that gas prices were going to remain 
very low, and there would be no carbon tax, my members would go 
gas, because, as I mentioned, they are very invested in these 
projects, and it would be imprudent for them to do it for 
stakeholders, shareholders, everybody, and they wouldn't make 
that mistake. But as we--when gas prices are low, we build more 
gas; the price spikes, and here we are. And that volatility is 
very difficult on customers and the economy. So I think they 
will look at what are the forecasts, what is the best mix to 
protect them from both gas volatility and a carbon tax. But if 
they could--they would be thrilled to know it would be very low 
for a very long time.
    Mr. Kucinich. I want to thank each of the panelists for 
weighing in on this. I will go to Mr. Jordan in a second here. 
I raise the question because The Economist March 11th issue has 
a prediction from the Energy Information Administration which 
relates to decades of relatively weak prices. Decades, they 
say. So I am glad that you all weighed in on this.
    Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman. I appreciate that line 
of questioning, too. And I think Ms. Kass, her last couple of 
statements, were telling in that she said your members would 
build gas plants if the price of gas--they knew the price of 
gas was going to stay low and the carbon taxes. So, I mean, how 
much of it is driven by the idea that there's going to be cap-
and-trade, there's going to be some carbon? That's got to be 
driving this movement, in my mind, to a large degree as well.
    Ms. Kass. Absolutely on the uncertainty. If you see in the 
public utility filings where they debate this with their public 
utility commissions in a couple of the rate-regulated States, 
that's very much on their minds. Many of those States in the 
Southeast have had gas price shocks that have been very 
uncomfortable. And also when they look at the potential for a 
carbon tax, that changes the game.
    Mr. Jordan. I'm just curious. What is the operating cost--
if you can give me some idea of the comparison--operating costs 
for a nuclear facility and a coal or gas facility? And I 
understand it depends on the price of coal and price of gas, 
but just kind of in a general sense.
    Ms. Kass. Well, if you look at currently--and our plants 
are fully depreciated, as Jack mentioned, they are a 60-year 
asset right now--fully depreciated. We are the lowest cost at 
1.87 cents per kilowatt hour, followed up by coal and gas after 
that. Those two are very dependent on fuel costs, so they 
occasionally will trade. But in the future--MIT did a study on 
the update of nuclear power, and they looked at the cost of 
nuclear versus coal and gas. Without carbon sequestration, if 
you gave them all favorable interest rates, they were all in 
roughly the 5 or 6 cents per kilowatt range. If you add a 
carbon tax, then nuclear remains stable, and then the other two 
rise.
    Mr. Jordan. I'm also curious on the construction side how 
much more expensive is a nuclear facility versus another type 
of facility?
    Ms. Kass. It depends on size. Certainly our capital cost is 
much higher. We tend to have a bigger installation. The 
smallest units we're considering right now are 1,100 kilowatts 
and up--excuse me--1,100 megawatts and up, sorry. And we have 
all the safety systems and redundancy, and they are far more 
expensive on a capital front.
    But when you start adding some of the environmental 
controls and look at some of the coal plants with IGCC plants 
and some of the plants that would have carbon-captured 
sequestration, then they start coming into the capital market 
we're in.
    Mr. Jordan. Does your agency take a position on subsidies 
for other forms of energy, wind, solar, ethanol, biofuels?
    Ms. Kass. We are just looking for a level playing field. We 
found that the loan guarantee program--we're happy with the way 
it's structured, but we do need more loan volume--would be very 
effective for us. We believe it's going to take the full energy 
mix, and in the current environment our utilities again are 
also building wind farms, also building solar. What is it going 
to take to bring all these technologies to bear so they can 
keep up with demand, but also meet the mandate for clean 
energy.
    Mr. Jordan. Mr. Spencer, I raised the Yucca Mountain issue 
in the previous round, and you had sort of brought that in 
front of the committee, and I didn't give you a chance to talk 
about that. If you would like to elaborate on the uncertainty 
that not having a place to put the waste, and the cost, that 
you see that adding to potential investors' willingness to 
invest in these projects.
    Mr. Spencer. I think it's a substantial issue on a number 
of levels. First, in order to have a nuclear power plant 
license, we need to have a place to put the waste. Now, the 
Blue Ribbon Commission is supposed to give us that, but one of 
my fears is that by potentially killing Yucca Mountain before 
having a plan be in place, it could bring some uncertainty 
there. And that is real uncertainty that would have an impact 
on costs.
    Then there's the longer-term impact of having the 
government in charge of nuclear waste. It really removes the 
economic incentives for those who would have the most need to 
come up with the waste solution. The utilities, they are the 
ones who need a waste solution in order to sell their product.
    I think that putting more responsibility on the utilities 
to develop a nuclear waste solution that includes Yucca 
Mountain as an alternative there would help bring those same 
market pressures and downward-priced pressures and competition 
both on the waste management side, but also on the nuclear 
technology side, because if you are responsible for your waste, 
you start caring about how that waste is produced. Keeping the 
government in charge of that nuclear waste really, I think, is 
one of the detriments to really getting us to where we need to 
be on the nuclear front that allows nuclear to be competitive 
with everything else even absent carbon caps potentially.
    Mr. Jordan. Thank you, Mr. Chairman.
    Mr. Kucinich. Thank you.
    The Chair recognizes Mr. Welch of Vermont.
    Mr. Welch. I'm sorry I got here late. It's great to see Mr. 
Bradford from Vermont.
    Mr. Spencer, you probably testified about this, but how 
would we deal with the waste issue as you proposed it, very 
succinctly, because I don't want to put my colleagues through 
hearing that again if you've answered it.
    Second, would it be a prerequisite to the future of nuclear 
power that be dealt with before plunging in with these huge 
investments?
    Mr. Spencer. Well, I think we have a plan in place already 
where the waste goes to Yucca Mountain. That works for the time 
being, but that doesn't give us the comprehensive, I think, 
long-term sustainability that we need.
    Mr. Welch. But it's not working at Yucca Mountain.
    Mr. Spencer. I think that it could work. I don't think 
there's anything that----
    Mr. Welch. Well, that's my question.
    Mr. Spencer. Let me try to answer your question in 30 
seconds, which I'm not going to be able to do because the red 
light's going to go on here. But here is what I think we need 
to do. The utilities should be in charge of their own nuclear 
waste. If they are in charge of that, then you start to create 
a marketplace for waste services.
    I think Yucca Mountain or some geologic repository 
somewhere should be critical to that. Geologic repository space 
would then be looked at as a finite commodity. As it fills up, 
that sends the signal out to the marketplace you need to 
reprocess or do something else. I think that there's a way that 
we can introduce market forces into waste management that would 
get the politics out and allow us to come up with a long-term 
solution.
    Mr. Welch. All right. So would that have to be done first, 
and then that would make it possible for the market to proceed 
and make nongovernment-based--nonsubsidized decisions about 
investing in these massive assets?
    Mr. Spencer. I think that having a sustainable solution to 
nuclear waste will allow us to develop a long-term, 
economically viable nuclear industry. I don't think that we 
need to have that solution before we build or permit a new 
power plant.
    Mr. Welch. Mr. Makhijani.
    Mr. Makhijani. Thank you, Mr. Welch.
    The Yucca Mountain question from the point of view of the 
utilities was really settled, at least as it was thought then, 
by the 1982 Nuclear Waste Policy Act. Ratepayers paid a tenth 
of a cent a kilowatt hour, and utilities had some certainty. 
When that certainty didn't come to pass, they sued the 
government, and the taxpayer is actually picking up the cost, 
at least in those suits that have been successful, and I 
believe that the government did violate its contracts. So the 
taxpayers are paying for the additional storage that will be 
required, and that liability is actually mounting. I don't 
think the industry is looking to significant extra costs 
because of this default, because the taxpayers are now on the 
hook for that money, and it's not coming out of the nuclear 
waste fund.
    I am a supporter of a deep geologic repository, but I 
happen to think that Yucca Mountain, in my opinion, has been 
the worst single site that has been investigated in this 
country.
    Mr. Welch. Yeah. I'm going to stop you there. We don't need 
to go into it because those arguments are inevitable. Whatever, 
it's a huge NIMBY issue. Wherever you're going to be, there's 
going to be enormous opposition, and it really has raised the 
question in my mind as to whether or not there's a political 
capacity on the part of Congress to actually have a legislative 
outcome rather than have it be endless fights.
    Let me go to Mr. Bradford. Your view on this? Thank you.
    Mr. Bradford. Well, there's a lot to be said for Mr. 
Spencer's view, and I wish the program had unfolded that way 
from the beginning. In many ways the commitment to take the 
nuclear waste that the Federal Government has made which is 
unique to the nuclear industry--after all, the Federal 
Government doesn't offer to take the waste from any other 
industry--could be said to be one of the largest of all the 
subsidies that were--that was given to nuclear energy, and it's 
played out very badly for them. But it is a commitment that's 
in place now, and it's hard to see how we could develop a deep 
geological repository, all the transportation necessary to get 
it there, without a central role of some sort for the 
government, not necessarily the Department of Energy. 
Conceivably a differently constituted authority would be more 
successful. I just don't see us able to get from where we are 
to market principles today, although it would perhaps have been 
very desirable to have been there from the beginning.
    With regard to the role of a waste repository in the 
context of new reactors, I agree that you can't really make a 
case that six or seven more plants change the nature of the 
waste dilemma in any fundamental way. In fact, it's less than 
operating the existing plants for additional years. We're going 
to be using pools and dry casks, and the only serious question 
is whether we centralize the dry cask storage somewhere in the 
next decade or two. I do think it's fair to say that before a 
major expansion beyond the so-called first mover plants, that 
it's reasonable to seek a higher degree of assurance than we 
have now that we know where the waste is going.
    Mr. Welch. Thank you. I yield back.
    Mr. Kucinich. I thank the gentleman.
    Without objection, I am going to ask that this article from 
The Economist, the March 11th issue of The Economist, which 
says the Energy Information Administration, the statistical arm 
of America's Department of Energy, predicts decades of 
relatively weak prices for gas, that this be included in the 
hearing record.
    [The information referred to follows:]

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    Mr. Kucinich. And I want to thank this panel. I think that 
it's been an important discussion. The market economics are not 
a small matter here in trying to determine which way this might 
go, and I want to thank each of you for participating.
    So we're going to go to the next panel now. Thank you, Mr. 
Bradford, Dr. Makhijani, Mr. Spencer and Ms. Kass. Thank you.
    We are going to take a 3-minute recess until the room is 
prepared for the second panel.
    [Recess.]
    Mr. Kucinich. That buzzer does not signify a meltdown. We 
are waiting. The committee is going to come to order.
    I want to thank all of you who are present. I am going to 
introduce the second panel of witnesses and begin with Dr. Mark 
Cooper.
    Thank you for being here.
    Dr. Cooper is a senior fellow for economic analysis at the 
Institute for Energy and the Environment at Vermont Law School. 
He is the author of dozens of articles and six books on energy, 
technology and telecommunications. He's provided expert 
testimony in over 250 cases for public interest clients 
including State attorneys general and citizen intervenors 
before State and Federal agencies and courts. Dr. Cooper 
received his Ph.D. from Yale University.
    Mr. Henry Sokolski, welcome.
    He was the executive director of the Nonproliferation 
Policy Education Center from 1989 to 1993. Mr. Sokolski served 
in the Bush administration, the Office of the Secretary of 
Defense. Previously he served as senior military legislative 
aide to Senator Dan Quayle and a special assistant on nuclear 
energy matters to Senator Gordon Humphrey. He's also had an 
association with the Heritage Foundation and the Hoover 
Institute. Mr. Sokolski is the author and editor of several 
books and numerous papers.
    Mr. Richard Caperton, thank you for being here, is energy 
policy analyst at the Center for American Progress, where he's 
concentrated on the analysis of financing mechanisms and 
incentive structures intended to encourage clean-energy 
technology. Previously he's worked at the National Rural 
Electric Cooperative Association. He's a graduate of Pomona 
College and Georgetown University's McDonough School of 
Business.
    Mr. Michael Scott, thank you for being here, is managing 
director at the investment bank Miller Buckfire, and heads its 
U.S. Government advisory practice. Previously Mr. Scott was 
senior adviser to SEC Chairman Christopher Cox. Before that he 
was managing director and head of the U.S. Government entities 
at Bank of America Securities, where he advised companies on 
Federal loan guarantees to build a proposed Alaska natural gas 
pipeline, as well as those associated with advanced energy 
facilities, including the Energy Policy Act of 2005.
    Before that, Mr. Scott served for 5 years at the U.S. 
Department of Treasury as senior adviser. There he was 
principal architect of the Federal credit policy. He negotiated 
and structured programs that provided Federal credit to a wide 
range of industries, including airlines, banks, rural 
telecommunications and energy companies. He was also 
responsible for Treasury's role in the Air Transportation 
Stabilization Board, where he structured and negotiated loan 
guarantees supporting the $429 million unsecured loan to 
America West Airlines.
    And finally, Mr. Christopher Guith is vice president for 
policy at the U.S. Chamber of Commerce Institute for 21st 
Century Energy.
    Thank you for being here.
    Previously Mr. Guith served as the Deputy Assistant 
Secretary For Nuclear Energy at the U.S. Department of Energy 
and represented the Bush administration during the drafting of 
the Energy Policy Act of 2005. Before that he was legislative 
director for former Congressman Bob Barr. He is a graduate of 
Syracuse University School of Law and University of California 
at Santa Barbara.
    Again, I want to thank each and every one of the witnesses 
for being here. This is indeed a distinguished panel, as was 
our previous panel. I want to thank you and also tell you that 
it is the policy of our Committee on Oversight and Government 
Reform to swear in all witnesses before they testify. I would 
ask that you rise and please raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Let the record reflect that each of the 
witnesses answered in the affirmative.
    I would ask that each witness give a brief summary of your 
testimony. Please try to keep the summary under 5 minutes in 
duration. Your entire written statement will be included in the 
record of the hearing.
    Dr. Cooper, our first witness on the panel, I would ask you 
to proceed.

STATEMENTS OF MARK COOPER, SENIOR FELLOW FOR ECONOMIC ANALYSIS, 
 INSTITUTE FOR ENERGY AND THE ENVIRONMENT, VERMONT LAW SCHOOL; 
  HENRY SOKOLSKI, FORMER DEPUTY FOR NONPROLIFERATION POLICY, 
  OFFICE OF THE SECRETARY OF DEFENSE, PRESIDENT AND EXECUTIVE 
  DIRECTOR, NONPROLIFERATION POLICY EDUCATION CENTER; RICHARD 
CAPERTON, POLICY ANALYST, CENTER FOR AMERICAN PROGRESS; MICHAEL 
 D. SCOTT, MANAGING DIRECTOR, MILLER BUCKFIRE & CO., LLC; AND 
   CHRISTOPHER GUITH, VICE PRESIDENT OF PUBLIC POLICY, U.S. 
                      CHAMBER OF COMMERCE

                    STATEMENT OF MARK COOPER

    Mr. Cooper. The fundamental economics of nuclear power 
should determine whether a new generation of reactors is 
constructed in the United States. In my testimony I show the 
basic supply and demand fundamentals of new nuclear reactor 
economics that have led Wall Street to refuse to put up the 
funds to finance new reactors, and why policymakers in 
Washington should not force taxpayers to do what the capital 
markets will not.
    I answered four questions posed to me by the committee. 
First, cost overruns in the construction of nuclear power 
plants are not a thing of the past. They are an occurring 
present-day problem. Cost escalation and overruns afflicted the 
industry in the 1970's and 1980's when the final reactors built 
were seven times as expensive as the initial cost estimates for 
that round of construction. The escalation in projected costs 
since the beginning of the so-called nuclear renaissance has 
rivaled that historical experience. In less than a decade the 
projected costs have more than quadrupled.
    The causes of this escalation are well known. Reactor 
design is complex, site-specific and nonstandardized. In 
extremely large, complex megaprojects that are dependent upon 
sequential and complementary activities, delays tend to 
escalate into interruptions. These one-of-a-kind specialized 
projects have few suppliers, so any interruption or delay in 
delivery cannot be easily accommodated, and any increase in 
demand or disruption in supply sends the cost of components 
skyrocketing.
    Material costs have been rising, and skilled labor is in 
short supply. The energy-intensive materials and construction 
processes that are involved in nuclear reactors entail 
processes that are likely to be deeply affected by any carbon 
policy, so the cost escalation will be built in. The current 
costs of nuclear reactors are extremely expensive, uneconomic, 
and those costs are likely to escalate, not decline, if these 
reactors are ever built.
    Second, we do not currently have such demand for electric 
power plants that we need to rush into the construction of 
multiple nuclear reactors. We have time to experiment and to 
see what does and doesn't work before we proceed, whether or 
not climate policies, enacted efficiency in several widely 
available renewables, are substantially less expensive than 
nuclear reactors. They can push out any need for these 
facilities for decades. So the rational approach is to build 
the low-cost, low-hanging fruit available, and take the time to 
develop alternative low-cost options.
    Third, Wall Street won't invest in nuclear power plants for 
very good reasons. In addition to the supply and demand factors 
I have already mentioned, these plants are subject to dozens of 
risks--technology risks, policy risks, regulatory risks, 
execution risks, marketplace risks--which make them a bad 
investment. A combination of these risks are what created the 
financial disaster in the last round of nuclear construction. 
Given these risks, Moody's is right to have declared 
investments in these projects a ``bet-the-farm'' decision, and 
other analysts want a return on investment, a risk premium two 
or three times as large as the normal premium. That is why Wall 
Street will not invest in these projects.
    Finally, increased loan guarantees for nuclear power plants 
misdirect resources that could be better used for energy 
efficiency and renewables. Loan guarantees induce utilities to 
develop the wrong resources. They choose high-cost, high-risk, 
capital-intensive projects that pump up their rate base--that's 
how they make money--and leave behind the more economic, less 
costly facilities. The result is a dramatic increase in the 
consumer's bill.
    You heard a suggestion that Georgia Power/Southern Co. 
estimates a $15 to $20-million-a-year savings from the loan 
guarantee. The excess costs of those facilities is between $500 
million and $1 billion a year. It's a bad deal for the 
ratepayer.
    The rejection of financial markets that has afflicted 
nuclear reactors is not an example of market failure. It is, in 
fact, a market success, an instance--and frankly there have 
been too few lately--where the marketplace has properly 
evaluated risk and refuses to put private capital on the table. 
If Congress were to override that decision, ignore the 
indication of Wall Street, it would place ratepayers and 
taxpayers at severe risks that I think would amount in the end 
to trillions, not billions or even hundreds of billions, of 
dollars.
    Thank you.
    [The prepared statement of Mr. Cooper follows:]

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    Mr. Kucinich. I want to make sure for the record that I 
have the pronunciation of your name. The copy that I have in 
front of me says ``Sokoloski.'' Now, your name card says 
``Sokolski.'' Help me out here.
    Mr. Sokolski. I kind of prefer the latter.
    Mr. Kucinich. OK. Well, that's what it is. It's Sokolski. 
Well, where I'm from in Cleveland, Sokolski is a well-known 
name. And the copy here did say Sokoloski. But it's Mr. 
Sokolski. Welcome.
    Mr. Sokolski. I don't make helicopters either.
    Mr. Kucinich. Welcome.

                  STATEMENT OF HENRY SOKOLSKI

    Mr. Sokolski. Thank you, Mr. Chairman and members of the 
committee, for allowing me to testify before you today on 
whether or not creating additional Federal loan guarantees for 
new civilian nuclear energy plants is advisable. My short 
answer is it's a bad idea.
    Mr. Kucinich. Pull that mic a little closer.
    Mr. Sokolski. This is based upon the findings of a 2-year 
study that my center just completed on nuclear economics, the 
key findings of which I am releasing today. I'd ask the 
committee if I could present this as an exhibit along with two 
other short op-eds.
    Mr. Kucinich. So ordered, without objection.
    Mr. Sokolski. In general, my views are like that of many of 
the panelists you've already heard. I think the key problem new 
nuclear power plants have is that to become economically 
competitive, they have to reduce their capital construction 
costs considerably. I think piling on more government financial 
incentives beyond those you've already voted for and approved 
to promote commercial deployment of nuclear power is only 
likely to reduce market pressures on the industry to meet this 
critical goal of reducing capital costs.
    This then brings me to the committee's four questions. Are 
cost overruns and the construction of nuclear power plants a 
thing of the past? I think if we understand what's happening in 
Finland, France, Canada and the United States, the answer is 
no. In addition to the Finnish and American cases you've 
already heard, we have the French case of EDF struggling to 
keep construction of a similar plant to that being made in 
Finland on schedule. And in France, the project's now running 
more than 20 percent over budget and at least 2 years behind 
schedule. In Canada, the government of Ontario put its power 
plans on the table to build two large reactors and decided to 
put them on hold after receiving a $26 billion bid that was 
nearly four times higher than the $7 billion bid the government 
set aside for the project only 2 years before. As you heard, in 
the United States, projects at an advanced stage of planning 
have seen their cost projections soar fourfold in less than a 
decade and are still rising.
    Why won't Wall Street invest in nuclear power plants, and 
why does Moody's call them ``bet-the-farm'' investments? Three 
reasons. First, projections of new nuclear power plant 
construction costs are far higher today than several nonnuclear 
alternatives, while the long-term requirements for ever larger 
numbers of baseload generators, nuclear or nonnuclear, could 
easily decline as a result of energy technology innovations.
    Betting nuclear power will make money through 2080, when 
nuclear power plants clearly cost far more to build now and 
take far longer to construct than cheaper alternatives, is too 
large of a gamble for private investors. Like U.S. spending on 
canals in the early 1800's, which was undercut by the advent of 
steam locomotives, the risk of investing in expensive nuclear 
plants is that energy innovations in the storage, generation, 
distribution or use of electricity could easily wipe out the 
value of whatever commercial nuclear investments are made.
    You have already heard about the history and how unkind 
it's been to nuclear power projects in the past. I think this 
is the reason why the nuclear industry is seeking more Federal 
loan guarantees.
    Finally, the value of Federal loan guarantees is so 
uncertain, and the ability of the utilities to cover their 
risks with their own capital is so low that even with loan 
guarantees, private investors are leery.
    I would like to associate myself with the recommendations 
already made that you really need to make sure the Congress 
demands that DOE supply Congress with answers to the questions 
about the costs of these loan subsidy fees that you need to get 
clear. Without that, the private industry's going to be very 
leery about getting involved even with loan guarantees.
    You asked, do increased loan guarantees for nuclear power 
plants misdirect resources that could be better used for energy 
efficiency and renewable power projects? I will keep my 
comments short. The short answer is yes. Experience with syn 
fuel, breeder reactors, ethanol mandates and the like should 
teach us all not to repeat.
    Finally, do increased loan guarantees for nuclear power 
plants misdirect U.S. financial resources for the benefit of 
other countries? Here the short answer again is yes. AREVA and 
EDF, who design and build the Evolutionary Power Reactors 
planned for the United States, are key beneficiaries along with 
Hitachi and Toshiba, the Japanese firms who have teamed up with 
Westinghouse and General Electric, who now have a controlling 
or a significant ownership portion of these companies. URENCO, 
a European consortium that is building an enrichment plant in 
New Mexico, also stands to benefit, as does AREVA, which is 
building enrichment plants in Idaho. Almost all of the 
manufacturing jobs associated with these plants and 
construction will either be done abroad or in plants owned by 
these firms.
    The bottom line: if renewable natural gas and carbon prices 
were all clearly rising, and the technologies for electricity 
storage, distribution were static, the case for government 
intervention in promoting commercial nuclear power, although 
wrong in principle and practice, would at least be stronger. 
Yet just the opposite seems to be the case. I believe getting 
into this further than we already have is risky business, and 
pure risk at that. I think the losses are quite possible, and 
the gains simply are not there.
    Thank you very much.
    Mr. Kucinich. Thank you very much, Mr. Sokolski.
    [The prepared statement of Mr. Sokolski follows:]

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    Mr. Kucinich. Mr. Caperton, you may proceed.
    Mr. Caperton. Thank you, Mr. Chairman.
    Mr. Kucinich. Keep that mic close so we can hear you.

                 STATEMENT OF RICHARD CAPERTON

    Mr. Caperton. Members of the committee, thank you for 
inviting me to testify before you this afternoon. My name is 
Richard Caperton. I am a policy analyst on the energy team for 
the Center for American Progress, a think tank here in 
Washington, DC.
    As you know, nuclear power currently generates about one-
fifth of American electricity. Nuclear power is a low-carbon 
baseload carbon source that will continue to play an important 
role in America's clean energy future.
    It's vitally important that we explore all potential energy 
sources that reduce our carbon emissions, but this should not 
force taxpayers to bear inordinate amounts of risk. The 
President has proposed incentivizing new nuclear construction 
by issuing $54 billion in new loan guarantees. The terms of 
these guarantees must include adequate protections for 
taxpayers. Most important, the credit subsidy fee must be 
properly calculated.
    In my comments today, I will describe what the credit 
subsidy fee is, how it's calculated, and what an appropriate 
fee might be.
    When the government issues a loan guarantee, they are 
committing to use taxpayer money to pay back the loan if the 
borrower defaults. The government must account for the 
increased risk it now bears, which it does by calculating the 
credit subsidy cost. In the nuclear loan guarantee program, the 
credit subsidy cost is paid by the borrower in the form of a 
credit subsidy fee. If the fee charged is too low, it will 
increase the risk to taxpayers. At the same time, if the fee 
charge is too high, it will unnecessarily decrease the number 
of reactors financed.
    Credit subsidy cost is calculated by a proprietary model at 
the Office of Management and Budget, and although the actual 
calculation is highly technical, the basis for the calculation 
is straightforward. Essentially, the credit subsidy cost is the 
present value of the expected pay-outs that the government will 
have to make on the loan if the utility should default. First, 
determine the likelihood the builder of the reactor won't be 
able to pay the loan at the default rate. Second, determine the 
percentage of total reactor costs that will be covered by the 
loan guarantee. In a nuclear program, the guarantee can cover 
up to 80 percent of the total cost of the project. Third, 
determine the amount of the total costs that will be recovered 
in the event that the borrower defaults and the reactor is sold 
in liquidation, the recovery rate. The first three steps give a 
total payout that the U.S. Government will have to make. Spread 
these pay-outs over the lifetime of the loan based on when 
expected defaults will occur. And finally, discount the pay-
outs in the future years to determine a present value of the 
total pay-outs. This is the credit subsidy fee.
    Each of these steps requires an input that can vary widely 
based on technical details, which makes precise calculations 
very difficult. Estimates of what this fee should be run the 
gamut from 1 percent or less to 30 percent or more of the total 
loan guarantee.
    The surveys of these widely divergent estimates have done 
some simple calculations of their credit subsidy costs given 
certain inputs. The two most important factors in determining 
the credit subsidy costs are the default rate and the recovery 
rate. Of course, every project is different and should be 
evaluated independently, but widely publicized data from CBO, 
GAO and Standard & Poor's indicates that the expected default 
rate for a generic new nuclear reactor is 50 percent. Data from 
the same sources indicate that the expected recovery rate in 
liquidation is also 50 percent.
    Next slide, please.
    Simple calculations indicate that the credit subsidy fee on 
a nuclear loan guarantee program that has the predicted 
characteristics, that is 50 percent default and recovery rates, 
should be about 10 percent of the total value of the guaranteed 
loan. The appropriate fee goes up as the expected default rate 
goes up and as the recovery rate goes down.
    This table shows what the credit subsidy fee should be, 
given any combination of expected default and recovery rates. 
And to put this in perspective, each 1 percent of the entire 
$54 billion in loan guarantees that the President has proposed 
represents $540 million. That is, if DOE undercharges loan 
guarantee recipients by just 1 percent, the President's 
proposal will cost taxpayers $500 million.
    It's impossible to say what the credit subsidy fee on a 
specific loan guarantee should be without looking at details of 
specific nuclear projects. The administration must keep in 
mind, however, that credit subsidy fees should be set at a rate 
that protects taxpayers not at an artificially low rate as a 
handout to private businesses. DOE will only be able to protect 
taxpayers from bearing the risk of new nuclear reactors if the 
charge is an accurate credit subsidy fee.
    Thank you.
    Mr. Kucinich. Thank you for your testimony.
    [The prepared statement of Mr. Caperton follows:]

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    Mr. Kucinich. Mr. Scott.

                 STATEMENT OF MICHAEL D. SCOTT

    Mr. Scott. Chairman Kucinich, Ranking Member Jordan, 
members of the committee, thank you for the opportunity to 
testify here today. My name is Michael Scott, and I head the 
U.S. Government investment banking business at Miller Buckfire.
    In creating Title XVII, Congress recognized that there was 
a private market failure to finance new clean-energy 
technologies that reduce greenhouse gas emissions, and that 
this market failure encompassed a broad range of technologies. 
Congress also recognized the importance of getting these clean 
technologies constructed and into operation; however, given the 
costs of the various eligible technologies, the U.S. Government 
was unlikely to have the budget dollars necessary to 
appropriate the Title XVII projects in amounts sufficient to 
achieve the purposes of the program. So Congress provided a 
unique path among Federal credit programs to finance enough 
projects to get a technology into general use, with the private 
sector paying the full cost of the guarantees.
    Prior to the Federal Credit Reform Act, the costs of 
Federal credit programs were only evaluated and appropriated at 
the time of default. This approach did not provide legislators 
or policymakers with the true budget impact of the Federal 
credit program, and was inconsistent with the budgeting process 
in the noncredit spending programs of the U.S. Government.
    The Federal Credit Reform Act is designed to calculate the 
net present value of the long-term cost to the U.S. Government 
of any Federal credit program. Properly and faithfully 
implemented, the Federal Credit Reform Act considers all the 
cash-flows over the entire lifetime of the loan, including 
defaults, fees, recoveries, as well as contractual and 
structural protections.
    With potential tenures of 30 years, the entire lifetime-of-
the-loan analysis is very important and substantially different 
from the scoring of noncredit spending programs of the U.S. 
Government that do not analyze, measure or otherwise calculate 
the costs beyond the 10-year budget window.
    Each project is subjected to extensive due diligence and 
statutory and role requirements that protect the taxpayer and 
fully price the risk assumed in providing a loan guarantee.
    The President and Congress have a very powerful policy tool 
in Title XVII that is unique and important in the current 
economic environment, especially with the U.S. Government 
facing the stresses and difficult choices involved with our 
significant budget deficits. Title XVII can drive economic 
growth due to the development of clean-energy infrastructure 
projects that are built and fully paid for by the private 
sector; provide significant short-term and long-term 
construction and manufacturing jobs; provide long-term 
operating jobs; promote the development of new U.S.-based 
manufacturing, particularly significant in the case of 
manufacturing that will develop from a robust new nuclear 
build; develop environmentally clean and secure domestic energy 
supply capacity, particularly in the case of carbon-free 
baseload generation from new nuclear; correct the private 
market failure to finance clean and innovative energy 
technologies; and, finally, provide well-qualified project 
sponsors with the confidence that credible projects can receive 
a Federal loan guarantee, which is an important signal for 
private-sector project sponsors to pursue these substantial 
investments because of the up-front costs that they bear before 
any application and, significantly, before any closing on a 
Federal loan guarantee.
    Significantly, the President does not need new legislative 
authority or new appropriations to make Title XVII work, as 
Title XVII provides for the credit subsidy and the 
administrative costs to be fully paid for by the borrower, and 
substitutes the borrower payments for the appropriations. This 
means that the Federal budget is not affected by the issuance 
of the loan guarantees under section 1703, and that the level 
of risk assumed by the U.S. Government is fully compensated for 
as measured by the Federal Credit Reform Act.
    The calculation for this risk is completed in the same 
manner as if this was a traditional Federal credit program 
where the U.S. Government paid the credit subsidy cost.
    In summary, Title XVII provides a means to achieve the 
priorities and policies of the President and Congress 
pertaining to jobs, the economy, clean and secure domestic 
energy capacity and the environment. It does so through a 
clean-energy infrastructure bill that is fully funded by the 
private sector. This bill will also be the engine of growth in 
the investments that develop our domestic supply chain 
manufacturing base in supporting industries such as iron and 
steel.
    The key to all of this is operationalizing Title XVII. The 
President and his administration can accomplish these critical 
objectives by removing the current improper rule-based 
impediments, elimination of the arbitrary maximum loan 
guarantee authority levels, and calculating the credit subsidy 
in a manner that is faithful to the statute.
    I'm pleased to answer any questions you may have. Thank 
you.
    Mr. Kucinich. Thank you very much, Mr. Scott.
    [The prepared statement of Mr. Scott follows:]

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    Mr. Kucinich. Mr. Guith, please proceed.

                 STATEMENT OF CHRISTOPHER GUITH

    Mr. Guith. Thank you, Chairman Kucinich, Ranking Member 
Jordan, and thank you for the opportunity to contribute to this 
discussion today. I serve as the vice president for policy and 
the managing director at the Institute for 21st Century Energy, 
an affiliate of the U.S. Chamber of Commerce. The Chamber is 
the world's largest business federation, representing the 
interests of more than 3 million businesses and organizations 
of every size, sector and region.
    The underlying issue presented at this hearing is a valid 
one: Is the Federal Government properly balancing the 
protection of the American taxpayers with its joint 
responsibility to improve our Nation's energy security?
    I think it is important to remember how this program came 
to exist over the past 4 years. The idea of a loan guarantee 
program originated in Congress with the intent to accelerate 
private investment into new and clean energy technologies. It 
was a unanimous, bipartisan and bicameral voice of the floor 
conference managers that ensured inclusion of the loan 
guarantee program in EPAct, the Energy Policy Act of 2005, 
fully acknowledging the importance of this program to the 
building of new nuclear facilities.
    This program initially elicited skepticism from senior 
leaders of the Bush administration. Frankly, many had doubts 
about whether the government possessed the necessary experts or 
understanding of the capital markets to sufficiently protect 
the taxpayer. However, building on the Federal Credit Reform 
Act and OMB guidance, DOE sought to create a program centered 
around a rigorous review of proposed projects that would 
utilize every possible resource to minimize taxpayer exposure.
    DOE spent the next 3 years at the loan guarantee office, 
staffing it with esteemed subject matter experts who had spent 
entire careers in project finance, risk mitigation and lending. 
They utilized the expertise of credit agencies, commercial 
lenders, engineering contractors and legal consultants, to name 
a few, also producing the final rule this past December. 
Spanning two administrations, DOE, the Department of Treasury 
and OMB all exerted significant input and oversight into the 
evolution of the final rule.
    Additionally, Congress has played, as this hearing 
demonstrates, and continues to play a significant role by way 
of authorization and oversight. In fact, many senior 
congressional leaders have taken issue with the amount of time 
it has taken to begin issuing guarantees, which I think is a 
testament to the careful and deliberate nature underpinning the 
implementation of this program.
    In measuring taxpayer risk, I think it is very important to 
acknowledge and understand the magnitude of risk a company 
accepts when it decides to build a new reactor. Even with a 
Federal guarantee, each company understands that if a new 
project were to actually default, it would likely be the demise 
of that business. When a company does make a decision to build 
a new reactor, it will not be until it has completed an 
exhaustive review of its own risk, which by rule is greater 
than the government's, and has determined that risk to 
sufficiently minimize to effectively, as has been stated 
before, bet the company on the project.
    The Federal Government has a greater responsibility to 
Americans than just to minimize their exposure to risk. It must 
also craft and implement broader policies that further the 
taxpayers' interest, while also mitigating risk.
    Energy touches on every single business and household every 
day, and fostering the deployment of clean-energy technologies 
is a major component of fulfilling the government's obligation. 
And the loan guarantees are an integral tool in doing this.
    To date, the Nuclear Regulatory Commission has received a 
net of 26 license applications to build new nuclear units. 
While the first license is not expected to be issued until next 
year, industry has already invested in excess of $5 billion in 
preparation of building new reactors and generated more than 
15,000 new jobs. If all 26 of these proposed reactors are 
built, we estimate that as many as 240,000 direct and indirect 
jobs will be created by 2030, jobs paying about 36 percent 
above the local average.
    Nuclear plants each purchase $430 million in goods and 
services from the surrounding community and provide $40 million 
in salaries and nearly $100 million in tax revenues. That is 
each unit or each plant. This is one of the primary reasons for 
nuclear power--for nuclear--why nuclear power polls highest in 
communities that already host nuclear facilities. And it is 
worth mentioning that the Nation's support for nuclear power 
has climbed to 62 percent in Gallup's annual survey, the 
highest mark since it began asking the question in 1994.
    While the legislative and regulatory focus in Washington 
continues to be on greenhouse gases, it is important to 
acknowledge that nuclear power not only emits no greenhouse 
gases, it emits no hazardous air emissions at all. Other 
countries are well aware of the economic and environmental 
benefits of nuclear power; 55 reactors today are currently 
under construction around the world in 13 countries with 
another 140 planned in the very near future.
    The International Atomic Energy Agency estimates that there 
could be up to 25 nations with operating reactors by 2030 that 
do not currently have a nuclear program, yet this country 
hasn't licensed the operation of a new reactor in over 30 
years. Many opponents of nuclear power seize on announcements 
of other countries making investments in renewable power 
generation, but usually fail to note that these investments are 
but a fraction of what the world community is making in new 
nuclear generation.
    So what is it that makes--so what is it that these 
countries know that the United States seems to be missing? 
These countries realize that nuclear power must play an 
increasing role in meeting projected increases in the demand 
for power and reducing greenhouse gas and hazardous air 
emissions, and doing so in an efficient, economical and 
reliable manner.
    While the governments in many of these countries directly 
finance the construction of the reactors, we rely predominantly 
on investor-owned utilities as well as municipal and 
cooperative ventures to do it. However, without a Federal loan 
guarantee program to help secure financing for the first bunch 
of these new reactors, we will likely not see enough nuclear 
generation to even make up for the lost generation of retiring 
reactors in the next 30 years.
    It has become fashionable to argue that the United States 
is missing the proverbial boat on the clean energy revolution 
around the world. While it is almost never this speaker's 
intention to include nuclear power in this mix, they are 
correct that every year that goes by, where we debate whether 
to support new nuclear builds, we are missing out on the 
largest component of the global clean energy market.
    Thank you.
    [The prepared statement of Mr. Guith follows:]

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    Mr. Kucinich. I thank the gentleman and each member of the 
panel. It is much appreciated, your presence here. Having had 
the chance to review your testimony, I have to say it is 
greatly valued, and I think it will be very helpful for members 
of this subcommittee to read and review carefully the testimony 
of each and every individual here.
    I would like to go to the members of the panel now and ask 
what is your opinion of a credit subsidy fee that is secret, 
not disclosed to the taxpayers?
    Mr. Cooper.
    Mr. Cooper. Well, it is quite remarkable that this 
administration, which had prided itself on transparency and 
open government, would come forward and suggest that something 
as important as the liability to which taxpayers are being 
exposed will be a trade secret between the Department of Energy 
and those utilities. As Mr. Bradford pointed out in theory, the 
Public Service Commission might get a chance to look at that or 
might not. And that will influence the rates people pay. But it 
would seem to be a desire to hide the truth, which is that the 
taxpayer is being hosed in these transactions.
    Mr. Kucinich. Mr. Sokolski.
    Mr. Sokolski. I don't know. I would ask for my money back. 
I wouldn't make the loan. You have to know that. You are the 
executors of this effort as it is. I mean, we have--we are not 
talking about doing this or not doing this. We are asking do we 
do more of this. We are in the business now of doing it. I 
would say you need to really get the facts and figures on what 
we are doing before you pile on more.
    Mr. Kucinich. Mr. Caperton.
    Mr. Caperton. There are three things that are secret now, 
the model that is used to calculate the credit subsidy fee, the 
inputs to it for each loan guarantee, and the results of the 
model, what that fee actually is. I can certainly see that the 
first of those, the model, should be made public, and the fee 
should likely be made public. There would certainly be trade 
secrets involved in what goes into the model. So I could see 
elements of that being kept proprietary.
    Mr. Kucinich. I studied your testimony, and you actually 
did a kind of reverse engineering of the Office of Budget and 
Management model by saying it is essentially the present-day 
value of the expected payouts that the government will have to 
make on the loan if the utility should default?
    Mr. Caperton. That's correct.
    Mr. Kucinich. Mr. Scott.
    Mr. Scott. It is actually unnecessary for them not to 
disclose it, because the applicant will end up disclosing it in 
SEC filings anyway. So it is going to become public, assuming 
that they are an SEC applicant. And if you're doing that, you 
might as well do it for all of the projects.
    Mr. Kucinich. It is an interesting point that you raise, 
and that is if OMB says it is proprietary, does the SEC give 
the applicant a waiver on that?
    Mr. Scott. I doubt that they would, and I don't think that 
any of the companies would----
    Mr. Kucinich. It is an interesting question.
    Mr. Guith.
    Mr. Guith. I think it is important to note that Congress 
does have access to this. The appropriators who create the 
authorization for this have asked for annual reports, and they 
are fully informed as to what this is. And I'm sure that--I 
won't speak on behalf of the Department, but when I was there, 
we never would not disclose that information to the Congress.
    Second, I think the model itself should definitely be 
disclosed. I think that created much consternation over the 
last 2 years that nobody in any industry could figure out what 
OMB was doing. And frankly, those of us who worked in other 
agencies couldn't figure out what OMB was doing, and Congress 
certainly couldn't figure out what OMB was doing.
    Mr. Kucinich. Let me ask you. Bondholders and shareholders, 
is there a legitimate reason for keeping the credit subsidy 
cost from them?
    Mr. Guith. The ultimate cost itself?
    Mr. Kucinich. The credit subsidy cost. Should bondholders 
and shareholders have a right to that information?
    Mr. Guith. This is one of those ``when did you stop beating 
your wife'' questions, because--absolutely not. Everything 
should be transparent. But the question is, is what does a 
specific number in addition to other information actually lead 
you to? I mean, this issue has come up more in the nonnuclear 
loan guarantees than it has in the nuclear loan guarantees 
because as other competing power generation sponsors or 
applicants have gone through this process, they don't want to 
necessarily have their information disclosed to other 
competitors.
    Mr. Kucinich. Surely you recognize that this Congress has 
had brought before it in the last year many issues where 
shareholders were not adequately informed of the transactions 
that were being undertaken by the management of their 
companies. That is why I raise the issue.
    Mr. Guith. And as I said, on its face everything should be 
transparent. It is in what context and what other information 
is disclosed. And certainly in this case, Congress is fully 
informed as to what the number, the process is certainly as 
well as anyone.
    Mr. Kucinich. I can hope so.
    Now, it reminds me of an old story about how we have a 
system of checks and balances. The administration writes the 
checks, and Congress doesn't know what the balance is. Now, for 
the panel, does the Department of Energy's track record justify 
public confidence in its ability to fairly and accurately price 
the value of the credit subsidy of loan guarantees to the 
nuclear industry in order to protect taxpayers from a large 
bailout of the nuclear power industry, and is the Department of 
Energy more likely to overestimate the cost of the credit 
subsidy, or are they likely to underestimate it?
    Mr. Cooper.
    Mr. Cooper. I don't think the Department of Energy has much 
of a record. I have been around long enough to remember the 
synfuels program, and we were adamantly opposed to that, the 
notion that the Department of Energy is substituting its 
judgment for the judgment of Wall Street--it may be hiring some 
consultants, there are a lot of them out of work these days--to 
help them work through some of these numbers.
    From my point of view, the program was a small program. 
They should have left bad enough alone. The administration has 
thrown a lot more money into the pot. We hear rumors of 
unlimited loan guarantees. In the end, this could make the 
synfuels program look like a walk in the park.
    Mr. Kucinich. Mr. Sokolski, do you want to respond to that?
    Mr. Sokolski. Synfuels, the breeder reactor, the mandates 
for ethanol where they miscalculated suggests someone needs to 
come up with the alternative record where they have done well.
    I think the other thing is my understanding is the number 
of analysts working due diligence within DOE is a pale 
reflection of the numbers you would find in a competent, 
reputable large bank. Now, I don't think a reputable large bank 
has been doing so well. So I just wonder.
    Final point. There could be a conflict of interest. The DOE 
was intimately involved in not just promoting, but helping to 
pay for the design of the reactors we are talking about seeing 
built in the case of Westinghouse. So I don't think that is the 
place you want to have your analysis done.
    Mr. Kucinich. Thank you.
    I would like to just get brief answers from the rest of the 
panel, and then we are going to go to Mr. Jordan.
    Mr. Caperton. This is a unique program. So I don't know how 
much previous DOE experience is going to be effective in 
judging their ability on this one. But the Congressional Budget 
Office has clearly stated that they think DOE will 
underestimate the cost of these loans by at least 1 percent for 
a variety of reasons, including that utilities who are 
borrowing this money, who are applying for the guarantees, if 
they think it is a bad deal, they won't take the guarantee. So 
only borrowers who think it is a good deal will take the 
guarantee.
    Mr. Kucinich. Thank you.
    Mr. Scott.
    Mr. Scott. In this particular program today, we don't have 
much of a record, and we won't for a number of years, with 
respect to any closing on a nuclear because the loan guarantee 
actually won't close for 2 to 3 years before they fulfill the 
conditions precedent. And it is actually at that point that OMB 
calculates the credit subsidy.
    Historically, if you go back to other programs that are 
targeted toward corporate America, the ATSB after--the airline 
program after 9/11, OMB had estimated and CBO had estimated 
between a 30--or a 30 and 35 percent credit subsidy rate at 
the--we ended up making six loan guarantees. At the end of the 
program, we netted about $300 billion in fees after three 
technical defaults and one $20 million compromise. So that 
brings the credit subsidy down to a negative 18 percent.
    So the track record under the Federal Credit Reform Act is 
fairly good at predicting the costs. I'm actually less 
concerned about OMB's ability to accurately measure the cost in 
some of the other participants.
    Mr. Kucinich. Finally, Mr. Guith.
    Mr. Guith. I agree that since most of the examples that 
have been cited on this panel have been prior to the passage of 
FCRA, which was 1990, which has completely reshaped the loan 
guarantee process agency--or governmentwide, whether it is 
USDA, whether it is Eximbank, whether it is DOE.
    Mr. Kucinich. I recognize Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman.
    I'm just interested in the panel, particularly our first 
three--you know, I think it is kind of interesting that the 
Chamber supports the program, but the academic and the two 
think tanks are opposed to it. Not something you always see. 
And the Bush administration individual, I believe, is somewhat 
supportive based on what I gathered. And I understand various 
reasons and things associated with all of that, but for our 
first three in particular who talked about how bad this program 
was and shouldn't be in it, and market forces should be at 
work, and etc., where are you at on taxpayer assistance 
subsidies, loan guarantees, whatever, for other areas of 
energy, other resources? I think Mr. Sokolski's statement was--
you said that they misdirect resources. So do you support 
subsidies for ethanol, biodiesel, solar panel?
    We will start with Mr. Cooper, and we will just go down the 
whole panel.
    Mr. Cooper. If I could get a subsidy-free energy 
environment, I would take it. I would prefer to live there than 
in the mess I have here. But since I can't--and the interesting 
thing in the previous panel, people missed the biggest subsidy 
of all, which is the Price-Anderson limit on liability to the 
industry. And so you have the existing--you have the Federal 
commitment to waste, which was pointed out as a subsidy to the 
industry. And so you have embedded subsidies all over the 
place.
    So I would rather talk about the principles by which 
subsidies should be awarded to various sectors, and the 
principles ought to apply to all the technologies. So, one, the 
public policy should target an identifiable market failure. If 
you can't show me the market failure, then you shouldn't--the 
government shouldn't be in the policy business. Let the market 
do it.
    Two, we should have a level playing field, and we haven't 
had one in the energy sector for an awfully long time.
    Three, the policy outcome should be very clear. And as a 
consumer advocate, I like least costs, I like the biggest bang 
for the buck. Diversity also is a good proposition. You've 
heard people speak to that.
    Fourth, there has to be fiscal responsibility. And as I see 
the loan guarantee programming being rolled out, it would 
appear to be that the sky is the limit, especially when I have 
secrets about the cost.
    And fifth, there has to be administrative accountability. 
Given that I have to live in an environment that is riddled 
with subsidies, I have to start making sure that they work for 
the public interest.
    Mr. Sokolski. My grandma had an expression for answering 
questions like that. She would say, ``Enough already.'' We are 
up to our gills in this. This country is becoming a little 
broke. I think we need to stop. We need to stop this. We made a 
lot of mistakes, in my opinion, in bailing out companies we 
knew were failing, and they should have maybe used a little 
money to let them fail gracefully, but not save them.
    Two more comments.
    Mr. Jordan. No disagreement from the chairman and the 
ranking member on that.
    Mr. Sokolski. Say again?
    Mr. Jordan. No disagreement from the chairman and the 
ranking member on that.
    Mr. Sokolski. Well, there oughtn't to be amongst Americans 
on that. We are in trouble, sir.
    Mr. Jordan. I agree.
    Mr. Sokolski. Now, it seems to me--two other comments might 
add some value. First, when I get principled environmentalists 
in a room who are economists, they say things like you heard, 
but even further. They join with fiscal conservatives in saying 
subsidies, even for wind, solar, etc., will hurt their cause. 
And the reason why is when you put the subsidies out there, the 
biggest pigs, coal, nuclear, are going to not only eat the 
most, but they are going to set the rules in that playpen for a 
long time. You need to experiment. So that's the last thing you 
want.
    The last comment. The only role for government, and it is 
why we have the Department of Energy--and it is a problem, 
because it is not a great actor, in my opinion--is that State 
regulations don't allow people to capture the rents associated 
with fuel efficiencies. And so to do R&D, you have to be out of 
your mind, and that is the reason the government does it. We 
don't do a great job of it. I think regulatory reform would go 
a long, long way in solving that problem.
    I suppose I should close on one point. I served on a 
congressional commission that you put me on to prevent WMD 
proliferation and terrorism, and one of the things we 
unanimously, bipartisan, supported was we should discourage the 
use of financial incentives to promote nuclear power. And the 
reason why isn't because of problems here, but because you lose 
your moral authority to talk to countries like Iran, who, after 
all, point to us and say, ``we will do the same.'' You want to 
subsidize; so do we. Who cares if it is economic? I think we 
should care.
    Mr. Caperton. To clarify, we are not opposed to these loan 
guarantees. We are supportive of a fully functioning Title XVII 
loan guarantee program. Now, I think there is some 
characteristics that we should look at to judge whether or not 
a loan guarantee is effective. First, does it address a market 
failure? In that case we can look further. Then we want to look 
at exploring technologies and promoting technologies that 
provide clean, cost-efficient, safe energy to American 
consumers. There are potentially some instances where nuclear 
programs meet those criteria. There are certainly instances 
where wind and solar meet those criteria and other technologies 
meet those criteria.
    Mr. Scott. Title XVII has 10 very broad categories of 
technologies that are eligible. If you implement the program 
under 1702(b)(2), which is the borrower pay provision, it is 
actually technology-neutral in the sense that you don't have to 
allocate Federal--scarce Federal dollars to any particular 
technology. And it is more a function of how long does it take 
the technology to get into general use, which is then the----
    Mr. Jordan. But we have other subsidies that--we have the 
tax credit available for the ethanol industry. We have other 
ways that taxpayers finance other forms of energy.
    Mr. Caperton. Sure, sure.
    Mr. Jordan. And you are supportive of--do you disagree with 
that, or are you opposed to that?
    Mr. Caperton. I am here to talk about Title XVII.
    Mr. Jordan. Fine.
    Mr. Guith. We had the privilege of testifying, my boss, in 
front of your colleagues, in front of the Ways and Means 
Committee last week on fiscal policy as to--I think it was the 
green economy expansion. And while we certainly support fiscal 
policy as one of the tools, I mean, we do have to take into 
account where we are in the entire economic perspective, which 
is right now we are running record deficits and projected use 
over some time. And there are things, much like concessionary 
financing, like loan guarantees, as well as perhaps the CEDA 
proposal that both the House and the Senate have looked at, in 
addition to, as was mentioned in the previous panel, regulatory 
reform that can be done without any taxpayer dollars. And I 
think that is, especially in this resource-constrained 
environment, where Congress should be looking.
    Mr. Jordan. Thank you.
    Thank you, Mr. Chairman.
    I want to thank the panel.
    Mr. Kucinich. We are just going to go for a few more 
questions.
    Mr. Jordan. Fire away.
    Mr. Kucinich. OK. Thank you, Mr. Jordan, for participating.
    Mr. Caperton and Mr. Scott, hypothetical. If there is a 
default in one of the loan guarantees relating to the 
construction of a nuclear power plant, such as may be caused by 
weak natural gas prices, the market falls apart. Could that 
indicate a greater likelihood that a default will occur in one 
of--more of the others? In other words, possible defaults may 
not be independent results; instead they may be interdependent 
on the overall--on energy markets?
    Mr. Caperton. I'm not quite sure I follow you.
    Mr. Kucinich. We have established in the last panel that 
the Energy Information Agency says there is going to be weak 
natural gas prices for decades, relatively weak. That is--do 
fluctuations in the larger energy environment create 
consequences for these investments in nuclear power plants that 
actually establish a relationship between the investment in 
those plants and a larger energy market? Is this something that 
people should take heed of?
    Mr. Caperton. I think that--I want to make sure I answer 
your question. The two nuclear reactors aren't necessarily 
connected, and a default in one shouldn't necessarily affect a 
default risk in another one. The underlying economics of energy 
markets--in this case, low natural gas prices--could certainly 
affect all sorts of nuclear reactors. So I would think that 
what causes a default in one could very well be indicative of 
what might cause a default in another. But the defaults 
themselves likely don't cause each other.
    Mr. Cooper. Mr. Kucinich, let me try that, because I 
actually looked at that in the case of Florida at the Public 
Utility Commission, and if you looked at the moment when they 
made the decision to issue a certificate of need, there are a 
key series of assumptions the utility made to justify the 
economics of the plant. In the ensuing 2 years, three of the 
most fundamental assumptions changed dramatically. The cost of 
the plant went up, the cost of natural gas went down, and the 
phenomenal low growth projection evaporated.
    The utility now sitting there, having committed the plant 
to spending hundreds of millions of dollars, now is faced with 
a whole new set of economic conditions, and in order to justify 
continuing with this project, they begin to change their 10-
year plan. They start pulling out natural gas plants, because 
they don't need them anymore, to make room for the nuclear 
plant, whose economics have been undermined. They launch a 
campaign to oppose energy efficiency and reduce it in the 
integrated resource plan to make room for the nuclear reactor.
    So in a 2-year period, the economics changes dramatically. 
And, of course, some people will say we are doing this for 20 
or 30 years, but in a time of uncertainty, the one thing you 
want in your investment portfolio is flexibility.
    Mr. Kucinich. But in terms of energy flexibility, I just 
want--we have to--do we also of necessity have to factor in the 
time it takes to put an energy facility on line so that it 
melds into the overall energy supply?
    Mr. Cooper. If you look at the case of Florida, the 
projected date when they thought they would need the reactor 
was 2017. When you bring in the change in demand, if you 
actually look at climate legislation, that same peak would not 
have occurred for 20 years. That means that you--what you want 
to do is wait before you commit to this massive project, a 
prudent decision that says wait; I can wait for 5 years, I can 
wait for 10 years. And as a prudent investor, you want things 
in your portfolio that give you that opportunity. And so the 
inherent nature of these projects with their long lead time 
raises their cost of capital, raises their risk, and has 
exactly the effect--and natural gas has exactly the effect that 
you suggest.
    Mr. Kucinich. I'm looking at independent variables here. 
For example, new technologies come in. I mean, last year the 
wind--the American Wind Energy Association has said that they 
have added about 10,000 megawatts of new wind-generating 
capacity in a year. Some say, ``well, that is the equivalent of 
10 nuclear power plants.'' That is an independent variable that 
changes markets, OK?
    In the meantime, if you can move a new technology in, then 
you have other technologies that won't move as quickly in 
because of their capital-intensive nature and the time it takes 
to build a plant let alone repair a plant that might have a 
problem. So I just wondered in terms of the totality of energy 
markets and the variables that you have to consider, does that 
start to drive the risk factors of some technologies as opposed 
to others? In this case we are talking nuclear.
    Anybody else want to try?
    Mr. Guith. Mr. Chairman, yes, it certainly does, which is 
why you don't see any utilities right now rushing out to build 
a reactor. It is still very uncertain. I think it cannot be 
overstated that at the end of the day, the risk that is placed 
upon these individual companies is so significant that they are 
not going to rush into it has effectively been implied willy-
nilly , unless they know the demand is going to be there.
    Obviously, the economic situation over the last 2 years has 
changed the entire energy landscape for the near term, but we 
still have significant projections in electricity demand in 
this country and certainly around the world.
    And just to make one point about your--the EIA natural gas 
projections. I think it is important to understand what EIA 
does and what EIA does not do. EIA does not model based on any 
assumptions that are currently not in law, which is to say they 
are limited by rule, by congressional rule, as to what they can 
assume. Therefore they are going to assume that every single 
tax credit that exists is going to grandfather out because the 
law says so; that every single subsidy is going to grandfather 
out, which is to say that--I think you look at where Wall 
Street is going right now and where investment money, it is 
going into natural gas. It is not not going into natural gas, 
and it is going in there because they expect prices to 
increase.
    Mr. Kucinich. You raise a question about why Wall Street is 
not rushing in right now. And it gets into this potential of 
the moral hazard discussion that we had on bailouts. Now, Mr. 
Jordan and I both voted against the bailout. And if Wall Street 
looks at the risk factors here and just says, ``we don't really 
want to go there right now''--I mean, I will tell you, from the 
Cleveland area we had a company by the name of the Cleveland 
Electric Illuminating Co., which was a top-rated company, blue 
chip stock. They brought in the nuclear power, and it wasn't 
too long, you know, within a decade or so, they started to run 
into serious financial trouble. Wall Street isn't taking the 
risk.
    So what we are doing, the risk factors that are laid out 
here today are essentially being taken up by the taxpayers. 
Whether you're for nuclear power or not, we are just talking 
economics here, they are being taken by the taxpayers. In a 
constantly changing energy environment--new technology is being 
brought on, old ones are starting to either get renewed, energy 
drilling policy or the energy bill that passed. That is why 
this issue of transparency, the issue of trying to figure out 
what the government's exposure might be is not a small matter 
in a climate where everyone wants to know how much something is 
going to cost, can we make some reasonable projections, what is 
our exposure here.
    Anybody else want to comment on that before I move on?
    Mr. Scott.
    Mr. Scott. Mr. Chairman, all of the factors that you 
raised, whether it is natural gas prices or other competing 
technologies, end up being evaluated both by the project 
sponsors, by DOE, by OMB, by the ratings agencies. And, you 
know, practically speaking, the agency may have views on 
assumptions about electricity prices or gas prices that are 
different than our project sponsors' that ultimately gets 
reflected in the underwriting of the project. Now, they may or 
may not be right. The companies may not be right. The 
government may not be right. But you fast-forward when--in 
particular around nuclear, if you think about when a loan 
guarantee would actually close, because they have to meet the 
conditions precedent, you remain 2 to 3 years away before 
you're going to see an actual closing, and it is the 
assumptions at that closing time that are going to be relevant 
to the evaluation of the business plan both by the rating 
agency as well as by OMB on the credit subsidy side. So at the 
end of the day, you end up with the best information that you 
have when you need to make that decision and when you're 
actually exposing the taxpayer on the Federal loan guarantees.
    Mr. Kucinich. It is interesting because, you know, there 
are the familiar anchor points which we have to try to come to 
a level of analysis that would say, ``this is our best 
estimate.'' We have started to see in the last couple of years 
some changes in the status. You mentioned credit rating 
agencies, OK? You look at the credit default swaps and some of 
the information that the credit rating agencies really had a 
responsibility to disclose, but there was a conflict. We see 
the latest Abacus case involving Goldman Sachs. Credit-rating 
agencies again come into play with raising questions about the 
information they are providing to the public. We see that 
shareholders are not being given information they were entitled 
to, they didn't get it, lack of transparency. We see even in 
this environment Congress having trouble fighting for a bill 
that would bring about financial reform and bring in a new 
measure of transparency.
    So in that kind of an environment--you will have to forgive 
this chairman for being a little bit cautious about how much 
more of an exposure in a risk--highly risk-filled environment 
we want to provide for the taxpayers. That is why this is a 
very important discussion. Because I looked at your resume, Mr. 
Scott. You have been, as much as anybody, over all of these 
issues related to credit availability, credit guarantees. You 
know, I happen to believe that there are some cases in which it 
is an appropriate role. I think that R&D in particular is a 
great place to--that we can incentivize all kinds of 
possibilities for the government to start things happening. But 
when we--instead of buying a few implements, we buy the farm, 
it starts to become a little bit more problematic.
    And I want to thank each of you for being here today. We 
have had a--excuse me.
    Mr. Cummings, thanks for joining us. Do you have any 
questions?
    Mr. Cummings. Mr. Chairman, I thank you for calling the 
hearing, and I will submit my questions for the record.
    Mr. Kucinich. I appreciate that. The members of the 
committee have 5 legislative days in which to submit questions. 
And I would ask the members of the panel and the previous panel 
to please be available to respond in writing to any questions 
that Members may have.
    Again, very impressive panel. You have really given all of 
us in Congress a lot to think about. And we will make sure you 
testimony gets widely distributed. This is the Domestic Policy 
Subcommittee of Government Oversight and Reform. This committee 
has been about nuclear loan guarantees. We will probably have 
one or two more hearings on this.
    This committee stands adjourned. Thank you.
    [Whereupon, at 4:46 p.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record 
follows:]

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