Glenn English, CEO of the National Rural Electric Cooperative Association (NRECA), submitted testimony to the Senate Energy and Natural Resources Committee warning that current DOE rules for the Loan Guarantee Program not only run counter to the original intent of Congress, they could also severely limit the program’s effectiveness.
The Senate-passed stimulus package boosted the authorization to Loan Guarantee Program to $50 billion; however, the Department’s rules disallowing projects with multiple owners who finance the project separately will restrict the number of potential applicants.
In his testimony, English writes:
Under DOE’s current interpretation of the program, electric cooperatives and other utilities are severely hampered in their ability to tap the program, whether it be for nuclear, clean coal or renewable technologies.
By way of example, one electric cooperative and one public power system that distributes power to electric cooperative consumers have applications pending before the Department of Energy for loan guarantees for nuclear projects, and more electric cooperatives are expected to seek to tap this program in the near future. Yet, late in 2008, DOE effectively disqualified loan guarantee applicants with traditional “undivided ownership” interest structures (i.e., those entities jointly owning a project, but financing each ownership interest independently). The traditional undivided ownership interest structure is used commonly for large, capital intensive projects such as base load power plants in order to effect joint ownership of a single plant among investor-owned, municipal and cooperative utilities. Such arrangements permit utilities with adjacent service territories to share risks and size generation resources appropriately to current and future demand. DOE’s interpretation of the loan guarantee statute to disallow this structure is unnecessarily restrictive and will disqualify many utilities, including electric cooperatives, municipal utilities and investor-owned utilities from seeking loan guarantees for nuclear or other generation resources under this very common structure.
DOE's current interpretation of the statute severely limits the effectiveness of the guarantee program in a manner that was not intended by Congress. The federal government, through the U.S Department of Agriculture Rural Utilities Service has been accepting “undivided ownership” structures for decades. As a practical matter, DOE's interpretation will make the DOE loan guarantee program unavailable for many new power plants. If these projects are to move forward without a DOE loan and with today’s scarce private lending at high rates, the price tag for the new power projects -- and thus their costs to ratepayers -- could nearly double.
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