Saturday, October 9, 2010

NIRS statement on end of Calvert Cliffs-3 reactor project



6930 Carroll Avenue, Suite 340, Takoma Park, MD 20912

301-270-NIRS (301-270-6477); Fax: 301-270-4291;




FOR IMMEDIATE RELEASE                        Contact: Michael Mariotte

October 9, 2010                                                            301-395-7463 (cell)



Statement of Michael Mariotte, Executive Director

Nuclear Information and Resource Service

On Constellation Energy’s Announcement to End Participation in Calvert Cliffs-3 Nuclear Reactor Project


Constellation Energy has made the right decision—for the wrong stated reasons--in ending its involvement with the proposed Calvert Cliffs-3 nuclear reactor project on the shores of Maryland’s Chesapeake Bay.


According to a Constellation Energy press release[1], a $7.5 Billion taxpayer loan[2] offered by the U.S. Department of Energy to help build Calvert Cliffs-3 “is unreasonably burdensome and would create unacceptable risks and costs for our company.” The Washington Post[3] reports that the DOE offered this loan with a “credit subsidy” cost (essentially a down payment on the loan—similar to what a person would have to put down to obtain a mortgage) of only 12%, or $880 million. The Post also reports that the DOE offered even more generous terms—requiring a down payment of only about $300 million—if Constellation would guarantee the purchase of only 75% of the reactor’s power.


That these offers were considered “unreasonably burdensome” by Constellation Energy shows that the company was unwilling to assume the extraordinary financial risk this nuclear reactor posed—they wanted taxpayers to take all of the risk for this reactor[4].


But, even if Constellation had succeeded in forcing taxpayers to take all of the risk, this project made no economic sense. Recently NIRS submitted a new contention in the NRC licensing proceeding on this reactor, charging that the utility overestimated electrical demand in the region, failed to acknowledge the existence of energy efficiency programs in Maryland and competing energy sources, such as clean offshore wind power proposed for the state; and deliberately understated costs of the reactor when comparing it to clean, sustainable alternatives.


And indeed, the exorbitant projected cost of this reactor in a deregulated electricity market with ample competing methods of generation surely had far greater effect on Constellation’s decision than the terms of the proposed taxpayer loan.


NIRS already had a contention accepted for hearing on the unprecedented level of foreign ownership in the Calvert Cliffs project, which is explicitly prohibited by the Atomic Energy Act. This prohibition, and the fact the issue is in litigation, likely prevented Constellation’s partner, Electricite de France, from offering to assume a greater share of the loan guarantee’s “down payment.”


This is a great day for Maryland, and a great day for all who believe in building a safe, clean, affordable, nuclear-free and carbon-free energy future.



[2] Although often called a “loan guarantee,” according to the license application to the NRC filed to build Calvert Cliffs-3, the money was to come from the U.S. Treasury’s Federal Financing Bank.

[4] U.S. taxpayers would have assumed the risk of the $7.5 billion loan offered by DOE. French taxpayers would have assumed the risk of an additional $2.9 billion offered by the COFACE, the French export-import bank.,0,773855.story, July 1, 2010.



Rod Adams said...

Marriott is wrong. The credit subsidy cost is not a analogous to a down payment. It is analogous to "points" or a loan origination fee.

Constellation is already putting 20% down as the required equity in the project, the $880 million is a non refundable fee that is charged merely for the privilege of using the money, which will also be repaid with interest at a rate higher than the cost that the government will incur by borrowing it.

For a bit of perspective, few homebuyers who put down 20% would expect to also have to pay points or mortgage insurance premiums. The Southern Company loan guarantee fee has not been made public, but industry scuttlebutt puts it at less than 2% vice the 12% that Constellation would have been charged.

Perhaps the solution is restoring the rate regulation system that used to be in effect for electricity production.

Rod Adams
Publisher, Atomic Insights

nirsnet said...

Rod is correct that the loan fee (credit subsidy cost in DOE parlance) does not provide any equity in the project. However, like a down payment on a house for example, the fee is set to reflect the relative risk of a project.

Constellation did NOT offer to put down 20% in equity for the project; in fact the other 20% of the project cost was to have come from the French Export-Import Bank. Constellation has stated many times over the years that it required 100% debt financing to build Calvert Cliffs-3.

The Southern Company loan fee was about 1%. The difference is--as I stated above--a reflection of the relative risks of the project.

Southern Company is in a regulated electricity market: Georgia Power customers have to buy power from the plants whether they want to or not. In addition, Georgia has a compliant Public Service Commission that already is forcing Georgia ratepayers to pay for the reactors, even though construction has not begun and a license to build the reactors has not been obtained. In effect, Georgia ratepayers are being used as a private bank by Southern Company with the blessing of the PSC.

Maryland, fortunately, is in a different situation. It is a deregulated electricity market, meaning Constellation would actually have to compete with other electricity sources. And Constellation has figured out--to its credit, not too late--that there is no way a $10-15 Billion reactor can produce competitively-priced electricity.

Michael Mariotte