Share This!
Text SizeAAA Share Email

Unlimited Taxpayer Liability in Clean Energy Deployment Administration (CEDA)

Why Taxpayers Could Face Unlimited Liability Under the Senate's CEDA (S. 1462)

What is CEDA?

Both the Senate American Clean Energy Leadership Act of 2009 (ACELA) and the House American Clean Energy and Security Act (ACES, H.R. 2454) make changes to the existing Department of Energy (DOE) Title XVII loan guarantee program and establish a new Clean Energy Deployment Administration (CEDA). The Senate version moves Title XVII under CEDA, while the House version keeps Title XVII as a separate program. The purpose of establishing CEDA in both bills is to "promote access to affordable financing for accelerated and widespread deployment" of clean energy, energy infrastructure, energy efficiency, and manufacturing technologies. Nuclear power and coal projects are eligible under the definition of "clean energy technologies" in both bills.

How is the Senate CEDA unlimited?

The government must assess a credit subsidy cost – the current value of the risk of default – for each project that gets a loan guarantee. Under the DOE Title XVII program, no loan guarantee can be made unless Congress has appropriated the credit subsidy cost or the borrower has paid the credit subsidy cost. When the borrower pays the subsidy cost, this is sometimes called a "self-pay" loan guarantee.

Section 504(b) of the Federal Credit Reform Act of 1990 (FCRA)[1] was enacted to protect taxpayers from the risk of federal credit programs. Under this section, Congress must authorize the amount of loan guarantees DOE can issue, either by (1) appropriating the subsidy cost, or (2) by setting a limit to the amount of self-pay loan guarantees. The Senate version of CEDA exempts Title XVII loan guarantees from Sec. 504(b) of FCRA, which means that appropriators no longer have the authority to set a limit on these financial commitments, thereby allowing DOE to give out unlimited loan guarantees when the borrower pays the subsidy cost.

According to the Congressional Budget Office (CBO), the Senate bill would give DOE "permanent authority to guarantee such loans without further legislative action or limitations"[2] when the borrower self pays the subsidy cost.  The Nuclear Energy Institute views CEDA as a "permanent financing platform" for new nuclear power plants, which suggests that they also view CEDA as a source of unlimited financing for new nuclear reactors.[3]

Under the current Title XVII loan guarantee program, utilities backing large capital projects, like nuclear and coal, are expected to pay their own credit subsidy costs. According to the CBO, large capital projects, specifically new reactors and coal plants, would benefit from the unlimited authority provided by the self-pay mechanism. Taxpayers, through the fund, are likely to pay the credit subsidy cost for renewable energy technologies because they are smaller, less capital-intensive projects with less access to financial backing. Thus, renewable and efficiency projects would be limited by the direct amount of funding that is appropriated for CEDA, while large projects that self-pay their subsidy costs would not be. 

If a recipient pays the credit subsidy fee, what is the risk?

Proponents of unlimited loan guarantees argue that they will pose no risk to taxpayers because the borrower would pay the credit subsidy cost up front, essentially keeping the government whole. But both CBO and the Government Accountability Office (GAO) have concluded that calculating this fee is very difficult and likely to be underestimated, which would leave taxpayers liable for any miscalculations. Moreover, CBO found an inherent conflict in the federal loan guarantee program: a higher, more accurate fee could actually discourage the borrower from accepting the guarantee,[4] which is effectively contrary to the intent of the program.

The issue of how much nuclear projects will pay in credit subsidy costs is unknown, because DOE has said that it does not intend to make public the subsidy cost fee for nuclear projects. The nuclear industry is asking for a fee of 1 percent of the guarantee, while earlier this year Secretary Chu was quoted as saying he expected the subsidy cost for nuclear loan guarantees to be between .5 and 1.5 percent. However, DOE has also stated that the average fee for renewable projects would be between 10 and 20 percent of the loan guarantee. If these statements truly reflect the subsidy costs that will be assessed for these kinds of projects, then nuclear power projects will clearly benefit both from a lower assessed subsidy cost and the self-pay mechanism.

Even prior to the current financial crisis and subsequent credit freeze, the nuclear industry, unlike the renewable energy industry, was unable to borrow money from Wall Street. Moody's Investor Services called new reactors a "bet the farm" investment. Citigroup concluded that the construction, power price, and operational risks of new reactors "could each bring even the largest utility company to its knees financially." CBO estimated the likelihood of default for loans made to nuclear reactor developers to be "very high – well above 50 percent."[5] Recently John Rowe, CEO of Exelon, the nation's largest nuclear utility, said that he was not willing to bet his company on a single nuclear project.[6] But that's exactly what taxpayers are being asked to do through CEDA.

The House version limits US taxpayer liability, right?

This is not clear. The House bill does not exempt Title XVII from Sec. 504(b) of FRCA.  However, there are different interpretations within the federal government about whether Title XVII supersedes the requirements of FRCA. The Congressional Budget Office, as well as the Office of Management and Budget, have determined that FCRA requires Congress to authorize "self-pay" loan guarantees. The Government Accountability Office, on the other hand, does not interpret the law in the same way. According to GAO, the DOE has the right to give out as much "self-pay" loan guarantees as it chooses.[7] Under both the Bush and Obama Administrations, DOE has followed the interpretation of CBO and OMB, but DOE could revisit this issue with the changes to the Title XVII program and the creation of CEDA in new legislation, or even with a new Administration in the future.

So, what would protect US taxpayers?

In order to protect US taxpayers from potentially unlimited risk and ensure that this program adheres to basis tenets of fiscal responsibility, Congress must establish a clearly defined limit to the amount of total taxpayer liability that can committed by CEDA and Title XVII. Authorizing a new loan guarantee program or modifying an existing one without establishing such protections is tantamount to opening the doors of the U.S. Treasury to virtually unlimited taxpayer liability for future industry bailouts.


*Click here to learn more about how the Senate must fix CEDA.


[1] FCRA, Section 504(b) APPROPRIATIONS REQUIRED. – Notwithstanding any other provision of law, new direct loan obligations may be incurred and new loan guarantee commitments may be made of fiscal year 1992 and thereafter only to the extent that –
(1) new budget authority to cover their costs is provided in advance in an appropriations Act;
(2) a limitation on the use of funds otherwise available for the cost of a direct loan or loan guarantee program has been provided in advance in an appropriations Act; or
(3) authority is otherwise provided in appropriation Acts.
http://www.usaid.gov/policy/ads/600/fcra.pdf

[2] CBO at: http://ww.cbo.gov/doc.cfm?index=10637: p. 9.

[3] http://www.nei.org/resourcesandstats/documentlibrary/newplants/policybrief/2009-nuclear-policy-initiative

[4] Congressional Budget Office, "Department of Energy's Loan Guarantees for Nuclear Power Plants," Director's Blog, March 4, 2010, http://cboblog.cbo.gov/?p=478

[5] CBO Cost Estimate: S. 14: Energy Policy Act of 2003: p. 11.

[6] ClimateWire. Exelon CEO sees low odds for bill crucial to nuclear expansion. May 13, 2010.

[7] "To read section 1702(b) as subjecting title XVII loan guarantees to the requirements of FCRA would read subsection (b)(2) out of the law, and we cannot do that; we have to give meaning to all of the enacted language. E.g., 70 Comp. Gen. 351, 354 (1991); 29 Comp. Gen. 124, 126 (1949). See also 2A Sutherland, Statutory Construction, § 46:06 at 193–94 (6th ed. 2000). Section 1702(b)(2) is clearly inconsistent with FCRA, and it is a later enacted, more specific law. It is well established that a later enacted, specific statute will typically supersede a conflicting previously enacted, general statute to the extent of the inconsistency. E.g., Smith v. Robinson, 468 U.S. 992, 1024 (1984); B-255979, Oct. 30, 1995. For these reasons, we conclude that EPACT section 1702(b)(2) allows DOE to issue loan guarantees if the borrowers pay the "full cost of the obligation." http://www.gao.gov/decisions/appro/308715.pdf

Powered by Convio
nonprofit software