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July 31, 2007

ENERGY BILL AIDS EXPANSION OF ATOMIC POWER

By Edmund L. Andrews and Matthew L. Wald

WASHINGTON, July 30 -- A one-sentence provision buried in the Senate's
recently passed energy bill, inserted without debate at the urging of
the nuclear power industry, could make builders of new nuclear plants
eligible for tens of billions of dollars in government loan
guarantees.

Lobbyists have told lawmakers and administration officials in recent
weeks that the nuclear industry needs as much as $50 billion in loan
guarantees over the next two years to finance a major expansion.

The biggest champion of the loan guarantees is Senator Pete V.
Domenici of New Mexico, the ranking Republican on the Senate Energy
Committee and one of the nuclear industry's strongest supporters in
Congress.

Senator Jeff Bingaman, Democrat of New Mexico and the energy bill's
author, has long argued that nuclear power plants do not need federal
loan guarantees. Mr. Bingaman said that the industry was over-
interpreting the provision and that it would provide loan guarantees
for only the most innovative power plants.

But the provision has the potential to considerably expand the nuclear
industry, which plans to build 28 new reactors at an estimated cost of
about $4 billion to $5 billion apiece. And while the nuclear industry
would be the biggest beneficiary, the provision could also set the
stage for billions of dollars in loan guarantees for power plants that
use "clean coal" technology and renewable fuels.

The nuclear industry is enjoying growing political support after
decades of opposition from environmental groups and others concerned
about the risks. An increasing number of lawmakers in both parties,
worried about global warming and dependence on foreign oil, support
some expansion of nuclear power.

But the provision could go much further than many lawmakers had in
mind by giving the Department of Energy the power to approve an
unlimited amount of loan guarantees for "clean" power generation.
Under legislation enacted in 2005, nuclear power qualifies as a clean
technology because it does not emit carbon gases that contribute to
global warming.

Power companies have tentative plans to put the 28 new reactors at 19
sites around the country. Industry executives insist that banks and
Wall Street will not provide the money needed to build new reactors
unless the loans are guaranteed in their entirety by the federal
government.

The federal government guarantees many billions of loans each year to
help farmers, exporters, small businesses and students. The government
does not actually lend the money but agrees to pay it back in case the
borrower defaults.

While the nuclear industry says it will need $25 billion in loan
guarantees in 2008 and $50 billion over the next two years, President
Bush had proposed a far smaller amount -- $4 billion -- in new loan
guarantees next year for "clean" electric power technologies, which
include plants that run on so-called clean coal technologies and
renewable fuels.

Many experts fear that the proposed subsidies could leave taxpayers
responsible for billions of dollars in soured loans.

"Such projects, by their nature, pose significant technical and market
risks," the nonpartisan Congressional Budget Office warned last month
in an analysis of the provision. "Studies of the accuracy of cost
estimates for pioneering technologies have found that estimates are
consistently low."

Michael J. Wallace, the co-chief executive of UniStar Nuclear, a
partnership seeking to build nuclear reactors, and executive vice
president of Constellation Energy, said: "Without loan guarantees we
will not build nuclear power plants."

The little-noticed provision in the Senate bill subtly refines and
expands the loan guarantee program that Congress passed in the Energy
Policy Act of 2005.

As before, the Department of Energy would be allowed to guarantee 100
percent of the loans and up to 80 percent of the total cost to build a
reactor.

But the bill essentially allows the department to approve as many loan
guarantees as it wants for both new reactors and plants that use other
"clean" technologies.

That is a big change. Under current law, the government is only
allowed to guarantee a volume of loans authorized each year by
Congress. Last year, Congress limited the government to awarding just
$4 billion in loan guarantees for clean energy projects during the
2007 fiscal year.

Mr. Domenici, who has been pushing the Energy Department to move much
more aggressively in approving loan guarantees, has argued that there
is no need for limits on the loan volume because power companies will
be required to pay an upfront fee to cover the estimated cost of the
guarantee. In essence, the "credit subsidy" payments would be used as
a kind of insurance premium that could be used to cover the cost of
any defaulted loan.

"It is very clear that this is a self-financing program," Mr. Domenici
told James Nussle, Mr. Bush's nominee to become the White House budget
director, at Mr. Nussle's confirmation hearing last week. "There
should already be $25 billion to $30 billion in the loan guarantee
fund."

But the Bush administration opposes the measure, fearing that it could
prove extremely costly.

The provision would "remove appropriate controls over the size of the
program and increase taxpayer liability," the Office of Management and
Budget wrote in an official position statement on the energy bill.

Michele Boyd, legislative director of the consumer advocacy group
Public Citizen, said the measure would subsidize plants with
conventional technology.

"None of these so-called 'advanced' nuclear reactors deal with the
fundamental flaws of nuclear power, such as dangerous radioactive
waste, vulnerabilities to air attack and excessive cost," said Ms.
Boyd, whose staff began investigating the provision shortly after the
Senate passed the bill last month.

Mr. Bingaman, the bill's primary architect, said that he was aware of
the provision but believed that it would apply only to reactors with
fundamentally new technology.

"I would be amazed if this generic loan program applied to most of the
plants that are being proposed, either for the nuclear industry or
coal industry," Mr. Bingaman said Monday night. "The idea of this is
not just to help an industry build plants. It's to demonstrate new
technology that meets the nation's energy needs."

But industry officials say the measure would directly affect the
reactors on the drawing board.

"I think we can say that with all the projects moving forward on the
schedule they are now on, that there could be a need for $20 to $25
billion in loan guarantees," said Richard Myers, vice president for
policy development at the Nuclear Energy Institute, a trade
association.

The House is hoping to pass its own energy bill this week. But leading
House Democrats have made it clear they oppose any kind of loan
guarantees for nuclear reactors.

The House recently passed an appropriations bill for energy and water
programs that included $7 billion in loan guarantees for projects
involving renewable energy and specifically excluded nuclear plants.

Representative Peter J. Visclosky, Democrat of Indiana and chairman of
the House Appropriations Committee's panel on energy and water, said
last month that the nuclear industry had estimated a need of $25
billion in guaranteed loans for next year and "more than that" in
2009.

The industry's request, Mr. Visclosky warned, "overwhelms" what the
committee had been willing to offer the entire energy industry.

Still, nuclear industry executives say they hope the Senate's loan
guarantee provision will be adopted by House lawmakers.

Copyright 2007 The New York Times Company