United Liberty
“No More Solyndras?” Well, maybe just one more…
Mon, 08/20/2012 - 9:51am | posted by Jeremy Kolassa
House Republicans have recently put forward a new bill, H.R. 6213, otherwise known as the “No More Solyndras Act.” It was passed by the House Energy & Commerce Committee on August 1st, and sounds quite promising when you consider the colossal mistake that Solyndra, supported by federal loans, was. It’s estimated that taxpayers will lose over half a billion dollars on Solyndra, which went bankrupt last year. Preventing that from happening again is a great idea.
Unfortunately, the Republicans backing this bill are not really saving you from another Solyndra, or Beacon Power, or Abound. For the “No More Solyndras Act” leaves a gaping hole—as in, everything before December 2011 is still totally cool.
See, it’s “No More Solyndras,” not “No Solyndras.” As the text of the bill makes plain, the Act only prevents new applications from new companies, not applications from ones “grandfathered” in:
(a) No New Applications- The Secretary of Energy shall not issue any new loan guarantee pursuant to title XVII of the Energy Policy Act of 2005 (42 U.S.C. 16511 et seq.) for any application submitted to the Department of Energy after December 31, 2011.
(b) Pending Applications- With respect to any application submitted pursuant to section 1703 or 1705 of the Energy Policy Act of 2005 before December 31, 2011:
(1) No guarantee shall be made until the Secretary of the Treasury has reviewed the proposed guarantee and made a written recommendation to the Secretary of Energy on the merits of the guarantee.
(2) The Secretary of the Treasury shall transmit the written recommendation required under paragraph (1) to the Secretary of Energy not later than 30 days after receiving the proposal from the Secretary of Energy.
(3) Before making a guarantee under such title XVII, the Secretary of Energy shall take into consideration the written recommendation made by the Secretary of the Treasury under paragraph (1).
(4) If the Secretary of Energy makes a guarantee that does not conform to the written recommendation made by the Secretary of the Treasury under paragraph (1), not later than 30 days after making such guarantee the Secretary of Energy shall transmit to the Committee on Energy and Commerce of the House of Representatives and the Committee on Energy and Natural Resources of the Senate a written explanation of the Secretary’s reasons for deviating from the Secretary of the Treasury’s recommendation.
So money can still be shoveled into old projects, as explained by this letter from Taxpayers for Common Sense and the Competitive Enterprise Institute, among others:
On behalf of our members and activists, we write because the No More Solyndras Act, while taking important steps in the right direction that we support, does not go far enough and leaves loan guarantees available that could cost taxpayers billions. As currently drafted, this legislation would allow troubled projects, like a $2 billion loan guarantee to the financially floundering United States Enrichment Corporation (USEC), to be finalized. Although the bill prevents new loan guarantees from the Department of Energy, it excludes projects that applied before December 2011, including USEC. These grandfathered loan guarantees went through the same failed review process and are just as likely, if not more so, to end in default, just like Solyndra.
For example, USEC’s stock prices have been trading at less than $1 per share for months and the company has already received a junk-bond credit rating from Moody’s Credit Rating Service. USEC’s financials are so bleak the company was recently given notice that it may lose its place on the New York Stock Exchange. USEC has continually asked for and received lifelines from the Department of Energy (DOE), including a recent $88 million influx of cash, but its long-term financial problems remain unresolved. Despite all of this, under the No More Solyndras Act, DOE still has the authority to award them a $2 billion loan guarantee for their Piketon, OH uranium enrichment facility. Adding insult to injury, the Piketon project has already encountered numerous cost overruns and technical hurdles itself.
It’s this United States Enrichment Corporation that is really the crux of this whole thing. USEC is a company that builds centrifuges (as well as has a contract from the Russians to downblend some of their old nuclear warheads, which, unsurprisingly, is heavily subsidized by both the US and Russian governments.) Autumn Hanna of the aforementioned Taxpayers for Common Sense has described it as a “radioactive version of Solyndra.” Yet still, in June, it received a $280 million loan from the Department of Energy:
The U.S. Department of Energy will invest $280 million — in a company worth less than half that — to research whether American-made centrifuge technology is commercially viable.
The government said Wednesday it would invest the money in a “cost-shared cooperative agreement” with USEC Inc., which hopes to build 11,500 43-foot-high nuclear centrifuges to process uranium in southern Ohio. USEC would put in $70 million.
Energy Secretary Steven Chu said the deal was intended to “strengthen U.S. national security” while “ensuring strong protections for the American taxpayers.” It’s the second major government contract that USEC Inc. has secured in a month, after years of frustrated attempts to secure a $2 billion federal loan guarantee for the project.
What’s truly ironic is that in 2009, the same Department of Energy—headed by the same Steven Chu—denied USEC a $2 billion loan guarantee because it was not viable:
The Department of Energy and USEC Inc. (NYSE: USU) today announced an agreement to delay a final review on the company’s loan guarantee application for the American Centrifuge Plant in Piketon, OH.
The Department plans to defer review of the application until a series of specific technology and financial milestones have been met. The milestones that have been conveyed to USEC are in line with the criteria and legal requirements of the 2005 EPACT statute and the subsequent Title 17 loan guarantee regulations. DOE and USEC also expect an independent engineer to complete a report in the near term that will provide useful input and guidance on the technical issues already identified.
The additional time will allow USEC to make efforts to fully address issues DOE has identified relating to the readiness of the company’s uranium enrichment technology. As it has indicated, the Department sees promise in the ACP technology, but USEC’s application does not meet all the statutory and regulatory standards that would permit the agency to grant a loan guarantee at this time. Both DOE and USEC recognize that meeting these criteria will likely take six months or more.
Both Moody’s and S&P have given USEC junk bond status (CCC in the case of S&P, which can also be described as “extremely speculative.”) In fact, S&P has declared that there is a less than 10% chance of anyone—including taxpayers—of getting their money back, which makes investing in USEC a very dangerous prospect indeed. In fact, you could say it’s Solyndra territory.
The problem with the Republicans is that they aren’t taking the opportunity to just shut down the loan guarantee program outright and actually cut the spending. As usual, they are making cuts, but only in future spending, not in current outlays. They were actually given a golden opportunity to shut down the program for good and end all guarantees, including those to older applicants, when an amendment came before the House Energy & Commerce Committee. The amendment to H.R. 6213 would have simply terminated the program entirely. And so Republicans…voted against it.
Whu-huh?
Yes, folks. 25 Republicans joined with 14 Democrats to vote down this amendment to the bill. (Who ever said bipartisanship is dead clearly hasn’t seen this committee.) Only three Republicans voted for it. But why? It doesn’t make any sense. There are only two reasons I can think of for why they would do this:
- The amendment was submitted by a Democrat.
- Republicans have vested special interests that would be negatively affected if this amendment was made.
And the answer is…both, actually. The amendment was submitted not by a Republican, but by Massachusetts Democrat Ed Markey. (I’m assuming the shock of a freaking Democrat putting forth an amendment that would cut spending drove them to vote against it.) In fact, Markey made fun of Republicans for betraying their small government principles.
And as it turns out, there are vested interests for Republican lawmakers. That enrichment plant the DOE first denied a loan guarantee on? It’s located in Piketon Ohio. Which is the home state of House Speaker John Boehner. (Piketon doesn’t actually lie in his district, however; representing that town directly is Jean Schmidt. It also happens to be directly south of Chillicothe, where Romney made his now famous “Take your campaign of division and anger and hate back to Chicago” line.) USEC also maintains “reliable uranium enrichment operations at Paducah” (as described by the Department of Energy.) Paducah, as you may know, is located in Kentucky. And Kentucky, as you may know, is represented by Senate Republican Leader Mitch McConnell.
So what we have here are Republicans yet again violating their free market principles in order to prop up a business located in their respective states, so they can get more votes. They want to allow this company, which now trades for 70¢ a share, to continue receiving millions, if not billions, of government loans—I mean, taxpayer dollars. How free market is that?
This is yet another instance of Republicans trading their alleged free market principles for a few more votes. It’s what gave us the enormous government growth beginning in 2001, under Republican leadership. It’s what led to the 2007 financial crisis. It’s what made arguing for true free market capitalism nearly impossible, since they used similar rhetoric for their entirely dissimilar cronyism. And so far, they really aren’t being called out on it.
Are you tired of this crap yet?
The $280 million is not a loan gaurantee- the DOE is GIVING this to USEC. So, that money is already wasted on a technology that is not economic. The $2B loan is still on the table for later…..USEC has convinced the NNSA that building their plant is a national security issue.
Actually USEC has convinced NNSA and DOE of nothing. The funding was given to prevent a USEC bankruptcy before the November election and before DOE has time to plan an orderly shutdown of the Paducah plant that that USEC runs. The “ntional security” hokum was employed just to justify those political decisions. Memos from NNSA clearly state that ACP is NOT needed for national security.
Thank you for covering the USEC scandal. For background on USEC and the history of USEC corruption see the Southern Ohio Neighbors Group blog at http://SONGSheetOhio.blogspot.com
I notice you follow this closely and perhaps “convinced” was a bad choice of words. But it is just a handout vs. a loan gaurantee, right?
For the next Solyndra, just Google
tonopah nevada solarreserve
This 110 megawatt solar thermal power plant will produce electricity at only 4 times the cost of natural gas (their figures) or more likely about 8-10 times as much. It will use lots of precious water keeping acres of mirrors clean in the dusty desert and for cooling. It is guaranteed for even bigger bucks than Solyndra. Nancey Pelosi’s brother-in-law is a major beneficiary…
[Full disclosure: I am a spokesperson for USEC Inc.]
This post is riddled with multiple errors and misrepresentations, starting with the title. The American Centrifuge is not another Solyndra. It differs in positive ways on numerous fronts.
The American Centrifuge has a firm sales base with financially sound customers. Solyndra didn’t. USEC has a strong track record of profitable operations in a global market. Solyndra didn’t. USEC has an established product and established market share with a project that would replace existing capacity that is being retired. Solyndra didn’t.
In addition, USEC’s product is priced using long-term sales contracts at competitive prices. Solyndra’s solar panels were priced significantly above market. A significant portion of The American Centrifuge’s output is presold to utilities in the United States and several other countries.
USEC has invested more than $2 billion of its own money and attracted outside equity investment from industry-leaders Toshiba and the Babcock & Wilcox Company. USEC will pay the credit subsidy cost on the loan guarantee, while Solyndra’s was paid by the taxpayer. Carried to its successful completion, The American Centrifuge program will pay hundreds of millions of dollars into the U.S. Treasury through license fees. The American Centrifuge has undergone an extensive, multi-year due diligence process with the government, and when the loan guarantee application is updated it will undergo more scrutiny.
Most glaring is the authors’ complete failure to recognize the major and obvious difference between the Solyndra loan guarantee and the research, development and demonstration (RD&D) program for the American Centrifuge proposed by DOE. The simple fact is that unlike the failed Solyndra business venture, what is being considered for the American Centrifuge is not a loan for a commercial project, but a RD&D program to demonstrate the American Centrifuge technology through the construction and operation of a cascade of 120 commercial centrifuge machines. These machines will sustain the domestic U.S. centrifuge technical and industrial base to ensure the capability exists to meet future national security needs. Furthermore, the RD&D program includes significant taxpayer protections and strong oversight.
Throughout its history, USEC has been valuable to the U.S. taxpayer. Its privatization provided $3.1 billion to the U.S. treasury. It has paid another $300 million in taxes over the years. Contrary to the false information in this blog post, USEC, at a cost of $8 billion (and zero U.S. taxpayer dollars), has worked with its Russian counterpart to implement the most successful nonproliferation program in history, the Megatons to Megawatts program. USEC has paid more than $2 billion to resurrect a technology that DOE had left for dead after spending billions, providing the opportunity for taxpayers to finally realize a benefit from their investment. As part of this effort, USEC has paid more than $300 million of those funds to the Oak Ridge National Laboratory, a part of DOE, to implement the largest Cooperative Research and Development Agreement (CRADA) in history to improve the technology. This CRADA has been funded solely by USEC with no taxpayer funding. Finally, taxpayers have saved millions through USEC’s support of national security.
USEC operates in a global market with three main competitors, all heavily subsidized by the foreign governments that own them. Without the American Centrifuge, U.S. nuclear power plants, which provide 20 percent of the country’s energy needs, will become wholly dependent on those foreign governments for their fuel. Moreover, the United States will lose its source of tritium for national security purposes.
Contrary to the post’s assertion, this project is a national priority, not a parochial one, and as such has received strong bi-partisan support from the Administration and Congress.
This debate isn’t about whether or not a company should get a loan guarantee. It is about whether the United States should have a uranium enrichment enterprise or cede the leadership role it has had in this critical area since the Cold War.
It would take a book to fully address Mr. Donald’s misrepresentations, which, hey, is a pretty good idea! Here’s an outline:
1. Sure USEC has a list of customers in line. Heading that list, and the only future customer quoted by USEC in lobbying for a loan guarantee until 2011 was TEPCO of Japan. Oops! What USEC never says about its customer base is that none of the “expressions of interest” are firm commitments. All the customers have contracts that allow them to shop around for the best price, and under any conceivable scenario, the hypothetical ACP would have by far the highest price in the industry worldwide.
2. Some two dozen USEC customers have already made agreements to purchase fuel in the future from USEC rivals, including the Russian TENEX and URENCO, now operating in New Mexico.
3. The project is a “national priority” only for USEC and the politicians in its pocket. It certainly is not a priority for the majority of Congress, which has failed to grant USEC an appropriation, despite the cry for one from USEC puppets Boehner and Portman. It is nobody’s national priority to dump Treasury funds into a losing project with no commercial future.
4. The predominance of foreign-owned enrichment companies is entirely the fault of USEC, which pulled three successive scams claiming to develop “advanced technology” when it wasn’t, and in relying for years on uranium tariffs that protected USEC’s domestic market, removing USEC’s incentive to actually build an advanced plant. USEC’s (and Trade Representative Portman’s) old uranium tariffs are what forced USEC’s competitors to locate plants in the United States, qualifying them now as domestic — they do employ American workers and pay U.S. taxes.
5. As for USEC’s role in the Megatons to Megawatts program, USEC did its best to sabotage that program from the start, as called out by Joseph Stiglitz in a scathing op-ed piece in that radical rag, the Wall Street Journal. The full Stiglitz op-ed can be found by scrolling down or searching at the SONG blog at http://SONGSheetOhio.blogspot.com
6. No independent analyst anyplace things that “the American Centrifuge Plant” has even a slim chance of becoming a commercial reality. USEC is simply milking the Ohio pasture land for as much additional federal subsidy as it can get, before the roof comes down — literally. Plans in Piketon for demolition of the buildings is already underway.
There are three issues that has not been considered in this review:
1) Jeffrey Immelt is the head of Obama’a get everyone back to work program while having a competing enrichment technology. That seems to be a conflict of interest.
2) Note the heated political debate amidst the fundamentals. It is very hard to discerb where the truth lay. To claim USEC at one point didn’t fund a new technology to now blowing a billion bucks is absurd. Energy security is really a big deal but we do seem to be blowing it when it comes to rare earth elements as well.
3) Most people against USEC are against nuclear power. Germany is now using Coal. And India had no energy. Nuclear isn’t the enemy but well meaning people who write well are.
I am strongly pro-nuclear and a long-term player in the nuclear industry but I am anti-USEC. They are breaking one of the key elements of the long term success of nuclear: do not make exaggerated claims on capability or economics. BTW, the enrichment technology connected to Immelt is privately funded.
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