Use of non-transparent private emails on key government business: the case of DOE's subsidized nuclear loans

Hillary Clinton's use of her personal email account for official government business has been all over the news lately.  The concern is that the approach escapes the normal channels of accountability regarding official government business, and makes it much more difficult to protect government records for historical purposes.  

If an email is sent from a private address, does it make a noise?

Clinton is not alone.  Jonathan Silver, the former head of DOE's Loan Programs Office, did too.  He was clearly not as high up in the Obama administration as Secretary Clinton; and unlike Clinton, he seems also to have used his DOE email address.  Nonetheless, Silver did oversee the granting of some of the largest non-bailout loans to individual private corporations in US history.  And, like Secretary Clinton, he had a penchant for using his private email a lot. 

Great investigative work by Carol Leonnig and Joe Stephens in the Washington Post back in 2012 highlighted the issue.  They wrote that Silver frequently reminded staff not to include personal emails in DOE correspondance for fear of making the account subpoenable.  But it seems that if one just used private email, without having it appear alongside DOE addresses, that would be fine.  Indeed, he often relied on this less visible method for his own key correspondence.  Leonnig and Stephens: 

Silver repeatedly communicated about internal and sensitive loan decisions via his personal e-mail, the newly released records show, and more than a dozen other Energy Department staff members used their personal e-mail to discuss decisions involving taxpayer-funded loans as well. The Washington Post received the e-mails from Republican investigators on the committee.

"The frequent use of non-government e-mail accounts and the contents of e-mails leaves little doubt that DOE officials participated in an intentional effort to shield their communications from legal scrutiny and the public," committee Chairman Darrell Issa (R-Calif.) and subcommittee Chairmen Jim Jordan (R-Ohio) and Trey Gowdy (R-S.C.) wrote to Chu.

You can review examples of Silver's emails here.

And although the impetus for this Congressional review was concerns over loan guarantees to solar projects, most notably to ill-fated Solyndra, the problem is hardly isolated.  In terms of program risk to taxpayers, the  massive loan to the Vogtle nuclear plant in Georgia is the Mother of All Solyndra's.  With taxpayer exposure topping $8 billion, it is clearly a critical deal to review. 

And review it, I have.  As part of a project with the Southern Alliance for Clean Energy, I went through thousands of pages of documents and emails related to the Vogtle loan guarantee submission and evaluation.  These documents saw the light of day only due to roughly ten separate rounds of FOIA requests over multiple years -- submitted by SACE and the Emory University School of Law’s Turner Environmental Law Clinic . 

Yet the released information had very little linked to Silver's private email.  One can only speculate on why that correspondence was left out, and what important information related to the Vogtle deal we may be missing.  

Taxpayer exposure on Vogtle - some troubling trends

So how's the program doing?  Will taxpayers or others ultimately bear a heavy financial burden because of poor accountability on the review and pricing of massive federal credit support to Vogtle reactors 3 and 4?

If you ask DOE, their loan program overall is going swimmingly well.  In their November 2014 progress report, the Office of Loan Programs' current director Peter Davidson noted that loss ratios are low, and interest and principal payments are running above losses.  Many of the principal payments are back-loaded, so we shall see.  And interest, even if repaid, is still provided at a significantly subsidized rate for many of the borrowers. 

What about the Vogtle loan itself?  The trends don't look very good, actually.

• DOE determined the credit risk on $6.5 billion in government loans to Southern Company, the largest investor in the new Vogtle reactors (through its Georgia Power subsidary), was zero.  It is hard to imagine Peter Davidson's former employer, Morgan Stanley, reaching a similar decision.  The advance credit subsidy fee was one of the key risk management tools available to the Department to reduce losses.  By setting the credit subsidy figure to zero, DOE greatly increased the likely magnitude of taxpayer loss on this deal and established a bad precedent for future solicitations.  The irony here is that they didn't need to give the loan at all and the plant would still have been built:  Southern had said multiple times that they could proceed without the federal credit support. 
  
  If DOE staff were confident in their decision, one would assume they would be proud to demonstrate its basis.  No such luck:  DOE has blocked repeated attempts to get detailed information on how they concluded that zero credit subsidy assessment was warranted. 
• Cost of the project has ballooned to as much as $18 billion and counting, and battles over who pays for the overruns are heating up.   The project's problems (likely in conjunction with a softening market for power) has led Southern Company to delay a second reactor project. 
• Southern Company CEO Tom Fanning sold the vast majority of his shares in the firm last fall, according to Barrons.  This was years prior to the expiration of the associated options.  He sold 275,600 shares in January 2014, and an additional 1,049,185 in September.  At that point, he had less than 40,000 left.  A spokesperson for InsiderInsights.com, a firm that tracks trading activity by corporate insiders, viewed the sales as "bearish" and suggested people avoid the stock.  The sales subsequent to DOE approval of a zero credit subsidy fee; in excess of historical sale patterns; and leaving only a tiny stake in the firm he is in charge of are all problematic.  Sometimes such a pattern precedes CEO replacement or retirement.  In this case, however, Fanning is still there. 
• While nukes were always sold as expensive to build but cheap to run, turns out they may not be very cheap to run either.  Exelon has taken the lead among current reactor owners in begging for alms in order to keep their plants on line.  And the alms, apparently, are quite substantial.  Tim Judson of NIRs has a good summary here.  Of course, these reactors have all been subsidized their entire lives, so perhaps begging for taxpayer handouts comes naturally.  They were subsidized when they were built; when they were deemed uncompetitive during power deregulation; for their accident risks, their waste management, and their accruals for plant decommissioning.  The list goes on.  But a key point is that if even the old reactors that have already paid off their capital can't operate competitively, what hope does a bloated Vogtle 3 & 4 have with cost recovery hurdles continuing to rise?

So how will this play out?  Southern Company rate payers are already feeling the pinch.  SACE notes that:

Georgia Power ratepayers are currently paying an additional over 9.4% on their bills for the Nuclear Construction Cost Recovery (“NCCR”) Rider due to anti-consumer state legislation passed in 2009 to incentivize building new reactors. Since 2011 customers have paid over $1 billion since the Company began collecting the NCCR tariff for financing costs and taxes that would normally be recovered over the normal life of the facility.

Oh, and if I were one of the town administrators in the Vogtle service area who had signed on to one of the take-or-pay, hell-or-highwater power purchase agreements for power from Vogtle 3 and 4, I would be starting to sweat.[fn]Here's some representative wording for MEAG: "The Conditional Commitment provides that the Project Entities will be the borrowers of the Guaranteed Loans. On or prior to entry into the Definitive Agreements, MEAG Power will enter into a take-or-pay, "hell or high water" power purchase agreement with each Project Entity for all of the power, energy and other services generated by such Project Entity's ownership interest in Vogtle Units 3&4. These power purchase agreements between MEAG Power and each Project Entity will be "back-to-back" arrangements requiring MEAG Power to make payments to the Project Entity to the extent that MEAG Power has received payment under its corresponding power purchase or sale arrangements." [/fn]