It is hard to imagine the executives of a public company extending an $8.3 billion line of credit to a risky new venture, and then be unwilling to provide any detail to shareholders on how they evaluated the benefits and risks of the deal, and what they were expecting to get paid for taking on that risk.
Yet, this is effectively what the US Department of Energy has done for an $8.3 billion loan guarantee package to support the construction of two new nuclear reactors in Georgia. We know that DOE is required by statute to have gotten an independent assessment of the project risks without guarantees, yet no details on who did that analysis (to gauge their reputation and potential conflicts of interest) or its findings have been released.
A key element of the loan guarantees relates to the size of the expected "credit subsidy" that the borrower is expected to prepay to the government. (This metric is supposed to assess expected losses relative to the "risk-free" government cost of borrowing; even with no default, the utilities will recieve very large subsidies relative to the private borrowing rate on the proposed projects). DOE, with a strong goal of pushing loan guarantees out the door, has an incentive to down play the risks of initial guarantees. Since actual risks will become evident only years from now if the projects start to veer off course (as has occurred with new reactors in both Finland and France), understating risks now increases the benefits to borrowers, expands the number of deals DOE can do with its pool of capital, and delays the day of reckoning.
Taxpayers have exactly the opposite interest, since the point of greatest control over our ultimate bailout tab is in the terms of the initial guarantees, and whether or not to extend the credit at all.
In March, a group of environmental groups issued this letter as a followup to a number of freedom of information act (FOIA) requests that DOE had effectively ignored. Here is one of the rejections to an NRDC request as an example. The goal of the FOIA's was to obtain the necessary detail on the loan agreements with which to assess the quality of DOE's due diligence, and their assumptions regarding the risk of the loan.
DOE's Office of the Loan Guarantee, under the Executive Directorship of Jonathan Silver, has continued to release nothing. As a result, the Southern Alliance for Clean Energy has moved from FOIA to litigation in an effort to ensure transparency and accountability in this massive lending program. It is surprising that these actions have not yet engaged the imaginations and lawyers from groups focused solely on good governance and fiscal controls. There are clearly important principles at play that will affect government accountability well beyond the energy area. This is well illustrated by the conflict between DOE and the Office of Management and Budget on the proper way to calculate credit subsidies, though I've seen little in the public sphere since this article late last year.
With total energy loan guarantee commitments reaching $111 billion, and much more on the way if the administration is successful, the scale of this program certaintly warrants attention even by those concerned only about the fiscal rules by which our government operates.
