SÍNTESIS DE LA RESOLUCIÓN DE PRIMERA INSTANCIA

While much of the discussion on subsidies to nuclear energy focuses on shifting costs and risks from investors, public and cooperative entities

own nearly 17.5 percent of existing U.S. reactor capacity. Much of this figure involves fractional ownership of reactors operated by private utili- ties. However, there are some large direct owners as well, such as the Tennessee Valley Authority (TVA), which operates nearly 7 GW of capacity (NEI 2009a; APPA 2008a; Duff & Phelps 2008a). Public partners have also been involved in a num- ber of the proposals for new reactors.38

Publicly owned utilities (POUs) include sys- tems that are owned by governments, from the federal level down to localities. Cooperatives are member-owned, typically serving rural and less- populated regions.

While POUs are generally unable to receive tax breaks (PTCs, which can be captured and sold to taxable entities, are sometimes an exception), they do benefit from a variety of other important subsi- dies linked to their ownership structure.39 _{They are} exempt from state and federal taxation, for exam- ple, though they sometimes make small payments to municipalities in lieu of taxes and can access tax- exempt debt for expansion. Based on available data on revenues at POUs, the nuclear share of this tax exemption is worth about $100 million per year, or about 0.07 ¢/kWh of nuclear power generated by this industry segment.

New reactor projects, for example, have turned to Build America Bonds (BABs) for financing. These instruments were introduced by Congress in 2009 as part of the stimulus package, after default risks led investors to shun tax-exempt municipal bonds. BABs solve this problem with a taxable bond issue (spurring sales to tax-exempt investors

such as pension funds) while directly crediting the issuing authority with a grant equal to 35 percent of the interest cost (“direct-payment” BABs enable municipalities to obtain the lower interest rates pre- viously available on tax-exempt issues).40 _{The North} Carolina Municipal Power Agency has a $69 mil- lion nuclear issue, while the Nebraska Public Power District has issued $50 million for purposes that include nuclear. The full amount being deployed on nuclear projects is not known. The largest known nuclear issuer to date (the Municipal Electric Authority of Georgia, or MEAG, plan- ning to issue nearly $2.5 billion in BABs for its investment in new reactors at Vogtle) described the use of proceeds only as “Electric light and power improvements; refunding notes.” Once complete, the MEAG nuclear issuance would be among the five largest BAB issues in the coun- try based on issuance data through April 2010. (BuildAmericaBondsOnline.com 2010).

In addition to tax-exempt debt, POUs are often not required to earn a market return on invested capital, and they are able to use capital structures (such as 100 percent debt) that would not be possi- ble for a private entity because of investors’ concerns about defaults.41 _{All of these subsidies enable POUs} to price power lower than investor-owned utilities (IOUs) or independent generators can.

Additional subsidies may also flow to POU power users because of rules that require favorable pricing on sales to surrounding communities or cooperative utilities. In some cases, such as TVA, the debt also benefits from implicit federal guaran- tees, which enable a lower borrowing rate.

38 The CRS listed Sumner 2 and 3 (South Carolina), Vogtle 3 and 4 (Georgia), North Anna 3 (Virginia), Bellefonte 3 and 4 (Alabama), and South Texas 3 and 4 (Texas) as facilities with public partners (Kaplan 2008: 42). If partners with substantial foreign-government ownership were included, this number would increase still further.

39 Some PTCs can be sold to investors by public utilities, thereby monetizing their value. The sale may actually boost the realized value relative even to private utilities, as the purchasers of the credits tend to be in the highest marginal tax brackets. Where direct sales are not possible, public utilities may sometimes set up complicated lease-back arrangements that effectively allow them to capture a portion of the tax subsidy. This approach is quite common for energy recovery systems at municipal landfills, for example, though it is less efficient than direct sales. 40 Direct-payment BABs are more lucrative to the municipality, but also more restriced in who can use them: tax-exempt issuers only; no private-activity bond applications are allowed. The bonds may also not be used to refund (and replace) outstanding bonds (IRS 2009). The “tax-credit bond” is another variant of the BAB program that allows bond holders to receive a tax credit equal to 35 percent of the interest stream (SIMFA, 2009).

Cooperative utilities also have some advan- tages, though not as many. While in general they are privately run, their cooperative structure allows them to escape from state and federal corporate income taxes. Unlike non-cooperative privately owned utilities, cooperatives can pass out dividend- like payments to “owners” (i.e., their customers) free of income tax. Finally, many cooperatives are able to access low-cost financing through programs such as the U.S. Department of Agriculture’s Rural Utility Service.

While these subsidies flow to all public and cooperative power sources, the benefits to the nuclear sector are significant. Tax-advantaged debt and a lack of risk-adjusted return on invested capi- tal requirements disproportionately favor higher- risk technologies such as nuclear. The combined impact of these subsidies on the delivered cost of power is large: the CRS estimates that POUs’ financing benefits alone reduce the levelized cost of new nuclear electricity from $83.55/MWh to $52.25/MWh, a decrease of 3.13 ¢/kWh or nearly 38 percent (Kaplan 2008: 42). The benefits of avoided tax payments and low return on capital, which the CRS did not model, would further enhance the subsidies to a publicly owned reactor.

In private markets, if capital cannot be deployed at a return adequate to compensate the providers for the risk they have taken on, new investment in an enterprise ceases and it eventu- ally shuts down. Alternatively, if the enterprise has some leverage to increase prices, it does so in order to adjust returns so that it may remain a going concern.42 _{Public power does not face such} pressures. In the three subsections that follow, two federally linked energy enterprises, TVA and the Bonneville Power Administration, provide useful insights, and subsidized lending through the U.S. Rural Utility Service is also discussed. Subsidies are summarized in Table 9.

4.1.4.1. Tennessee Valley Authority

TVA has six operating reactors providing nearly 7,000 MW of nuclear capacity. Work on a seventh reactor, long delayed, has been restarted. TVA is the largest public owner of nuclear capacity in the country. While its debt is not federally guaranteed, investors have generally assumed that the federal government would step in to prevent a bankruptcy. As a result, TVA has been able to borrow at artifi- cially low rates—with a resulting savings in interest payments of $124 million to $189 million in 2006 alone (EIA 2008: 200).

Despite lower interest rates, TVA’s debt burden is large. Further, the debt is disproportionately linked to investments in nuclear infrastructure. In 2006, for example, nuclear accounted for 29 percent of total generation, but roughly 64 per- cent of TVA’s investment in generating assets (EIA 2008: 71, 206). This disparity is indicative of TVA’s poor return on invested capital. Were it to earn an average return commensurate with what is earned by IOUs, TVA would need to boost incoming revenues by $500 million (EIA 2008: 210), most likely by increasing power prices. Of this amount, 64 percent or roughly $320 million would be attributable to investments in nuclear assets. Because this value was calculated using

average returns across IOUs and TVA, however,

the $320 million value actually understates the real subsidy to nuclear. With much higher invest- ment risk than most other generating technologies, nuclear would require a significantly higher return on assets than other generating capacity in order to compensate.

The calculation should be adjusted in one other way as well. TVA has significant “deferred” assets, roughly half of which are nuclear reactors that are not presently operable. These are plants on which construction has been suspended, but the asset has not been declared a total loss and

written off. By including these deferred assets as part of the investment on which a return needs to be generated, a much higher annual revenue short- fall—$1.1 billion per year—occurs, of which about 62 percent ($700 million per year) is associated with nuclear investments.

4.1.4.2. Bonneville Power Administration

The Bonneville Power Administration (BPA), the largest of the federal power marketing admin-

istrations, is a much smaller nuclear player than TVA, with only one nuclear reactor. Nonetheless, like TVA, most of BPA’s deferred investments in nonoperational plants are associated with nuclear investments gone bad.43 _{BPA had $4 billion in} nuclear-related deferred assets in 2006. Achieving a market rate of return on invested capital would have required an additional $294 million in revenues, excluding deferred nuclear plants from the rate base, or $693 million including it (EIA 2008: 211).

TVA BPA RUS Notes

Nuclear share (%)

Gross generation 29.0% 10.0% 6.0%

Operating net generating assets 64.0% 10.0% Prorated; no actual data

Total net assets 61.5% 28.6%

Interest support 52.9% 55.9% 7% EIA estimates

Subsidy metric ($millions/year) Interest rate subsidies

vs. A IOU rate 124 191 305

vs. Baa IOU rate 189 228 380

Power underpricing (421) 1,616

Return on invested assets

Operating assets only 509 294

Including deferred assets 1,141 693 Estimated nuclear share of subsidies

($millions/year) Low High Low High Low High

Interest rate subsidies 66 100 107 127 18 23 (1)

Power underpricing (269) 162 (2)

Return on assets 326 702 29 198 (3)

Notes:

(1) Low estimates assume that utility risk is equivalent to an A bond. The highest-rated bond evaluated by the EIA (Aaa) seems unrealistic for nuclear projects and was not used. The upper estimate (Baa rating) is believed to be more accurate.

(2) Negative values reflect TVA’s power to sell at slightly higher rates than those of the surrounding utilities during the period of analysis. This situation likely reversed itself during surging electricity prices in 2007 and the first part of 2008. Values are prorated based on nuclear share of operating assets, though BPA’s nuclear share of investment is likely higher than the 10 percent value shown.

(3) Return on asset values include the low EIA estimate multiplied by the net operating assets; the high end of the range uses the higher EIA estimate multiplied by the total nuclear share of investment, including plants not currently operating.

Sources: EIA 2008; USDA RUS 2008; TVA 2006.

Table 9. TVA, BPA, and RUS Subsidies to Nuclear Power

43 These investments, the default of the Washington State Public Power Supply System due to nuclear cost overruns, were not direct investments of BPA but rather of Energy Northwest. BPA was the obligor, however, based on a net billing power arrangement (EIA 2008: 76). As with TVA, though the nonfederal debt of BPA does not benefit from an explicit federal guarantee, “the financial community treats the debt as though it was guaranteed” (EIA 2008: 77).

4.1.4.3. Rural Utility Service

The Rural Utility Service (RUS) of the U.S. Department of Agriculture (USDA) benefits from subsidies to capital formation similar to those enjoyed by TVA and BPA. The RUS is the suc- cessor to the Rural Electrification Administration (REA), and it continues the REA’s mission to pro- vide low-cost funding and credit support to rural electric utilities. As of 2005, RUS-supported utili- ties provided 7 percent of the country’s electricity.

REA and RUS initiatives have provided quite large subsidies over time. They have come through a variety of mechanisms, including operating subsidies from Congress, grants, subsidized credit to electric utilities, forgiveness on interest pay- ments associated with the REA’s multibillion-dollar borrowing from the Treasury starting in the 1950s, and loan defaults (Koplow 1993).

Subsidized federal financing remains the favored source of capital for these rural enterprises. Nearly 70 percent of the long-term debt held by generation and transmission cooperatives as of the end of 2008 was sourced from the RUS. The reasons are the lower costs and better durations than what is available from the private sector. The USDA notes that higher interest rates would boost interest charges by “billions of dollars” that would have to “be absorbed by the rural electric members in the form of higher rates” (USDA RUS 2008: 20). RUS scenarios indicate an expectation that government-provided debt is 250 to 350 basis points (2.5 to 3.5 percentage points) lower than commercial rates (USDA RUS 2008: 23).

Defaults on then-REA loans were low through the late 1970s, probably due in part to the low interest rates and flexible repayment schedules (Koplow 1993: B4-27). Losses subsequently spiked up, in large part because of borrower participation in nuclear reactor projects that were running into financial trouble (GAO 2000: 22). Through 1988, for example, three-quarters of the REA’s defaults were associated with nuclear investments;

the remainder with coal (Morrison 1988: 13–37). The EIA notes that $3.2 billion in loans to three large borrowers were written off, and that “much of the problem debt was associated with loan guarantees for borrowers’ investments in high-cost nuclear plants in the early 1980s” (EIA 2008: 88).

As of the early 1990s, nuclear accounted for about 8.5 percent of RUS-financed installed capac- ity (Koplow 1993: B4-29c). At present, rural electric generation and transmission cooperatives own partial stakes in a number of nuclear reactors, making up about 6 percent of its total capacity, though the nuclear share of all cooperative genera- tion (including those not in the RUS program) is around 15 percent (USDA RUS 2008: 7, 23). Participation in proposed new nuclear reactors from this sector as of 2008 was 1.1 GW, about 5 percent of the total proposed nuclear capacity additions (USDA RUS 2008: 16, 19).

4.1.5. Regulatory Risk Delay Insurance