Hocus Pocus - Where are the loan guarantees?

Alternate Energy Holdings Inc. (OTC:AEHI) announced a land purchase agreement, signed February 1, 2007, with an Idaho farmer for 4000 acres at a projected cost of $20M, located on the Snake River in southeastern Idaho. The land optioned by AEHI will be used as the construction site of the company's proposed 1,600 Megawatt light water nuclear reactor if and when it is built.

AEHI refused to name the farmer or the exact location of the site. As the crow flies the proposed site along the Snake River is likely within spitting distance of Mountain Home Air Force base located between the Danskin and Owyhee Mountains, 40 miles southeast of Boise. The base hosts the 366th Fighter Wing.

There is no SEC filing for AEHI and financial performance information is not available at online sites for the firm. Its stock became public in September 2006 and trades for less than $1.00. It is a "penny stock" but there is nothing penny ante about the impact of its announcement.

Response to the news from AEHI by anti-nuclear groups was swift. The Associated Press quotes Jeremy Maxand, executive director of the nuclear watchdog group Snake River Alliance, who said Thursday 2/8 any community where a project like this has been proposed deserves full disclosure up front on issues like water use and waste management.

Public Citizen, another nongovernmental organization, also issued a statement objecting to the plant on the grounds that it would only be feasible if the government offering significant subsidies.

“This land grab in Idaho by AEHI is obviously an effort to get in on federal taxpayer handouts,” said Michele Boyd, legislative director of Public Citizen’s Energy Program. “But the reality is that there are already numerous companies in the Southeast lined up with their hands out. In fact, the billions in federal subsidies are not enough to make nuclear power cost-competitive, so those companies have snookered local communities into ponying up hundreds of millions more. I doubt that is what Idahoans have in mind.”

Nobody seems to have asked if the capacity of the electric transmission grid in southwestern Idaho can carry the output of a 1,600 megawatt nuclear power plant from the extremely rural area to customers throughout the Pacific Northwest.

It's not known whether AEHI has approached anyone for funding in Idaho or the federal government for subsidies. In fact, it is a question whether AEHI or any nuclear plants would benefit from a loan guarantee even if they got one. Further, any utility, including AEHI, that wants government subsidies and loan guarantees must apply to the NRC for a license for the new plant, which is a step that could cost $50M. Someone has to be sure they are going to build one before spending that kind of money.

Platts Energy News, an industry trade news service, reported that in its FY2008 budget DOE will seek $9 billion in authority for loan guarantees for advanced energy technologies. Under the Energy Act of 2005 DOE could provide as much as $13 billion in financial backing for projects for ethanol and bio-diesel production, clean coal technologies, nuclear energy and electricity transmission. DOE would start issuing the guarantees "as early as this fall," says Clay Sell, the #2 man at the agency.

That's the good news. Here's the bad news. Platts also issued a report to its subscribers on Feb 7th saying that the Department of Energy's (DOE) loan guarantee programs for new nuclear power plants are so restrictive that investors won't be interested in financing them. The Nuclear Energy Institute (NEI) told reporters this past week the major problem is that DOE is limiting coverage to 80% of the debt rather than 80% of the cost of new plants. NEI said this stipulation would significantly limit the value of the government's loan guarantees.

Another problem, according to NEI, is that commercial debt would be ranked second relative to debt guaranteed by the government. This requirement would have the effect of limiting investor debt for a new nuclear plant to the amount that would be covered by the government and no more. Given the huge costs associated with a new plant, no investor is going to provide funding and stand in second place if the plant goes bust before it can generate any electricity.

While the federal government plans to offer billions in loan guarantees and subsidies for nuclear plants, the program may be delayed a year before DOE implements it. Testifying before the House Energy and Commerce Committee this week on the administration's FY2008 budget, Energy Secretary Bodman said, "if we could get it done a year from now, we would be doing well." As many as 30 new reactors are in the planning stages.

Peter Bradford, a former member of the Nuclear Regulatory Commission, says DOE should forget about subsidies and loan guarantees altogether. Bradford, who was speaking on behalf of the Union of Concerned Scientists, told the Dallas Morning News, the government ought to just build the first few new nuclear power plants and operate them until investors are confident nuclear energy is a safe bet.

None of this has stopped the nuclear energy industry from exploring the future. Joe Colvin, a past president of NEI, told a Miami, FL, Chamber of Commerce meeting on Feb 7th, that Florida is "well-positioned for new nuclear plants." He said the reasons why utilities will build them are that demand for electricity will outstrip supply from fossil sources, coal will come under increasing regulation due to global warming, and natural gas prices are too volatile. As a result he said 14 companies and consortia have announced that they are preparing to submit license applications to the Nuclear Regulatory Commission to build up to 32 new reactors. These companies are selecting technologies from two NRC-certified reactor designs, and two more designs that are under review by the NRC.

As an aside I can't help but wonder what AEHI is doing in Idaho when it is clear the industry has its eye on Florida? It's a lot closer to Virginia and certainly is warmer.

I guess the one conclusion you could draw from this situation is to recall Admiral David Farragut's famous command, "Damn the torpedos full speed ahead" at the battle of Mobile Bay, August 5, 1864. In the winter of 2007 could the nation's nuclear fleet's version of Farragut's command be "damn the subsidies, full speed ahead?" I don't think so.

Readers are reminded that history tells us despite Farragut's bravery, Confederate torpedoes sank more than two dozen union ships during the course of the Civil War. The utilities in the nuclear energy industry is going to want those federal loan guarantees and so will their investors. How or whether they get them will determine if any plants, including AEHI's, get built.