Proposed Clean Energy Agency Has Cost Issue

Even as Senate energy leaders gear up to re-introduce widely supported legislation to create the Clean Energy Deployment Administration, they have acknowledged that the bill faces a heightened problem this term: the need to find nearly $10 billion in offsets to pay for the new green energy financing authority at a time of overwhelming concern about the federal debt.

That message came at a hearing of the Senate Energy and Natural Resources Committee focused on legislation to create a Clean Energy Deployment Administration (CEDA) as an independent arm of the Department of Energy (DOE).

The hearing also looked at progress in the DOE’s clean energy loan guarantee program, which CEDA would replace.

While the loan guarantee program has been criticized by lawmakers in the past as being too balky and slow-moving, Jonathan Silver, executive director of the DOE loan guarantee office, told lawmakers the program has been making strides, and that the DOE was making progress towards offering conditional loan guarantees to two major projects.

Silver said the DOE in early May issued a "term sheet" for a "very significant project, a very, very large fossil-related project."

Applicants for DOE fossil project loan guarantees include carbon capture sequestration, coal gasification, and coal-to-liquids projects. A DOE spokeswoman declined to identify the project given a loan guarantee term sheet, a key step laying out important terms both sides will agree to if a loan guarantee is granted.

Silver also indicated that the DOE is advancing a politically sensitive loan guarantee application from USEC Inc. for a new uranium enrichment plant at Piketon, Ohio. He told Sen. Rob Portman (R-Ohio) that USEC’s application "has been transferred to the [White House] Office of Management & Budget (OMB)." OMB’s role is to set an all-important "credit subsidy cost," or the fee that USEC must pay to obtain the loan backing.

The handoff to the OMB suggests the DOE now thinks its longstanding technical and financial concerns about USEC’s American Centrifuge Plant (ACP) have been addressed to a significant degree.

However, experts say the DOE can still attach conditions even if USEC is eventually offered a loan guarantee, meaning that the ACP project must meet certain benchmarks before a loan guarantee would ultimately be granted.

A DOE spokeswoman said the department "is continuing to work with USEC on its project application," but declined further comment.

Regardless, at the beginning of May, USEC signaled plans to forge ahead with the ACP project, saying it has launched with Babcock & Wilcox Co. (B&W) the American Centrifuge Manufacturing, LLC, a joint venture to manufacture centrifuge machines for the enrichment plant.

B&W is also a direct investor and partner in the ACP.

Although Silver reported progress in the DOE’s issuance of loan guarantees, all other witnesses strongly backed creation of CEDA as an agency inside the DOE to replace the loan guarantee program and offer additional types of financial supports for green energy technologies.

Silver said the Obama administration has no formal position on CEDA, which could also issue bonds and administer insurance packages in support of green energy projects.

Backers of the idea say that CEDA could move more quickly and without the political pressure that DOE loan guarantee officials are sometimes subject to.

CEDA was included in energy legislation (S.1462) sponsored by Committee Chairman Jeff Bingaman (D-N.M.) and ranking Republican Lisa Murkowski (Alaska) that cleared the committee in 2009 but went no further. This year, Bingaman and Murkowski say they plan to break off small parts of S.1462, including the CEDA language, and try to pass them individually.

Democrats and some energy industry officials have expressed frustration that heightened partisanship on Capitol Hill has thwarted efforts to pass even programs with strong bipartisan support, such as CEDA.

And Bingaman acknowledged the CEDA proposal will face a heightened obstacle this year: the need to offset nearly $10 billion in CEDA program costs at a time when lawmakers are more concerned than ever with cutting budgets to rein in the federal debt.

"The budgeting conventions we use here dictate that the funds set aside for CEDA within the Treasury are considered ‘spent’ immediately, even though any actual losses may not happen for years and could be offset by fees collected," Bingaman said in a opening statement.

After the CEDA bill was first introduced in 2009, the Congressional Budget Office said the program would cost about $9.6 billion to set up over 10 years.

A spokesman for Bingaman said the cost could be different if the CEDA plan is tweaked before re-introduction this year, but added: "We do not have any reason to think it is going to change a whole lot, if at all."

"We need to find a way to pay for that [$9.6 billion] when the bill comes to the full Senate," Bingaman said.

"While I acknowledge that the current environment makes this difficult, and I look forward to working with my colleagues to find a suitable offset….We should not lose sight of the fundamental cost-effectiveness of this type of financing support," Bingaman said.

Murkowski reiterated her support for creating CEDA, but said, "we must find an acceptable offset" for the new financing entity.

"An offset will not only help CEDA become a reality; it will also help us hold the line on new spending and ensure we do not add to our national debt," Murkowski said.

The offset problem was not widely discussed in 2009 because CEDA and S. 1462 never reached the Senate floor, which is where budget offsets would have to be negotiated.

In addition, concerns about the federal debt have exploded in recent months, making any new government expenditures—let alone a program costing about $10 billion—a much tougher sell now than in past years.

Nevertheless, several witnesses said CEDA would pay for itself quickly by offering a wide variety of backing for vital technologies that would otherwise die on the long road from laboratory to marketplace.

Dan Reicher, a former DOE official and executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University, said CEDA "would more nimbly and efficiently support the scale-up of clean energy technologies, and U.S. clean energy competitiveness, than the current approach."

—Jeff Beattie is a reporter for The Energy Daily, where this article first appeared in its original form.