Are National Energy Policy Loan Guarantees Constitutional?

by Harrison H. Schmitt

The President and the Congress obviously are hooked on interfering in the American economy. Loan guarantees and their ultimate manifestation in financial bailouts, show the extremes of this addiction. Now, the President proposes to use the authority provided by Congress to guarantee loans to a single power company (Southern) to build two nuclear fission plants.

Whether he realizes it or not, the President has pulled the rhetorical rug from under those opposed to nuclear power while cynically avoiding the unambiguous regulatory and tort reform needed to actually build new nuclear plants.

The President knows or should know that, with or without loan guarantees, regulatory and tort reform remains and absolute necessity for private investment in nuclear power.

Any power utility Board should have to be totally convinced, for its own liability protection if not for good business practice, that such reform had occurred before asking shareholders and new investors to commit risk capital on new nuclear plant construction.

A return to nuclear power plant construction and operation constitutes the foundation of long-term energy independence for the Unites States ­ no question about it!

The President’s proposal, however, calls for the Government to guarantee $8.33 billion in loans, allegedly to encourage adding more nuclear capacity to that currently meeting 20% of the nation’s electrical power demand. An obvious disingenuousness underlies this proposal. The broad disincentives for private capital to fund these plants actually comes from a long-standing governing political philosophy, also supported by the President and his Secretary of Energy. This philosophy does not include either nuclear power or the energy independence and economic growth it would support.

The President’s nuclear loan guarantee proposal follows similar actions to prevent bankruptcy proceedings for General Motors and Chrysler as well as giving direct federal dollar bailouts of large financial institutions.

Increasingly, post-mortem analysis of these interventions ahead of court managed bankruptcies indicate that they have prolonged and intensified the effects of Congressional meddling in the housing markets rather than mitigating those effects. Plus, the root cause of the 2008 financial meltdown has not been removed, namely, the political self-interest of elected and appointed officials.

Loan guarantees and financial bailouts by the Federal Government may or may not be constitutional, depending on their purpose and adherence to other limitations provided by the Founders. On the one hand, loan guarantees and bailouts targeted at specific individuals or corporations violate the equal protection rights of other Americans provided by the 5th and 14th Amendments. In this light, the proposed loan guarantees for Southern and those recently provided to General Motors and Chrysler stand as unconstitutional discrimination against all other corporations and businesses that, without such welfare, would enter bankruptcy.

Alternatively, Article I loan guarantees and bailouts that “provide for the common defence and general Welfare” potentially would be constitutional if they specifically implement the enumerated powers of Section 8 of that Article. For example, temporary loan guarantees that shored up the finances of troubled corporations with an essential defense capability or with a unique role in supporting interstate commerce, might pass constitutional scrutiny, depending on specific details.

With this constitutional background, anyone who thinks that Government cannot be trusted in matters of financial management should immediately have second thoughts about the President¹s nuclear plant loan guarantees. The Government always will insist on provisions or covenants that would allow the guarantee to be withdrawn. Further, little likelihood exists that this President would eliminate those unnecessary regulations, judicial reviews, and barriers to nuclear waste disposal or reprocessing that has made raising private capital essentially impossible in the nuclear industry. History has shown clearly that these issues would remain as impediments to the completion of plants, even those with federal loan guarantees.

Also, the President obviously hopes that this “nuclear plant proposal,” whether ever consummated or not, will entice support from nuclear power advocates for similar loan guarantees in favor of uneconomic wind, ethanol, and solar energy plants and for passage of economically unworkable and scientifically unsupportable climate change legislation. Instead, the national focus should be on producing more energy both to lower U.S. production costs and raise worldwide living standards. That focus certainly should not be on how to limit energy use and accompanying improvements in the human condition.

The nuclear loan guarantee proposal also would constitute and other step toward national socialism.

This ultimate goal of total government control of the private sector appears to drive initiatives from the current Administration and Congressional Leadership. If expanded to energy production, it would give the Government, as in the case of the healthcare, financial, and auto industries, an effective hammerlock on decisions in another segment of the American economy.

The Government’s presence in these industries obviously distorts competition, capital markets, and good business practice. All one has to do to understand this insidious cancer inside the private marketplace is to look at the cost-of-capital advantage enjoyed by General Motors and Chrysler and the overly heavy-handed media and regulatory pressure brought by the Government on its automobile competitor, Toyota, and on various financial institutions.

Finally, Government loan guarantees and bailouts both ultimately constitute additional liabilities to be held by the American taxpayer.

Don’t we have enough of such liabilities already?

If federal loan guarantees are not the way to invigorate nuclear plant construction and operation in the United States, where do we go from here?

In addition to the lack of regulatory and tort reform, the long-term impediment to nuclear power comes from the Government not meeting its legal obligation to store waste from commercial nuclear plants. The current Administration has totally abrogated any pretense to living up to this responsibility by walking away from further development of the Yucca Mountain nuclear waste repository in Nevada.

In actual fact, underground storage of spent fuel rods wastes money. Well-protected, above-ground storage in unpopulated areas would be both safe and preferable until reprocessing of the rods becomes national policy, but above-ground storage and reprocessing are not even on the table for consideration.

Naval reactor spent fuel rods are already reprocessed so why not those from civil power reactors?

95-97% of these rods consist of energy and other resources rather than waste. Strangely, France, with about 80% of its electrical power produced by nuclear plants, reprocesses its spent fuel rods as do Japan (~35%), United Kingdom (~20%), and Russia (~16%).

Therefore, in addition to the regulatory and tort reform necessary for private investment in nuclear power, the Government should help research institutions and industry reactivate the development of cost effective nuclear waste reprocessing technology terminated under the Carter Administration.

Also, such cooperative research and technology development efforts should advance the capability to transform the 3-5% remaining, unusable waste into stable or short-lived radioisotopes using advance fusion processes that produce intense proton fluxes. This type of Government support at least would be constitutional, promoting “Science and the useful Arts” as specified under Article I.

The solution to how to move rapidly to increase installed nuclear power relates directly to the nation’s overall energy policy.

National and global demand will increase by a factor of eight or more by the middle of this century to meet both global population growth and standard of living aspirations. That factor of eight change in demand includes a two-fold increase to account for growth in world population and a four-fold increase to meet the major aspirations of four-fifths of the world’s peoples. Even an eight-fold increase would not bring the rest of the world to the current average per capita energy use in the United States once tax reductions stimulate real economic growth. That would take at least an eleven-fold increase, not counting the demands of new energy intensive technologies.

We further must recognize that increased production and use of our own domestic oil, gas, coal, and nuclear resources buys us time to meet challenges to supplies of energy from unstable foreign sources and to provide for our national security as well as preserve our liberty. We also can choose sustained research and development of potential energy alternatives, those with clear paths to commercialization, rather than continue tax dollar subsidies for the premature or economically flawed introduction of alternative energy concepts. We can provide investor and development friendly business environments for the maturation of new sources of energy, particularly through maintaining and increasing favorable tax treatments of capital expenditures and incomes, benefiting all Americans.

Most fundamentally, the Congress elected in 2010 can turn to common sense and sound economics, rather than to unconstitutional governmental intervention, to solve problems and meet new challenges.


Harrison H. Schmitt is a former United States Senator from New Mexico as well as a geologist and former Apollo Astronaut. He currently is an aerospace and private enterprise consultant and a member of the new Committee of Correspondence.

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