Three Mile Island owner Microsoft seeks taxpayer support for AI deal

Microsoft, which declined to comment on the bid for a loan guarantee, is among the big tech companies scouring the nation for zero-emissions energy as it looks to build data centers. It is among the leaders in the global race to dominate the field of artificial intelligence, which consumes huge amounts of electricity.

The plan to reopen Three Mile Island — the site of the worst nuclear accident in the United States — has drawn praise from political leaders, including Pennsylvania Gov. Josh Shapiro. The reactor that Constellation plans to restart was shut down in 2019 and sits next to a unit that has been idle since a partial meltdown in 1979.

The restart plan has already generated controversy as energy experts debate the merits of providing separate federal subsidies for the project in the form of tax credits. Constellation's pursuit of a $1.6 billion federal loan guarantee, previously undisclosed, will likely intensify that debate.

The loan guarantee request, first submitted by Constellation to the US Department of Energy in May, has cleared a preliminary review. According to details of the application shared with The Post, it has reached the stage where specific terms of a deal would typically begin to be negotiated.

A loan guarantee would allow Constellation to shift the risk of reopening Three Mile Island to taxpayers. The federal government, in this case, will pledge to cover up to $1.6 billion If there is a default. Guarantees are typically used by developers to lower the cost of project financing, as lenders are willing to offer more favorable terms when there is federal support.

In this case, the loan guarantee could save Constellation up to $122 million in borrowing costs to reopen Three Mile Island, according to John Parsons, an energy economist at the Massachusetts Institute of Technology. That would come on top of federal sales of capacity tax credits passed in the 2022 Inflation Reduction Act. That could be worth about $200 million annually to Constellation and Microsoft.

Technology companies already benefit from similar tax credits when they purchase energy from a solar or wind farm. But nuclear plants produce more electricity at a higher cost, leading to larger subsidy levels.

The Energy Department declined to comment on the application, citing privacy concerns. They did not directly confirm that they had applied for a loan guarantee. But it discussed the debt in response to questions from The Washington Post. It said it has not decided whether to accept the loan if one is approved. It also assured that any financial risk to taxpayers would be negligible.

“Rest assured that whatever amount we may seek, Constellation will guarantee full repayment,” a company statement said. “Any notion that taxpayers are taking a risk here is fanciful given that any debt will be backed by the entire $80-billion-plus value of Constellation.”

The loan guarantee program gives applicants the option to borrow money directly from the U.S. Treasury to fund their projects, with the Department of Energy still acting as guarantor in the event of default. The Constellation application did not specify whether the company plans to go that route.

Constellation announced last month that it had struck a deal with Microsoft through which the tech company would buy all power from the plant, should regulators sign off on restarting the shuttered unit in 2019.

Constellation plans to reopen Three Mile Island by 2028. The company is changing the facility's name to the Crane Clean Energy Center, the name used in federal loan guarantee applications. Constellation said its deal with Microsoft will last for 20 years, but the companies are not disclosing any pricing details.

The project would be the biggest risk to taxpayers Three Mile Island failed after spending a significant amount of money to launch it. Such setbacks are common during the construction of new nuclear plants. Augusta, Ga. Its last new nuclear reactor online was seven years late and $17 billion over budget. Constellation says it is confident Three Mile Island will not face such a disaster, as the company is relaunching an existing unit rather than building a new one from the ground up.

The Energy Department announced this week that it has terminated a $1.52 million loan guarantee for the only other active project to restart a nuclear power plant, the shuttered Palisades Nuclear Facility in West Michigan, which is slated to close in 2022. Michigan Gov. Gretchen Whitmer (D) has lobbied the owner, Holtec, to reconsider plans to permanently close the plant.

Palisades and Three Mile Island will each generate enough energy to power 800,000 homes if successfully restarted. It is not yet certain whether either will return online. They will be subject to intensive safety inspections by the Nuclear Regulatory Commission. When inspectors encounter unexpected problems, plant owners may find themselves scrambling to acquire replacement parts that need to be custom built, jeopardizing their opening deadlines.

Proponents say restarting nuclear power plants is a good option, especially with increased demand for data centers being built across the country.

“We want Microsoft to buy their electricity from zero carbon energy sources instead of coal plants, so it's in all of our interests that this nuclear power plant be restarted,” Parsons said of the Three Mile Island plan. He said that while loan guarantees come with risks, restarting an existing nuclear plant is much less likely to incur the costs and delays common with building a new nuclear plant.

Power from Three Mile Island will not be directly connected to Microsoft's data center. It will flow into the larger power grid that serves 13 states and Washington, D.C. But as buyers of clean energy, the tech company can use it — on paper — to eliminate emissions. Generating electricity from burning gas or coal that flows to its data centers. Microsoft is among several large technology companies that use such accounting methods to brand their data centers as climate friendly.

But some critics question whether the constellation represents an overly optimistic assessment of how quickly and cheaply a nuclear plant can be restarted. The company said last month that $1.6 billion would cover the full cost of reopening Three Mile Island by 2028. This is the same amount the company is now asking for in its loan guarantee application.

“We have a big tech company trying to do something that doesn't resemble how markets should work, and they want to do it on the backs of ratepayers and taxpayers,” said Evan Caron, co-founder of Montauk Climate, which invests in clean-energy technology.

If there are cost overruns or delays, Microsoft would likely have the option to abandon the deal and find another buyer willing to pay a premium for Nakshatra's Three Mile Island power, he said. “There's real risk in that,” Caron said. “I think the chances of that plant coming back online by 2028 are low to zero.”

Constellation takes exception. “We know every inch of this plant and what needs to be done,” the company said in a statement. “To be clear, Constellation will restart the crane in 2028 and, in fact, we will aim to restart it a year earlier.”

Baltimore-based Constellation is one of the nation's largest energy companies, selling electricity and natural gas in 48 states. It owns 15 nuclear power plants. The company says it provides 10 percent of the clean energy used nationwide. The company's value collapsed during the 2008 financial crisis.

It later merged with energy giant Exelon. In 2022, Exelon exits the constellation. Constellation's stock price rose more than 20 percent after the Sept. 20 announcement of a deal to sell Microsoft power from Three Mile Island.