UPDATE:New Nuclear Reactor Depends On Loan Guarantee -Constellation

Constellation Energy Group (CEG) needs a government loan guarantee and higher natural-gas prices before the company will proceed with plans to build a new reactor at the Calvert Cliffs nuclear power plant in Maryland, Constellation Chief Executive Mayo Shattuck said Monday.

Plans for a third reactor at Calvert Cliffs are "highly dependent on the loan guarantee program" and on tax credits for the production of new nuclear power, according to Shattuck, who was speaking at the company's analyst meeting in Baltimore. Constellation plans to develop the reactor as part of UniStar Nuclear Energy, a joint venture between Constellation and Electricite de France (EDF.FR).

The proposed new reactor is a long-term bet on higher gas prices, which set the price of the power that Calvert Cliffs 3 would generate, and on government regulations that would put a price on carbon dioxide emissions, Shattuck said. Gas prices have fallen about 32% since the beginning of the year as a surge of new supply pressures the market.

"Those variables will factor in," he said. "They do have to improve from where they are today."

Nuclear power produces almost none of the greenhouse gases that are blamed for climate change.

Shattuck didn't provide a timeline for obtaining a conditional loan guarantee. The Department of Energy selected Constellation as a finalist for a loan guarantee last year. Under the loan-guarantee program, the government promises to assume a company's debt obligations if it defaults on debt incurred for the projects. The guarantee is particularly important for Constellation because the proposed third reactor is a "merchant" power project, which means the company can't recover costs by charging ratepayers at Constellation's regulated electric utility, Baltimore Gas & Electric.

Constellation also expects financial support for the reactor project from Coface, the French export credit agency. New nuclear reactors in the U.S. are likely to cost $7 billion to $10 billion, according to industry estimates.

-By Christine Buurma, Dow Jones Newswires; 212-416-2143; christine.buurma@dowjones.com

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