Constellation Energy, EDF Pact At Risk Over Plant-Sales Option
September 29 2010 - 5:19PM
Dow Jones News
A fight over the ownership of a several coal-fired power plants
appears to be souring a U.S. nuclear-power partnership between
Constellation Energy Group Inc. (CEG) and Electricite de France SA
(EDF.FR).
Constellation Energy agreed in late 2008 to sell nearly half of
its nuclear-power business to EDF after the financial crisis nearly
drove the Baltimore power company into bankruptcy. As part of the
deal, Constellation negotiated a put option that allows it to sell
12 power plants--most of them coal-fired--to EDF for a total of up
to $2 billion to ensure ample liquidity.
Nearly two years later, Constellation and EDF are clashing over
that option, which expires at the end of the year. Constellation
has said it hopes to reach an agreement over the sale of the plants
to EDF. But a person familiar with the French company's thinking
said EDF considers the option valueless, since Constellation now
has ample liquidity.
EDF is prepared to take Constellation to court to block the sale
of the plants, the person said. The Paris-based company also is
ready to sell its stake in Constellation's nuclear generation
business and exit an existing partnership to build new nuclear
plants, instead finding other U.S. companies with which to work,
the person said.
Constellation Chief Financial Officer Jonathan Thayer, speaking
at a Bank of America Merrill Lynch conference Wednesday, said
"rational" parties should be able to reach an agreement whereby
Constellation garners the value of the sales option while EDF
avoids absorbing the "value destruction" all at once. He added that
Constellation is mindful of its ongoing nuclear partnership with
EDF, though shareholders expect the company to capture the value of
the sales option.
"It's our hope there is a resolution with EDF," Thayer said.
"But to the extent we don't get that rational outcome, our default
position is quite strong."
Thayer said the sale of the plants could result in a $400
million gain for Constellation and a loss of $1 billion for EDF.
The U.S. government would receive $600 million in taxes from the
deal.
Constellation and EDF have been planning to build a new reactor
at Calvert Cliffs Nuclear Power Plant in Maryland. It's one of the
leading U.S. nuclear projects, yet Constellation has said it will
likely shelve the planned reactor by the end of the year if it
isn't able to secure a government loan guarantee for the
multibillion-dollar project.
A spokesman for Constellation declined to comment beyond
Thayer's remarks Wednesday, and a spokeswoman for EDF also declined
to comment.
In an interview earlier this month, EDF's Chief Financial
Officer Thomas Piquemal cautioned that "Constellation must weigh
between a potential immediate profit and the value of its
partnership with EDF."
-By Mark Peters, Dow Jones Newswires; 212-416-2457;
mark.peters@dowjones.com
(Geraldine Amiel in Paris contributed to this report.)
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