Constellation Energy, EDF Pact At Risk Over Plant-Sales Option

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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