UPDATE:Constellation Ready To Transfer Nuclear JV Stake To EDF
October 15 2010 - 3:05PM
Dow Jones News
Constellation Energy Group Inc. (CEG) is offering to immediately
transfer its half of a joint venture to develop nuclear power
plants to partner Electricite de France SA (EDF.FR) for what it
says is below market value, according to a letter sent to the
French state-owned utility Friday.
Problems with the five-year-old joint venture known as UniStar
emerged last week when Constellation dropped out of an application
for a federal loan guarantee for the partnership's first project,
citing high government financing costs. The withdrawal put in doubt
the development of a new reactor at the Calvert Cliffs nuclear
plant in Maryland, while prompting a surprised EDF to offer to buy
out Constellation's interest.
Constellation proposes a transfer "at well below the market
value in order to rapidly enable the [Maryland] project to move
forward," Michael Wallace, Constellation's chief operating officer,
wrote in the letter.
He proposed the transfer of Constellation's interest for $1 plus
$117 million in reimbursements. Constellation's exit would allow
EDF to move forward with building the Maryland reactor. The Calvert
Cliffs project is scheduled to be one of the nation's first new
reactors after a decades-long drought in nuclear-power
development.
The Baltimore power company stated in the letter that the
transfer of its UniStar stake isn't connected to a second dispute
between Constellation and EDF that's flared up in recent months.
EDF, however, has linked the two disputes in its buyout
proposal.
The second rift is over whether the French company is required
to buy 12 power plants--most of them coal-fired--from Constellation
for as much as $2 billion. The disputed requirement is part of a
larger deal brokered in 2008 in which Constellation sold nearly
half of its nuclear-power business to EDF as a way to avoid
bankruptcy. The so-called put option expires at the end of this
year, and EDF is threatening to sue if it is forced to make the
purchase of the plants.
An EDF spokeswoman said the company was reviewing
Constellation's letter.
In a letter to Constellation on Wednesday, EDF said its offer to
buy out Constellation from the UniStar venture is contingent upon
Constellation not exercising the put option, and the EDF
spokeswoman said Friday the company still stands by that
position.
Yet because Constellation has yet to exercise the put and
offered to sell the UniStar stake, there could be an opening to
possibly negotiate a settlement, although it's too early to say
whether that would be possible, people familiar with the matter
said.
Constellation in its letter wrote that the put dispute is a
separate issue and should be resolved separately. Constellation
hasn't yet made a decision whether to exercise that option, a
company spokesman said.
As for new nuclear development, EDF and Constellation have
invested $817 million in the Maryland project. Constellation said
it is backing out of the Maryland project because construction
costs are hard to justify given the sharp drop in power prices and
the lack of an energy policy that puts a price on carbon.
Constellation Energy shares were recently down 5 cents at
$32.75.
-By Naureen S. Malik, Dow Jones Newswires; 212-416-4210;
naureen.malik@dowjones.com
(Gina Chon of The Wall Street Journal and Geraldine Amiel of Dow
Jones Newswires contributed to this article.)
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