2nd UPDATE: Constellation Ready To Transfer New Nuclear JV Stake To EDF
October 15 2010 - 4:55PM
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 has flared up in recent months.
EDF, however, has linked the two disputes in its buyout proposal
and a spokeswoman said Friday that the company's position hasn't
changed.
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.
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 is too early to say
whether that would be possible, people familiar with the matter
said.
"It sounds like a stalemate," said Phil Adams, senior bond
analyst at GimmeCredit LLC, an independent credit research firm,
pointing to how the companies are making their correspondence
public at this stage.
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. It is unclear how
much Constellation contributed to new nuclear development this
year, but through 2009 the company transferred $142 million in
assets to the UniStar venture, Adams said.
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.
Federal law prevents a foreign operator from owning 100% of a
nuclear plant. Adams said if EDF exits the partnership with
Constellation it may look for another partner in the U.S.
Constellation Energy closed down 6 cents, or 0.2%, at
$32.74.
-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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