Constellation Energy Group Inc. (CEG) will capture the value of an option to sell power plants to partner Electricite de France S.A. without exercising it, company executives said Friday.

Earlier this week, the companies announced a $250 million stock and cash deal where Constellation will transfer its 50% stake in UniStar, a new nuclear development venture, to EDF and receive 3.5 million EDF shares.

Constellation sought to sell its Unistar stake after saying several weeks ago that the terms of the government loan guarantee to develop a Maryland reactor weren't workable. At the same time, EDF has been concerned that it will be forced to purchase non-nuclear power plants for up to $2 billion based on a put option under a 2008 agreement. Under this agreement, EDF had taken a stake in Constellation's existing nuclear plants.

This week's agreement resolves those issues between the partners.

"We did so in terms to provide future and current benefits that were roughly economically the same as under the put option," said Jack Thayer, the company's chief financial officer.

Although the company is exiting the new nuclear development joint venture, Thayer said that the company "will continue to be an advocate for new nuclear (projects)."

However, new nuclear development faces considerable challenges in the U.S. in the absence of a federal energy policy, low natural gas prices and a "flawed federal loan guarantee process that proved unworkable for Constellation," Thayer said during a conference call.

For EDF and the French government, nuclear development in the U.S. "represents both an international and industrial development," Thayer said.

Meanwhile, Constellation has been expanding by purchasing natural gas plants and is on track to spend $90 million on solar development based on an initiative announced early this year. The company has acquired 2,950 megawatts of gas-fired generation this year and that could rise to 4,000 megawatts by the end of the year. Earlier this month, Constellation was approved by a judge as a "stalking horse bidder" to acquire Boston generation that serves New England. This fleet will support the company's wholesale and retail customers.

The company expects to close the Boston acquisition this December.

Even as the company acquires new natural-gas fired plants, it continues to see significant challenges for the next several years because of low commodity prices.

The company took a $2.9 billion write down for Constellation Energy Nuclear Group, LLC (CENG), the joint venture to operate existing nuclear plants with EDF, because of low commodity prices. That is a $2.3 billion drop in fair value since the joint venture with EDF was closed a year earlier.

Constellation has been hedging to create stable cash flow. Its generation fleet is 91% hedged for 2011 and 50% for 2012.

-Naureen S. Malik, Dow Jones Newswires; 212-416-4210; naureen.malik@dowjones.com
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