Prospects dim for both nuclear energy and Constellation

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When Constellation Energy Group and EDF Group teamed up three years ago, the economy was riding high, and so were they.

Rising energy prices and a growing economy prompted them to propose the once unthinkable: developing, building and operating the first new U.S. nuclear energy plant in three decades.

EDF, owned by the French government and operator of one of the largest fleets of nuclear plants in the world, would gain prestige and profit by bringing its expertise to America through the companies' UniStar joint venture. Constellation, the owner of Baltimore Gas and Electric Co., would add to its credentials as a diversified energy company.

The country would get new supplies of low-carbon electricity. Maryland would get jobs and an expanded tax base, thanks to UniStar's decision to build its first reactor next to an existing Constellation plant at Calvert Cliffs.

The French, Constellation executive Michael J. Wallace said at the time, "are sending a signal to the market that they are serious about us and also sending a signal that they are in this for the long haul."

The French may still be in it for the long haul, although that looks dubious. Constellation, it turned out, was the one without stamina.

A miserable economy, falling electricity prices and a federal welfare package for Calvert Cliffs that was merely munificent instead of extravagant appear to have made Constellation and CEO Mayo Shattuck call it quits. On Friday, Constellation, responding to a suggestion from the French, offered to sell EDF not just its interest in the third Calvert Cliffs reactor but its entire UniStar stake "at well below market value."

The move would take Constellation out of the nuclear development business, although the company would still own a large stake in the existing Calvert Cliffs plant and reactors in other parts of the country.

So the American nuclear renaissance is looking more and more doubtful. Even the new reactor proposed for Calvert Cliffs, promoted as a vehicle that would create thousands of construction jobs and hundreds of permanent jobs, is a very long shot.

Late last week the French said they were considering Constellation's offer to let them take over UniStar and the Calvert Cliffs enterprise. Even if they accept it, there is still the matter of the Calvert Cliffs federal loan guarantees. Constellation balked at an $880 million fee UniStar would have had to put up to get the government backing. That's not peanuts for EDF, either, despite its bigger balance sheet.

EDF would probably have to find a new American partner to satisfy U.S. laws on foreign ownership of nuclear facilities. And it faces the same economic negatives that turned off Constellation.

In an interview last month, EDF's chairman and CEO, Henri Proglio, spoke of the "long-term vision that we have to keep in mind for nuclear," brushing aside concerns about low energy prices.

But the tapping of vast new sources of natural gas in the eastern United States, credited with lowering electricity prices, isn't a short-term phenomenon. (Natural gas fuels many power plants.) By some estimates, there is a 100-year supply that could let gas-fueled generators undercut the prices of nuclear plants.

Nor does it look like there will be an American carbon tax anytime soon to discourage emissions that promote global warming. A high carbon tax could have made low-carbon nuclear energy quite profitable by penalizing its competitors.

Proglio himself, who took over EDF a year ago as the company's ties with Constellation were being strengthened, was reported at the time to be unhappy with the relationship. It's worth wondering whether EDF's loyalty to UniStar and Maryland is being pushed by French President Nicolas Sarkozy in pursuit of French gloire rather than profits.

The future of Baltimore-based Constellation is also uncertain.

Two of Shattuck's strategic-growth initiatives are dead. The idea of mimicking a Wall Street bank and earning money by trading energy contracts crashed during the 2008 financial crisis. With too much borrowed money and short-term credit evaporating, Constellation had to be rescued by Warren Buffett — and pay him $1 billion for his trouble.

Now Constellation is abandoning nuclear development, and Shattuck has been getting hammered for the newest failure. Constellation shareholders have put hundreds of millions of dollars into a Calvert Cliffs project that, for them at least, will probably come to nothing.

CNBC's Jim Cramer put Shattuck on his "Wall of Shame" and called Constellation's exit from the Calvert Cliffs project "a Three Mile Island-sized corporate disaster."

"This stock should not be owned until CEO Mayo Shattuck resigns," Cramer told viewers Thursday.

Good advice. Coming two years after Shattuck almost landed the company in bankruptcy proceedings during the financial meltdown, however, it's a little tardy.

jay.hancock@baltsun.com
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