EDF wants to revive loan guarantee process

EDF Group indicated Wednesday that the French energy company hopes to renew efforts to secure a federal loan guarantee to help finance the construction of a proposed third nuclear reactor at Calvert Cliffs in Southern Maryland.

This latest development comes after EDF and Baltimore's Constellation Energy Group agreed to a $250 million cash and stock settlement that gives EDF full ownership of their Unistar nuclear development company, which includes the Calvert Cliffs project.

The deal, reached late Tuesday, ends their joint venture and helps mend a relationship that had been strained since Constellation abandoned negotiations this month with Obama administration officials over the federal loan guarantee for the $9.6 billion project.

"The loan guarantee process is an essential step for anyone who wants to build new nuclear in the U.S. market," an EDF representative said. "Now that EDF is the sole owner of Unistar, EDF will be focused on next steps and will, of course, be talking with the [Department of Energy] about the process moving forward."

At the same time, EDF also would need to find a new U.S. partner so it can obtain a license to own and operate Calvert Cliffs 3 and other proposed new reactors around the country. Federal law prohibits full ownership or control of a U.S. nuclear plant by a foreign entity.

"As part of the process, EDF will need to consider what makes the most sense in terms of having a U.S. partner and what the timing of this looks like," the representative said.

EDF maintains that it's ready to commit more resources and efforts to pursue the next steps in developing Calvert Cliffs 3, "with a view to making a further investment decision if the right conditions come together."

"While we remain optimistic about the opportunities ahead, there are a number of different factors that need to align before a project of the scope of CC3 is brought to fruition," the EDF official said.

Even with a loan guarantee in place, EDF would face a challenging environment for building nuclear projects. Natural gas prices have plunged, boosting the attractiveness of gas-fired generators as an electricity source. The failure of climate change legislation that would have penalized carbon emissions is also a setback for carbon-free nuclear energy.

Under the agreement reached Tuesday, Constellation will sell its 50 percent stake in the Unistar nuclear development company to EDF for $140 million.

As part of the deal, EDF agreed to return 3.5 million Constellation shares, valued at about $110 million, while Constellation dropped plans to force EDF to buy several of its non-nuclear power plants it did not want for up to $2 billion.

That so-called put option was a source of a bitter dispute between the two companies, with EDF warning of litigation had Constellation pulled the trigger on the option — which was set to expire Dec. 31 and was part of EDF's deal to acquire nearly half of Constellation's nuclear power business two years ago amid a financial crisis.

Constellation avoided a costly court fight and eliminated risks associated with developing new nuclear plants in the U.S. by selling its Unistar stake to EDF, several analysts said Wednesday.

"We believe the settlement represents a 'mature compromise' and balances the near-term value and longer-term risks to both companies," Morgan Stanley analysts wrote Wednesday in a research note. "While some investors may have been hoping to realize more up-front value from the put, we don't think they were adequately accounting for the longer-term costs to the business associated with a bitter dispute over such a small piece of potential value."

In contrast, some analysts said Constellation did not get enough value from its deal with EDF. Citi analyst Brian Chin said the put option was expected to generate about $2 a share to $3 a share, but the deal "appears at first glance to be valued at closer" to $1 share.

"At first glance, we believe the resolution of the put option and Unistar [joint venture] appears light for Constellation," Chin wrote in his note.

Gov. Martin O'Malley, who along with other state officials vowed to revive the Calvert Cliffs project, which is expected to create thousands of jobs, said in a statement Wednesday that he was "pleased that Constellation Energy and EDF successfully resolved their differences and came to a resolution."

Constellation shares dropped 8 cents to close Wednesday at $31.13.



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