EDF makes move to keep Calvert Cliffs alive

Struggling to save plans for a third nuclear reactor at the Calvert Cliffs electricity plant, the French EDF Group offered Wednesday to buy out Constellation Energy's interest in their nuclear-development venture and seek a new U.S. partner for the Maryland project.

"We feel an obligation to explore every reasonable avenue to keep the prospects for this project alive," Thomas Piquemal, EDF's executive vice president for finance, wrote in a letter to Baltimore-based Constellation. "We are ready to commit further resources and efforts to pursue the development of [Calvert Cliffs 3], with a view to making the final investment decision if the right conditions come together."

EDF's response follows Constellation's decision to withdraw from negotiations with Obama administration officials over federal loan guarantees deemed crucial for the $9.6 billion project. The terms offered by Washington were too expensive for Constellation shareholders, the company said in a letter last week to the Department of Energy.

Now EDF, parent of the state-owned French electricity company, proposes to push on alone in a project originally praised for the thousands of construction jobs and carbon-free electricity it would produce. EDF offered Constellation two options, one of which is "immediately" buying out Constellation's half-interest in their UniStar nuclear-development company "at fair-market value." Later, EDF would seek another U.S. partner to replace Constellation, the company said.

Alternatively, EDF repeated what it said was an earlier offer to keep Constellation as a partner but to "derisk" the Baltimore company by taking over all development costs of the Calvert Cliffs project until construction begins.

In a statement issued Wednesday evening, Constellation, the parent of Baltimore Gas and Electric Co., said it "looks forward to discussing the details" of EDF's offers.

Those proposals, however, are contingent on resolving a dispute between the two companies. EDF is concerned that Constellation will exercise an option to sell several of its non-nuclear power plants to the French company for up to $2 billion — a price analysts say is up to $1 billion more than they're worth. That so-called put option, which expires Dec. 31, was part of EDF's deal that rescued Constellation from a financial crisis two years ago.

EDF's Piquemal issued a stern warning against Constellation's pulling the trigger on the option, saying that the resulting litigation would cause "serious and highly disruptive delay" for the proposed Calvert Cliffs plant.

"EDF simply cannot go the extra mile and pick up the burden on [Calvert Cliffs 3] without this being dealt with promptly," Piquemal said in the letter to Michael Wallace, chairman of Constellation's nuclear energy group.

On that matter, Constellation hinted that it was unwilling to give ground.

"With respect to the separate matter of the put option, we will hold EDF to its stated commitment to stand fully behind its contractual obligations," Constellation said.

The marriage of Constellation and EDF began with great promise.

The 2007 creation of UniStar to develop nuclear projects in North America, including the third phase of Calvert Cliffs, was promoted as an early step in a U.S. nuclear renaissance. EDF is now Constellation's largest shareholder.

Two years ago, EDF came to Constellation's rescue when it agreed to buy nearly half of the Baltimore company's interest in existing nuclear plants. Constellation had teetered on the edge of bankruptcy amid the financial sector meltdown in late 2008, and EDF bailed out the company by paying $4.5 billion for its share.

In recent weeks, Wall Street analysts have pressured Constellation to exercise the put option, arguing that that would create the most value for shareholders. One analyst, Paul Patterson of Glenrock Associates, suggested that EDF's latest offer does little to change that equation.

"I'm not clear that they are providing a compelling alternative to exercising the put," he said. "Those two offers are contingent on not exercising the put."

Piquemal said in the letter that the put option is not "exercisable under present circumstances and it was never intended to be so exercisable, as Constellation has itself stated in numerous regulatory filings."

"If Constellation were nonetheless so imprudent and destructive as to attempt to exercise the put, EDF would vigorously and confidently resist its enforcement," Piquemal said.

Constellation said Friday that the terms of a proposed federal loan guarantee were unreasonable and would add $880 million to the venture's cost, according to the letter sent to the U.S. Department of Energy.

Even with a loan guarantee in place, Constellation and 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. Constellation cited those factors, in addition to the $880 million it would have to pay to obtain the loan guarantee, in its decision to pull out of the federal loan process.

Gov. Martin O'Malley met Tuesday with EDF officials, including Piquemal, to find ways to revive the project. U.S. House of Representatives Majority Leader Steny H. Hoyer, whose district includes the Calvert Cliffs plant and who lobbied the Obama administration for the loan guarantee, said he too will look for ways to keep the project alive.

hanah.cho@baltsun.com

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