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The Baltimore Sun

Constellation Energy Group's nuclear development arm said yesterday that it might build its first new reactor in New York instead of Maryland if the state's political and regulatory climate proves too hostile.

The company declined to elaborate on its statement. But it marked the latest sign that Constellation is ratcheting up its criticism of efforts by Maryland regulators and lawmakers to revisit the state's deregulation laws.

Gov. Martin O'Malley and the state's top utility regulator said yesterday that they were committed to the nuclear project in Maryland and would work to make sure it gets a timely review.

Constellation took issue with a recent Public Service Commission report saying a 1999 deal to deregulate the industry was lopsided in favor of the company. The report said Constellation may have violated certain terms of the agreement - a claim the company denies. And the document suggested lawmakers may want to consider forcing Constellation to provide rebates to consumers.

The company also criticized an earlier commission report that argued in favor of some form of re-regulation to help lower utility rates. That could include having utilities enter into long-term contracts for their electricity supply - a measure Constellation and others say would disrupt competitive markets.

Industry analysts immediately took note of the PSC reports, raising questions about the regulatory environment in Maryland toward the company. That perception could play into investor concerns about financing an estimated $4 billion nuclear reactor at Calvert Cliffs in Lusby.

"All things being equal, the level of uncertainty has the potential to impact investors' appetite for any large capital investment, such as a nuclear plant," said Paul Patterson, an analyst with Glenrock Associates.

The issue could prove critical to the state, which faces a potential energy shortfall as early as 2011 unless new generation or transmission lines are built. Constellation must win approval from the PSC before adding a third reactor to its Maryland nuclear plant.

In a statement released yesterday, Michael J. Wallace, a Constellation executive vice president, said the company hopes to break ground at Calvert Cliffs as early as 2008, putting the new reactor on pace for completion by 2015.

"However, if we encounter delays in Maryland, we are prepared to proceed with the first EPR [nuclear reactor] at our Nine Mile Point nuclear plant location in New York," he said.

Steven B. Larsen, PSC chairman, said the commission doesn't want delays in the state regulatory process to delay the project.

"The commission is committed to conducting a thorough and expeditious review of the issues because we believe that a decision on this plant is important for the climate in the state of Maryland," he said.

A spokesman for Gov. Martin O'Malley said the state is focused on finding ways to increase generation in the state, including at Calvert Cliffs. A shortage of in-state power plants is partly responsible for the higher rates utility customers have paid since the transition to deregulation.

This isn't the first time the company has threatened to take its business across state lines. Constellation - then BGE -took steps to move its charter to neighboring Delaware after lawmakers delayed passage of a law allowing it to create a holding company in 1998. The company said it needed the new corporate structure to allow it to raise capital and compete in a deregulated energy market. The General Assembly approved it in 1999.

Constellation has emerged as a key industry player in the resurgence of nuclear power, pledging to become among the first to build a new plant in the U.S. in more than 30 years. Its business model calls for building a fleet of new nuclear reactors that would be standardized.

The company is marketing its idea to utilities and other buyers nationwide through its UniStar Nuclear Energy subsidiary. UniStar is a joint venture between Constellation and Paris-based EDF Group, the world's largest nuclear plant operator.

In addition to Constellation, UniStar has commitments from four other power companies interested in developing new reactors with the company.

But Constellation has long said it wanted the first UniStar project to be at Calvert Cliffs. The company said yesterday that the project reached a new milestone recently when the Nuclear Regulatory Commission docketed its partial application for a federal operating license.

The move means the NRC will begin a detailed review of the application - a process that could take until 2011 to complete.

The reactor would be capable of generating 1,600 megawatts of electricity - enough to power up to 1.6 million average homes. More nuclear energy also would fit with the state's goal of reducing carbon emissions, which contribute to global warming.

Wallace, who is also UniStar's chairman, said the company would make a final decision on whether to go ahead with the project in 12 to 18 months.

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