EDF, Constellation in Talks to Save U.S. Nuclear Venture
Electricite de France SA, Europe’s biggest utility, and Constellation Energy Group Inc. are in talks to avoid the collapse of their U.S. nuclear venture, according to two people with knowledge of the discussions.
The companies are negotiating to resolve a dispute over an option Baltimore-based Constellation has to sell non-nuclear plants to EDF for as much as $2 billion, the people said, declining to be identified because the talks are private. The so-called put, due to expire in December, was agreed to in 2008 when Constellation sold half its nuclear business to EDF.
EDF, Constellation’s largest shareholder, would view the exercise of the put option as a hostile move likely to jeopardize their relationship and a venture to develop new nuclear projects, the people said. The talks started in the last two to three weeks and the companies aim to reach an agreement within the next month, one of the people said. EDF has told investors the sale would leave Constellation short of generation capacity and taxes would have to paid, one said.
Larry McDonnell, a Constellation spokesman, declined to comment on the put option with EDF, and referred to a July statement by Chief Executive Officer Mayo Shattuck. Carole Trivi, an EDF spokeswoman, also declined to comment.
Constellation is working “holistically” with EDF on nuclear projects and it’s “not constructive to introduce the put issue into the equation,” Shattuck said July 28.
“They have to decide in the next couple of months whether they are going forward with the nuclear program, for which they need EDF,” Dorothea Matthews, a New York-based analyst for CreditSights Inc., said in an interview. “If they’re not, it probably would be a good idea to dump those plants on EDF.”
EDF bought half of Constellation’s nuclear business for $4.5 billion in 2009 when the French utility was headed by Pierre Gadonneix. The deal helped EDF keep a foothold in the U.S. and thwarted a takeover of Constellation by Warren Buffett’s MidAmerican Energy Holdings Co. The put option was designed to give Constellation more liquidity if needed after credit markets collapsed.
EDF fell 0.1 percent to close at 31.69 euros in Paris. The shares are down 24 percent this year.
A delay by the Energy Department in Washington in awarding what’s likely to be the last federal loan guarantee for a new nuclear plant authorized by Congress is weighing on both Constellation and EDF.
A federal loan guarantee is a “necessary hurdle” for the partners’ first project, expansion of a Maryland nuclear plant, Shattuck has said.
Ebony Meeks a spokeswoman for the Energy Department in Washington, didn’t immediately return a phone call seeking the status of loan-guarantee applications.
“If they don’t get a loan guarantee or they decide not to go ahead with the nuclear program, maybe it’s more to the benefit of shareholders to exercise that put and get the cash,” Matthews at CreditSights said.
Early this year, Constellation was spending $1 million a day on design work for the proposed plant in Lusby, Maryland, adjacent to its Calvert Cliffs reactors. It cut spending and staff after the loan guarantee failed to materialize, costs rose, power demand fell, and the price of natural gas, a competing fuel for power generation, tumbled, Shattuck said.
EDF reported a 47 percent drop in first-half profit and took a provision of 1.1 billion euros ($1.47 billion) related to its holding in Constellation. Based in Paris, EDF owns 8.4 percent of Constellation shares and has a seat on the board.
As well as its half of Constellation’s existing nuclear business, EDF holds 50 percent of UniStar Nuclear Energy LLC. Unistar is seeking to develop the Calvert Cliffs reactor. EDF Chief Financial Officer Thomas Piquemal said in July the utility retains its “ambition” to pursue the Maryland reactor project.
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