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EDF Profit Drops 47% on Charge on U.S. Nuclear Costs

Electricite de France SA, Europe’s biggest power generator, reported a 47 percent drop in first-half profit on a charge linked to the development of a nuclear reactor in the U.S. and the outlook for low power prices there.

The utility took a provision of 1.1 billion euros (1.44 billion euros) related to its holding in Constellation Energy Group Inc. due to the “less favorable” outlook for power prices for existing power generators and a planned new nuclear reactor at Calvert Cliffs, the Paris-based company said in an e-mailed statement. EDF said building its Flamanville EPR model in France would cost more and is two years behind schedule.

“The U.S. provision is bad news,” Per Lekander, analyst at UBS in Paris, said by e-mailed. Results were also hurt by “poor availability” of nuclear reactors in France and the U.K., he noted.

EDF has expanded in Europe, China and the U.S., driving up debt, as it braces for a state-led overhaul of the French power market and struggles to raise nuclear output at home. The utility, which is selling its U.K. grid to cut borrowings, is planning to develop EPR reactors in Italy, the U.K. and U.S. even as costs and delays mount for its project in Normandy.

A group led by Li Ka-shing’s Cheung Kong Infrastructure Holdings Ltd. offered 5.8 billion pounds ($9.1 billion) for EDF’s U.K. power networks, the Hong Kong billionaire’s biggest acquisition, Cheung Kong said today.

Calvert Cliffs

EDF retains its “ambition” to pursue development of the Calvert Cliffs reactor in Maryland, Chief Financial Officer Thomas Piquemal said today at a meeting with analysts. He said getting loan guarantees is the “determining” factor.

The provision “covers the risks of impairment of the assets of CENG, the investment in Unistar and certain future costs and risks associated” with the Calvert Cliffs project, the EDF statement said, referring to U.S. operations related to Constellation and development of the reactor through Unistar.

The value and allocation of the provision will be finalized later this year, it said.

“The risk is high,” Piquemal said. “There is a high probability we will have to depreciate maybe Constellation assets and maybe Unistar assets and risks, future costs of future development.”

EDF reported net income of 1.7 billion euros in the first half compared with 3.1 billion euros the previous year. That missed the 2.52 billion euro median estimate of nine analysts surveyed by Bloomberg. Earnings before interest, tax, depreciation and amortization rose 4 percent to 10.4 billion euros, EDF said. The estimate was for 10 billion euros.

Earnings Growth

The company reiterated a forecast for growth in earnings before interest, tax, depreciation and amortization of 3 percent to 5 percent, a net debt-to-Ebitda ratio of 2.5 to 3 and a stable dividend.

The French company raised to about 5 billion euros the estimated cost of building its 59th domestic reactor and first EPR in Flamanville, Normandy from 4 billion euros. Executives blamed the higher costs and delays on the fact that the model is a “first-of-its-kind” and said lessons were being applied to the EPR site at Taishan in China.

EDF completed last year its $4.5 billion purchase of a stake in Constellation’s five existing reactors. Constellation agreed in 2008 to sell an interest in the atomic plants to EDF as it sought to avoid bankrupcy and after canceling a sale of the whole company to Warren Buffett’s MidAmerican Energy Holdings Co.

Unistar Holding

The French company owns 50 percent of UniStar Nuclear Energy LLC, with Constellation owning the rest. Unistar is seeking to build four EPRs. Piquemal said today it is only pursuing the Calvert Cliffs reactor at the moment. EDF has spent $6.5 billion on the Constellation and Unistar venture since 2007, Piquemal said.

“Prices of electricity are low and this is threatening profitability,” he told reporters. “There is no concensus on long-term prices.”

Chief Executive Officer Henri Proglio has pledged to raise French nuclear output in 2010 to boost profitability and reach a target of making 85 percent of the country’s reactors available for electricity production within five years. Storms and strikes pushed atomic output to its lowest level in a decade last year.

Strikes at EDF’s reactors in France in the second quarter of last year led to delays in refueling and maintenance, forcing the utility to buy power on the spot market and operate more expensive coal-and gas-fueled plants. The effects of the strikes are still being felt on its reactor maintenance schedule.

Nuclear Availibility

EDF will raise output at French reactors this year compared to 2009, Proglio said today. It reported nuclear availability at 77.6 percent during the first half, higher than the 74.2 percent in the preceding six month period.

EDF ran its reactors at an availability rate of 78 percent in 2009, compared with 79.2 percent in 2008 and 80.2 percent in 2007. The rate is a measure of how much power the utility can produce relatively cheaply from nuclear stations, compared with other plants or spot-market prices.

Technical problems with steam generators, stators and transformers which have plagued French reactors, will be fixed in the coming years as parts are replaced, the utility has said.

The French Senate is considering a law that would force EDF to sell as much as a quarter of its nuclear output to rivals such as GDF Suez SA. Debate on the legislation has focused on the price EDF will charge for the power on the wholesale market and whether the rate will cover production costs.

Extension of the Tartam power-rate system in France for industrial customers until the end of the year will cost EDF another 265 million euros, the utility said in the statement.

The law would do away with the so-called Tartam system of rates, although it is unclear when it will take effect.

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