Offer on Calvert Cliffs, with a catch

By Steven Mufson
Washington Post Staff Writer
Saturday, October 16, 2010; A10

Constellation Energy offered Friday to sell its 51 percent interest in a nuclear power joint venture to its French partner, but it refused to set aside a hotly disputed option Constellation thinks entitles it to sell the French firm a dozen aging power plants.

Constellation said it would sell its half of the nuclear joint venture, called Unistar, for $1 so that its partner, Electricite de France, could move ahead with the proposed reactor at Calvert Cliffs.

The Baltimore-based company said that it would seek reimbursement for $117 million spent so far on developing the project and added that the sales price would include the land needed for the new reactor at the Calvert Cliffs site, which already has two units.

But Constellation rejected a demand that it drop an effort to force EDF to buy the dozen old fossil fuel plants for $2 billion.

An EDF spokeswoman said the company was reviewing Constellation's letter.

The move is the latest installment in the flap over efforts to build a third nuclear reactor at Constellation's Calvert Cliffs plant in Calvert County. The reactor was supposed to be the first of a fleet of similar reactors built by Unistar.

On Oct. 8, Constellation withdrew its application for a $7.5 billion federal loan guarantee just as it was being approved by the Obama administration. EDF said it didn't know that Constellation was dropping out and offered to buy out Constellation and proceed with the project.

There was a condition to EDF's offer, however. Constellation and EDF have been squabbling over a clause in a 2008 agreement that would enable Constellation to force EDF to pay $2 billion for some of Constellation's aging coal and natural gas plants. That deal was struck when Constellation was in desperate need of cash, and EDF came to Constellation's aid and prevented it from being taken over. At the same time, EDF became Constellation's largest shareholder; it currently holds an 8.4 percent stake.

EDF says that the clause was supposed to be invoked only if Constellation was still having financial troubles, which it isn't. Constellation says it expects EDF to live up to its obligations.

"One of the most complicated things humans do is build nuclear power plants, and you can't have a relationship like this," said a source familiar with the negotiations who spoke on condition of anonymity to protect his business relationships.

Constellation said Friday, "We believe that the separate matter of our contractual disagreement over the put option should be addressed separately." In a letter from Constellation Chief Operating Officer Michael J. Wallace to EDF Group Executive Vice President Thomas Piquemal, the company said, "That commercial dispute should not be used to hold the prospect of CC3 [Calvert Cliffs' third reactor] hostage."

Sources familiar with negotiations between EDF and Constellation say that EDF is prepared to litigate the issue. They say that EDF has correspondence from Constellation Chief Executive Mayo A. Shattuck clearly indicating the purpose of the clause. Moreover, they say, the value of the fossil fuel plants has declined in the past two years.

The addition of a third nuclear reactor at Calvert Cliffs has been an important issue for Maryland officials, who separately sent a letter Friday to Shattuck and Henri Proglio, chief executive of EDF, urging them to settle their differences.

"Late last week, the Obama Administration provided a clear and long-awaited indication that they were willing to issue a conditional federal loan guarantee covering 80 percent of the project costs," said the letter from House Majority Leader Steny H. Hoyer (D), Gov. Martin O'Malley (D), and the state's two senators, Barbara A. Mikulski (D) and Benjamin L. Cardin (D). "It is our understanding that the Administration remains committed to the project and to working on the loan guarantee."

The lawmakers noted that the project could create 4,000 jobs directly and others indirectly.

Despite the week of controversy, Constellation's stock closed Friday at $32.74 a share, up 1.8 percent over the past five days.

© 2010 The Washington Post Company