Constellation pulls out of new Calvert Cliffs nuclear power venture

Decision draws swift rebuke from French partner, widening rift

October 10, 2010|By Gus G. Sentementes, The Baltimore Sun

Constellation Energy Group walked away this weekend from federal financing negotiations for a proposed third nuclear reactor at Calvert Cliffs in a move that casts the project into doubt and threatens to erase thousands of jobs to build and operate the plant, as well as cut off a crucial supply of power expected to lower prices.

Known as Calvert Cliffs 3, the new nuclear plant was expected to generate 1,600 megawatts of carbon-free energy, which would help alleviate an expected electricity shortfall in Central Maryland that could start as early as next year. The project has been a joint venture between Baltimore-based Constellation and France's EDF Group, though the relationship between the two companies has been strained in recent months.

The new Calvert Cliffs plant has been estimated to cost up to $9.6 billion. Constellation and its partner, EDF Group, had already spent more than $600 million on the project. In a letter to the U.S. Department of Energy on Friday, and made public shortly after midnight Saturday, Constellation said it was worried the terms of a proposed federal loan guarantee would add another $880 million to the venture's cost.

The Paris-based EDF Group, the world's largest owner of nuclear energy plants, has been pushing to revive nuclear energy plant construction in the United States along with others.

The Calvert Cliffs project would have marked EDF Group's continued expansion into the United States' nuclear energy market, two years after the company came to the rescue of a then-financially troubled Constellation.

In an e-mail to Constellation employees on Saturday, CEO Mayo A. Shattuck III said the loan guarantee was "unreasonably burdensome and would create unacceptable risks and costs for our company."

But in a news statement Saturday, EDF sharply criticized the Baltimore energy company for "unilaterally" withdrawing from the multibillion-dollar project.

"It's really unclear at this point how the project could move forward, given Constellation's surprising decision," said Kelly Sullivan, a spokeswoman for EDF Group.

Constellation and EDF had sought a loan guarantee from the federal government, which, through the Energy Act of 2005, tried to make it easier for companies to access credit to finance nuclear power plant construction. But Constellation and EDF would have had to pay for the federal backing, at a cost that Constellation thought was too high.

In pulling out of the federal loan process, Constellation cited the loan's high cost, as well as other factors, such as cheaper natural gas prices and the lack of climate-change legislation that would make nuclear power more financially viable for energy companies. Some analysts had questioned the timing of the project.

"The real culprit has nothing to do with Constellation, EDF or the federal government," said Paul B. Fremont, an energy analyst with Jefferies and Co. in New York. "It has to do with gas prices being clearly lower today than when they made the decision to go ahead with the project. … There's not a single new power plant that's moving forward in the current low price environment, and that includes other forms of generation."

Travis Miller, an analyst with Morningstar, released a report Thursday commenting on the Calvert Cliffs venture, saying that "new merchant nuclear is not economic at current gas and power prices."

Politicians and leaders from both companies had been promoting the project as one that was good for the Maryland economy. Constellation and EDF had been in talks for months with the federal government over terms and conditions for a loan guarantee.

"After months of effort strongly engaging on the project's behalf, I am disappointed, but will continue working to see if additional resources can be brought to bear in the days ahead to resume the loan guarantee process," said Rep. Steny H. Hoyer, House majority leader, whose district includes the Calvert Cliffs plant.

Gov. Martin O'Malley, who supported the Calvert Cliffs project, said through a spokesman that he was surprised and disappointed by the news.

"All parties were pretty confident that we were close to the finish line, so it was surprising to see Constellation pull the plug," said spokesman Shaun Adamec. "The governor personally lobbied the White House, and had a conversation with the president regarding these loan guarantees. It's a setback."

In a statement, O'Malley's re-election opponent, former Republican Gov. Robert L. Ehrlich Jr., blamed O'Malley for the project stalling.

"Governor O'Malley had an obligation to broker an agreement between these parties in order to make this economic development project a reality. He failed," according to Ehrlich. The two candidates have sparred over increases in power prices during the past several years, which were part of the state's energy market deregulation.

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