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Constellation walks away from Calvert Cliffs

Utility blames feds for “unworkable” terms on loan guarantee

walk awayConstellation Energy (NYSE:CEG) sent a letter Friday 10/8 to the Department of Energy (DOE) “that it cannot move forward” with a loan guarantee for the Calvert Cliffs III nuclear reactor project. The Washington Post reported that Constellation told DOE the terms for the loan were “unworkable” at a reported risk premium initially calculated to be 12% of the total loan or $880 million.

In a press release issued early Saturday Oct 9, long after markets had closed, Constellation minced no words in laying the blame for the failure of the loan guarantee process at the government’s doorstep.

“The cost of the loan guarantee that is calculated by the Office of Management and Budget (OMB) is unreasonably burdensome and would create unacceptable risks and costs for our company. There is a significant problem in the way OMB calculates the credit cost. After repeated unsuccessful attempts to resolve this issue with DOE and OMB, we no longer see a timely path to reaching a workable set of terms and conditions.”

OMB reportedly later offered Constellation a 5% risk premium with additional requirements that appear to undercut the reduction from 12% At $4,500/Kw, the 1,600 MW reactor would have an estimated cost of $7.2 billion. A 5% risk premium would cost $360 million. From the view of the utility, it might be cheaper to simply pay a higher interest rate to lenders than sink money into the loan guarantee program along with its regulatory burden.

The decision impacts Constellations partners on the project which includes Electricita de France (EDF), which owns a 49% stake in the utility, Areva, which had planned to supply the 1,600 MW reactor, and Bechtel, which had planned to build it.

EDF told the Washington Post “it is disappointed and shocked” that Constellation had “unilaterally decided” to withdraw from the project. The Baltimore Sun reported that EDF loudly protested Constellation’s move calling it premature.

“Constellation knows that we were at the finish line with the Department of Energy and were making significant progress. Constellation has withdrawn from CC3 in spite of our repeated efforts to substantially decrease their exposure and risk to the project.”

The two firms had been feuding for some time over a provision in EDF’s investment contract to buy coal-fired power plants from Constellation for $2 billion. Constellation wanted the cash and EDF was having second thoughts about this aspect of the deal.

Constellation’s Calvert Cliff’s project is a ‘merchant’ which means the utility can only recover costs of building the reactor once it enters revenue service. This “risk” lies at the heart of OMB’s calculations. An Obama administration spokesperson told the Washington Post OMB “had a duty to protect taxpayers’ money.”

Reuters reported the announcement by Constellation has a second act. According to the wire service, Constellation has not withdrawn its loan guarantee application. It still has to consult with its partners, which are EDF and Unistar.

Constellation’s stock has traded in a narrow range of $28-38/share over the past year closing Friday Oct 8 at $32.15.

Other factors may also have played into Constellation’s decision including record low prices for natural gas and depressed demand for electricity. The failure of Congress to put a price on carbon with climate change legislation guarantees that utilities are free to build more gas plants without fear of these costs.

The Obama administration, which has been overwhelmed with other issues, has allowed the future of the nuclear energy industry to slip below its radar screen. The White House de-facto ceded energy policy to bean counters and sent the wrong signal not only in this country, but also to the rest of the world.


Rod Adams has a report at Atomic Insights that on the same day Constellation gave up on negotiations with DOE, that agency awarded a $1.06 billion loan guarantee to a wind farm in Oregon with none of the draconian conditions it imposed on the nuclear reactor project in Maryland.

Prior coverage on this blog

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