Will EDF's new boss kill the Constellation deal?
Electricite de France, the state-owned French power company that has proposed to buy half of Constellation Energy Group's nuclear power business and build a new reactor at Calvert Cliffs, has a new boss. A week ago the government canned Chief Executive Pierre Gadonneix and replaced him with Henri Proglio, an EDF board member who is also the CEO of Veolia, a water and waste-disposal company.
EDF's deal with Constellation is the subject of contentious and seemingly never-ending hearings before the Maryland Public Service Commission, now on their second extension. EDF and Constellation (parent of BGE) had hoped to sew the deal up by now. They've said that building the new Calvert Cliffs unit (and thereby providing Maryland with badly needed, carbon-free electricity) depends on the PSC approving the EDF investment.
The change at the top at EDF has prompted speculation that the new leadership and French government might get impatient with Maryland and pull the plug on the Constellation investment. EDF is heavily indebted and took out something like an adjustable mortgage, which means that its interest payments are about to soar and that it has to sell old operations or cancel new investments to pay down debt. Says this week's Economist magazine :
The firm plans disposals, and could also back away from the deal with Constellation, because the state of Maryland is holding up the process in any case, says Mr. [John] Honore [utilities analyst with Societe Generale]. That would save more than 3.5 billion [pounds sterling].
I have predicted that the EDF/Constellation deal will fail. But I don't think EDF will be the one to walk away.
It'll be Constellation, out of pique over the PSC process and Gov. Martin O'Malley's complaints about Constellation boss Mayo Shattuck's pay -- and out of a desire to hang on to more of its nuclear business. Constellation's nuclear assets will be very valuable in coming years -- especially if Washington passes some sort of carbon tax.
EDF would probably rather sell some of its non-nuclear business in the U.K. than pull out of the Constellation deal. EDF owns what's basically the BGE of London, a company that delivers electricity to homes, factories and offices. That's likely to go on the block. The French government clearly wants EDF to become an even bigger global power in nuclear energy, and getting into the U.S. power market with Constellation is a key part of that ambition. "We want to show the world the competence of France’s nuclear” industry, French Finance Minister Christine Lagarde told LCI Television (France's CNN) last week.
Comments
Jay,
I agree with you that EDF will not be the one to walk away from the deal: there is too much at stake for AREVA, the French nuclear Vendor. The French government cannot afford to kill this company on an EDF failed deal.
Posted by: C | October 5, 2009 7:48 AM
If it works, here's the link to the Economist story:
www.economist.com/businessfinance/displaystory.cfm?story_id=14561033#
Posted by: Aaron | October 5, 2009 12:41 PM
As much as I have a great deal of respect for Mr. Hancock and “Aaron,” of The Dagger’s point of view… although I agree that EDF is not in a position to walk away – neither is Constellation. My read is that both Constellation and EDF will walk away from Maryland. Both entities are working with a large carrying charge burden and cannot afford any more delays – or a failed project and both companies are said to have a profound interest in building a nuclear plant in the US. Meanwhile, whether or not the plant is built in MD, which I keenly doubt will happen; MD, which has a horrid reputation for being vehemently anti-business nationally, will now have ventured firmly on the road of telling the world that MD is not the place to do business or create jobs… Gee, please may I be wrong on all of the above…
Posted by: Kevin Dayhoff | October 8, 2009 4:16 AM