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November 2, 2009

After months of doubt, EDF, Constellation OK deal

After months of uncertainty and contention over the French EDF Group's plan to invest $4.5 billion in half of Constellation Energy's nuclear power business, the companies announced this morning that they would go through with the deal.

Constellation CEO Mayo Shattuck said last week that they could complete it within a couple weeks. The conditions set by the Maryland Public Service Commission for the transaction include a required credit of about $100 for every residential customer in Baltimore Gas & Electric's service area.

"We have consulted with our Board and received its approval," Constellation said in a prepared statement this morning. "We are now moving to close the transaction as quickly as possible so that we can begin to deliver the many benefits of this investment to all stakeholders across the state."

In its statement, EDF said: "Through its investment in Constellation Energy’s nuclear business, EDF has chosen Maryland to be at the center of its growth efforts in the United States. EDF is eager to be a strong corporate citizen in Maryland, and looks forward to moving its U.S. headquarters to the State."

The decisions come after months of uncertainty and weeks of contentious hearings before the Maryland Public Service Commission, which asserted authority after EDF and Constellation agreed to the deal late last year. Gov. Martin O'Malley had sought several conditions from Constellation before he would agree to countenance the transaction, including protections for Constellation subsidiary BGE, rate rebates for BGE customers and compensation reductions for Shattuck.

In approving the deal with conditions on Friday, the PSC agreed with O'Malley's desired protections for BGE and required a $100-per-household rebate for BGE customers -- about half of what O'Malley had suggested. But it said it has no jurisdiction over Shattuck's pay.

Late last week reports surfaced in the French press suggesting that EDF's incoming CEO, Henri Proglio, was unenthusiastic about the Constellation deal and was looking for a way out. However, Proglio doesn't take over until later this month. EDF's existing boss, Pierre Gadonneix, badly wanted the transaction to close so that the huge French utility could use the United States to demonstrate its nuclear expertise.

In deciding that the transaction can go forward, both companies agreed to the conditions that the PSC imposed.

EDF will own 49 percent of Constellation's nuclear business, and they will operate it together. The PSC decision was the last regulatory hurdle that the partnership needed, U.S. federal authorities having already given it their blessing. The deal's completion and the injection of the French cash strengthens Constellation's financial position after it was badly damaged by the 2008 financial meltdown and came close to seeking bankruptcy protection.

It also sets the stage for the construction of a third nuclear reactor at Calvert Cliffs, which both companies have pledged to pursue. The project would be one of the biggest construction projects ever in Maryland and bring new supplies of electricity to a state that hasn't seen significant generation capacity built in more than a decade. But first the companies need to secure financing for the reactor. And even if construction goes smoothly it would take years to complete.

EDF's and Constellation's statements are below:

Constellation:

"We are pleased that the Maryland Public Service Commission concluded the Constellation Energy-EDF nuclear joint venture is in the public interest and represents an important element in Maryland's energy future. Constellation Energy appreciates the PSC's professional approach to the process and commitment to bringing this review to conclusion in a timely manner.

"We have consulted with our Board and received its approval. We are now moving to close the transaction as quickly as possible so that we can begin to deliver the many benefits of this investment to all stakeholders across the state."

EDF:

EDF welcomes the decision of the Board of Directors of its American partner Constellation Energy to approve moving forward based on the conditions set forth in the order issued by the Maryland Public Service Commission with respect to the creation of a nuclear joint venture between EDF and Constellation Energy. The Maryland PSC has attached conditions designed to preserve the independence and financial strength of Constellation Energy’s regulated subsidiary.

Approval from the Maryland PSC completes the regulatory review process, and the companies now have received all necessary approvals at the federal and state levels to proceed with the transaction. EDF and Constellation Energy will complete the transaction without modification to the previously agreed terms of the transaction. EDF will commence the process to enable the close of the transaction, for which it has already received the authorization of its own Board of Directors. The consummation of the transaction is the result of a partnership between EDF and Constellation Energy that began over two years ago.

Through its investment in Constellation Energy’s nuclear business, EDF has chosen Maryland to be at the center of its growth efforts in the United States. EDF is eager to be a strong corporate citizen in Maryland, and looks forward to moving its U.S. headquarters to the State.

Pierre Gadonneix, Chairman and CEO of EDF said: “EDF, the world's largest operator of nuclear generation, is eager to enhance its presence in the United States, the largest market in the world. EDF looks forward to operating and developing nuclear power plants in the U.S., where the group is already active in the development of renewable energy (enXco, a subsidiary of EDF Energies Nouvelles), trading (EDF Trading North America), and the nuclear renaissance (via Unistar Nuclear Energy)”.

Posted by Jay Hancock at 8:42 AM | | Comments (22)
Categories: BGE/electricity
        

Comments

What happened to O'Malley and the Democrats in the General Assembly stopping this deal like they did when Ehrlich was in office? What happened to rate relief?
More broken promises.

BGE will cost O'Malley the elction, just as it did for Erhlich. All we get is $100? (yeah i know we had a rebate previously)Does this compensate for the 90% increase we saw over the past 2 -years? I hope the new governor will show more compassion toward the citizens of this fine State and City.

I wonder why O'Malley thinks 100 dollars is enough for the rebate? All the price increases that BGE has put on their customers...100 dollars is NOTHING. I HOPE he is not re-elected (HORRIBLE GOVERNOR)

in this post 911 era, and struggling economy it is counter productive to sell off any of our energy resoursces to foreign countries.Especially nuclear power plants.I can tell you from personel experience the security at these places is questionable, and we don't know who Constellation is bringing.Not to mention the whole debate about the general safety of nuclear power plants Can you say Chernobly?I was living in Northeast Philadelphia when the "incident" at Three Mile Island nuclear power plant occurred and I believe a few years are sliced off my life expentancy because of that little mishap.While they gave some closer residents preventative treatment for radiation the rest of us nearby residents weren't told anything,I believe,to quell panick even though they should have evacuted the surrounding areas further.I probably glo in the dark some nights.Radiation clouds travel and there are coming to a neighborhood near you!This is bad news for our security,safety,and future electric bill.

Why do so many people think they should get handouts? You are being sold a commodity that has a cost. $100 is all we get? I was only going to accept the bribe if it was more.... People need to understand how the entire system works and focus on the real issues, not just how much money one can milk from it.

Andrew: O'Malley promised something he couldn't legally deliver on - his mistake. He also blasted BGE for the "70%" rate increase, showing his ignorance of the entire process and electric utility delivery and pricing model. The big ticket item on our rates is the commodity charge from the suppliers in our region. CEG is one of our regional suppliers, but isn't the only one. Did we go after the suppliers as a group to lower this charge? This isn't legally possible. What about competitive suppliers? There are 32 registered competitive suppliers out there and ten of which are actively seeking new customers. Left without a leg to stand on, O'Malley set out on his fool's errand and wasted the tax payer's money all along the way.

BGE delivers your electricity and delivers your bill. Discounts on the distribution charge would be a percentage of an already very small number. O'Malley did give us an increase in our bills with the emPower Maryland campaign though. Thanks for that.

V Putin - The best thing for Maryland is the chance to affect the economic scales of supply and demand with more local generation capacity. Where is the $100 for each of the 1.1 million customers going to come from? We need our companies to be healthy to have good bond ratings to stay away from junk bond status, bankruptcy, etc. Don't lose sight of what happened in 2008.

Looking at electricity rates across the Atlantic coast and how BGE standard offer compares, we really need to stop complaining since it really isn't that bad in comparison and start using less electricity to lower our bills. Sign on with a competitive supplier and get even lower rates! In the long run, additional capacity will help the local customers. Deregulation will only "work" when we have a buyer's market here.

Those of you upset at the rate increases and your rebates should be more angry at previous administrations (going back to the 1990's) when the industry was first de-regulated. Your bill today probably would not be much different from what it already is, but that is just the going rate for electricity, PEPCO users pay more than BGE does for their power, but their rates were allowed to increase every year as the cost of energy went up. The people here had it good for a long time, Now it smells like everyone wants something for nothing.

-a fairly new BGE customer who notes the electricity is cheaper there than in Virginia-

So the Democratic party's mouthpieces are trolling the boards here to attempt to spin things their way now? Sad...

CharlesVillage, thanks for verifying that O'Malley lied during the campaign and continues to lie.

The biggest mistake the state of Maryland ever made was to deregulate the industry. That is what has caused our bills to skyrocket over the last few years. The problem is that you are never, ever going to get the General Assembly to agree to re-regulate the industry. Which means that companies such as BG&E and Constellation Energy are going to continue to charge you whatever they want. This rebate is a one time thing that isn't going to help anyone and it is still going to cause your energy bills to increase.

I'm glad OMalley didn't get everything he was asking for, but its sad that he still got some of his demands. I don't know why MD citizens feel they are owed even $100 from BGE, they had to increase their rates by 90% because the deregulation of the 1990's forced a rate freeze. Had the rates been allowed to increase naturally, we would have reached the current rate we are at over the course of 10-15 years, rather than a one-time shock. If you don't like your rates, switch suppliers. There are plenty to choose from. Seeing how BGE and Constellation were nearly bankrupt last year, its hard to argue that the rate increase was merely to line their pockets.

Brandon, I agree with the first part, but not your last point. BGE didn't nearly go bankrupt, Constellation did, and Constellation didn't almost go bankrupt because they weren't charging enough for energy, they almost went bankrupt because they were operating an incredibly risky investment/trading operation which lost tons of money and had little to do with their core business model. They screwed themselves over on that one... it had nothing to do with our electricity bills, small or large.

You're right Andrew, O'Malley continues to lie just like he did on his bar application about getting a DUI. I wonder if he'll ever be disbarred for that one.

EDITOR'S NOTE: According to news reports before the 2006 election, O'Malley was charged with DUI when he was 24 but found not guilty -- JH

I don't think some of the people in Maryland realize what the rest of the country is paying for electricity. It is a fact that Pepco customers have higher rates than BGE customers, but why is it that we don't hear O'Maley asking Pepco for rebates? Probably because Pepco is based in DC and Maryland has no control over them. O'Maley is just looking to get his name out there to try and look like a champion of the people, but in reality he is making this state look like a bad place to have a business headquartered in.

Benjie is also correct in his statement that BGE rates were held at a level substantially lower than the market rate for power for years because Maryland made BGE lock in rates. Over those years BGE customers had rates that never changed even though the actual price for the power plants fuel was going up. Instead of seeing smaller percentage increases there was a huge jump in prices as suppliers were allowed to charge distributors what they should. Those of you who are complaining about the rates should do your homework before you yell and scream about how much you pay.

Reed, the Sun never pushed him to release his application bc they knew he lied on it. He still hasn't released it. What a terrible example for our children.

Kathrine - Do you realize that you are advocating setting artificially low prices for something that is fueled primarily by commodities in a limited and steadily decreasing supply? Setting that in motion is a sure fire way to accelerate the process of drying up the fuel supply and is a very short sighted, narrow minded view. Before we attempt the green power challenge to that argument, look at our country's generation profile. "What might be" doesn't count.

That said, the way in which deregulation was rolled out was less than perfect in hind-sight. There should have been more of a phase-in time period and prior to that heavy incentives to increase our supply to make it more of a buyer's market.

O'Malley is all talk. He lied and said he would help the middle class. All he's done is tax us even more. Higher BGE rates, higher taxes, higher unemployment....
I hope people say enough of O'Malley's lies

You can rail against O’Malley and his failure on energy all you want.  But coming to a TV near you soon is an ad like this:  

“announcer: Bob Ehrlich and his PSC stood by and said there was nothing they could do as BGE rate payers were walloped with a 72 pct rate increase. 

Martin O’Malley promised if elected that he would take on the utility companies and the greedy corporations that run them, and work hard to reduce rates.  And that’s what he’s done.  Since O’Malley took office, ratepayers have received the benefits of a $2 billion settlement with Constellation Energy, that included a rate rebate of $189.  That settlement also forced the company, and not you, to pay the billion dollar costs of eliminating old nuke units when they must be dismantled.  And last year, O’Malley demanded, and the PSC ordered, that BGE must be better-protected from Constellation and CEO Mayo Shattuck’s practice of using your bill payments for the risky speculative trading practices that almost bankrupt the company.  Not only that, O’Malley also won a concession from Constellation to put another $100 in your pocket as a  rebate. 

Unlike bob Ehrlich, you know whose side Martin O’Malley is on.

For anyone interested - Here are the US Government's data from the Energy Information Administration on average residential rates by state in July 2009 for some NE/Mid-Atlantic States (Cents/kilowatt-hour). These might be helpful for interpreting some of the comments above.
Connecticut 20.24, New York 19.74, New Jersey 17.83, Massachusetts 16.63, New Hampshire 16.41, Maryland 15.95, Maine 15.19, Vermont 15.05, Rhode Island 14.55,
Delaware 14.49, District of Columbia 14.25, Pennsylvania 12.46, Virginia 11.11.

Thanks DG. That EIA stuff is helpful.

DG's source is the following:

http://www.eia.doe.gov/cneaf/electricity/epm/table5_6_a.html

DG has listed the state and cost per KWh in descending order, appropriately (?) leaving out states like Hawaii that have circumstances quite different than Maryland. However, examination of the complete table shows that 7 states have a higher residential price than Maryland, and 42 have a lower one.

Such prices, especially stated by themselves without additional understanding, can be misleading because they don't reflect the externalized costs, by definition. Burning coal is cheap - much more so than any other method of producing electricity in the USA, until one considers the external costs, which drive it to be the most expensive method. A similar statement is true for fission of U235, but for different reasons.

Residential solar photovoltaics are both reliable and affordable now, today, for Maryland residents, especially because of the 30% federal tax credit enacted under the Bush administration in 2008 and valid until 2016. If you don't believe that statement, I encourage you to find out for your family's circumstances. You'll be doing yourself a financial favor and improving the chances for our children's future.

Bravo to Constellation Energy, BG&E and Electricitie deFrance. This is good news for us all. More clean power, more jobs and less expensive electricity in the long term. America moves forward, let's keep it going!

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Wednesdays and Fridays.
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