Constellation Shuns DOE Nuclear Loan Guarantee, Calling Terms “Unworkable”

Constellation Energy last week rejected a $7.5 billion conditional loan guarantee offer from the U.S. Department of Energy to build a new reactor at its Calvert Cliffs nuclear plant in Maryland with partner Électricité de France (EDF), saying the government’s proposed terms and conditions were “unworkable.”

In a letter sent to Deputy Energy Secretary Dan Poneman on Friday, the company said the cost of the loan guarantee, as calculated by the Office of Management and Budget (OMB), was “unreasonably burdensome and would create unacceptable risks and costs for our company.” The company later said in a statement: “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.”

Constellation said that UniStar, the joint venture with EDF to build Calvert Cliffs 3, had not withdrawn its application, nor had it made a decision to pull the plug on the project. That “was a matter that will have to be discussed by Constellation Energy and EDF and taken under consideration by UniStar’s Board of Directors. EDF has not yet informed Constellation Energy of its position related to the pending loan guarantee terms and conditions,” the company said.

While Constellation’s vice chairman and chief operating officer, Mike Wallace, lauded the DOE Loan Guarantee Program Office’s professionalism and clear presentation of what was required to mitigate risk for the taxpayer, he said the company had not been apprised of the credit subsidy cost.

“As our application went through preliminary credit review during the [summer], we were surprised to be presented with a shockingly high estimate of the credit subsidy cost that we and our partners would have to pay the U.S. Treasury in order to obtain the loan guarantee: 11.6%, or about $880 million,” he wrote. “Such a sum would clearly destroy the project’s economics (or the economics of any nuclear project for that matter), and was dramatically out of line with both our own and independent assessments of what the figures should reasonably be.”

Wallace said that though the DOE tried to come up with a “workaround,” a resolution could not be reached. He blamed, outright, the OMB’s methodology, which he said was riddled with “fundamental and unrealistic flaws.”

An Unraveling Partnership

The next steps of the loan guarantee process, were ultimately, for Constellation partner EDF to determine, Wallace wrote. “While it may yet be that our partner EDF is able to proceed in the face of such uncertainty, Constellation Energy is unable to do so.”

EDF said in a statement on Saturday that it was “extremely disappointed and shocked to learn that Constellation had unilaterally decided to withdraw from the Calvert Cliffs 3 project. Signaling conflict in the partnership, EDF said it had been "at the finish line" in the loan guarantee process and that Constellation had withdrawn “in spite of our repeated efforts to substantially decrease their exposure and risk to the project.”

The French company that owns a fleet of nuclear reactors in France and is deeply involved in new nuclear builds in the UK two years ago spent $4.5 billion to acquire 49.99% of Constellation’s nuclear operation, hoisting the Baltimore company out of a financial crisis. But, faced with disputes over the Calvert Cliffs reactor—a project on which the companies had already spent $600 million—and a previous $2 billion put option on non-nuclear plants, EDF is now considering selling its 8.4% share of the company an unnamed source told Bloomberg on Tuesday.

Maryland Gov. Martin O’Malley met with EDF officials on Tuesday to discuss ways to keep the project on track, but no one from Constellation reportedly attended the meeting. House Majority Leader Steny H. Hoyer, who has pushed for the loan guarantee, confirmed, however, that UniStar still existed, as the Baltimore Sun reported.

Vying for Loan Guarantees

The Calvert Cliffs project was the second project to receive a loan guarantee offer. Earlier this year, Southern Co. received $8.2 billion for two reactors that could cost up to $14 billion to build near Waynesboro, Ga., using Westinghouse’s AP1000 design. Southern Co. hasn’t divulged details of the loan guarantee.

The DOE has the authority to provide $18.5 billion in nuclear guarantees, but the Obama administration has requested a tripling of that amount to $54 billion. With the Calvert Cliffs application in limbo, the next loan guarantee award could go to NRG Energy, industry analysts say. That company is looking to guarantee two units at its South Texas Project in Matagorda County, Texas. But NRG is looking to reduce project risk by choosing the advanced boiling water reactor (ABWR), a design already in use in Japan. It is also seeking Japanese government financing.

Along with the two Plant Vogtle reactors for Southern Co., Westinghouse also has contracts for the construction of two reactors at Scana Corp.’s Virgil C. Summer plant, near Columbia, S.C., a project also in the running for loan guarantees. But, according Scana Corp. company officials, Scana isn’t relying on federal guarantees to finance the project. The company has reportedly already sold about $1 billion in shares and bonds to help with financing.

Sources: Constellation Energy, EDF, Bloomberg, Baltimore Sun, POWERnews