Constellation Vs. O'Malley: A Proxy War

By Jacob Mazer, Assistant Editor, Fuel Cycle Week

The proposed third reactor at Constellation Energy's Calvert Cliffs plant in Maryland is one of the most promising new build projects in America today. Not only has the project won the approval of the state Public Service Commission, but it has also been named as a finalist for the Department of Energy's coveted loan guarantees. However, the project has hit a snag-- or, more accurately, a tangle.

The mess revolves around Constellation's plan to sell 50% of its nuclear assets to Electricité de France for $4.5 billion, the existing and prospective Calvert Cliffs units included. Charging that the deal could have negative implications for ratepayers, Governor Martin O'Malley (D) and the PSC are reviewing the EDF-Constellation deal to make sure it is in the state's best interest. The fear is essentially that EDF would use Constellation to pump money out of energy customers through its fully owned subsidiary, the utility Baltimore Gas & Electric. Constellation contested the review, but so far courts have ruled with Maryland.

In the meantime, Constellation and O'Malley are engaged in dizzying negotiations over the terms of the EDF deal. Constellation's latest offer agrees to delay an electricity rate hike until next January, and hold that hike to 2.5%, half its intended increase. O'Malley says the offer doesn't go far enough. For his part, O'Malley is asking for a slew of other things, including a one-time credit to customers worth about 10% of their yearly bill, annual payments to a program aiding low-income Marylanders with power bills, and transparency regarding a potential payment to Constellation CEO Mayo Shattuck III that could be triggered by the EDF deal.

The issue at the heart of this is not the terms of Constellation's settlement with O'Malley, it's whether EDF investment in Constellation is harmful to ratepayers. The fact of the matter is that it is not. EDF is taking a minority stake in Constellation. EDF will have only one person on Constellation's board of directors, and this person will have no non-public information about BG&E, nor will it vote on issues relating to BG&E.

Maryland has seen steeply rising power prices since the removal of rate caps in 2006, making the issue of keeping utility costs down a politically attractive issue and occupying a central role in O'Malley's campaign. Now the governor is using the Constellation-EDF deal as an opportunity to wrangle a utility aid package out of a private company.

It's a tasteless move. A report from investment firm Jeffries & Co. predicted that Calvert Cliffs 3 will be impossible to build without EDF's investment. Furthermore, the DOE's selection for loan guarantee recipients is based to a great extent on the likelihood for a project to run smoothly, and the bickering in Maryland can't look very attractive. The real shame is that O'Malley stands to derail a reactor that could provide his state with much needed energy and jobs, and whose absence would be regrettable indeed.

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martha said...
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