Shattuck: New nuclear reactor at Calvert Cliffs is in doubt

Posted: 12:06 pm Wed, July 28, 2010
By Ben Mook
Daily Record Business Writer

Shares of Constellation Energy Group fell nearly 5 percent Wednesday after the company cast doubt on its plan to build a new nuclear power reactor in Maryland.

Constellation CEO Mayo A. Shattuck III warned that delays securing a federal nuclear loan guarantee jeopardized the company’s plan to build a third nuclear power reactor at Calvert Cliffs in Lusby, putting hundreds of potential jobs on the line.

“We remain interested and focused on pursuing this project, however, time is running out,” Shattuck said.

Shattuck said the company was hoping to hear shortly from the U.S. Department of Energy on whether it will receive a piece of the $18.5 billion loan guarantee pool meant to help spur construction of nuclear plants.

A spokeswoman for the Department of Energy said there were no new announcements about awards from the nuclear loan guarantee program but the agency expected to make one soon.

“Unfortunately, waiting for the conditional Department of Energy loan guarantee in the U.S. is beginning to affect the prospects for the Calvert Cliffs project,” Shattuck said.

“As a result of this delay and uncertainty, we have begun reducing our spend rate on the project, impacting jobs,” he added.

Constellation said in October 2009 the project would generate 4,000 construction jobs and 400 permanent positions.

Shares of Constellation lost $1.63, or 4.67 percent, Tuesday to close at $33.28.

U.S. House Majority Leader Steny Hoyer, who has advocated for Constellation to receive the loan guarantee, said he was optimistic it would be resolved quickly.

“I have been working very hard to advance this project, which will create 4,000 jobs in the 5th District, and am in close contact with both Constellation and the Administration,” Hoyer said in a statement. “I believe that we will see progress in the coming days.”

In the interim, Constellation said spending on the Calvert Cliffs project had been scaled down.

Travis Miller, an analyst with Morningstar Inc., said that utilities like Constellation are hesitant to begin construction on a costly nuclear plant without the loan guarantee.

“We’re not terribly surprised to hear from management that they’re delaying work on that project,” he said. “There are at least three utilities, including Constellation, that are waiting very eagerly to find out about the awards.”

Shattuck told analysts that Constellation and Electricite de France, its partner in the nuclear business, would review the project even if the conditional loan guarantee were to come through.

“As we said before, the conditional guarantee is a necessary hurdle, and not the only one that must be addressed before any shovels can go into the ground,” Shattuck said.

The discussion of the plant came during a call with analysts about Constellation’s earnings for the second quarter.

Constellation on Wednesday reported that revenue in the second quarter fell 14 percent to $3.3 billion.

The company reported a profit of $72.6 million, or 36 cents a share. This was an increase from the $8.1 million, or 4 cents a share reported in the second quarter of 2009. Not including accounting changes, divestiture loss and other charges, Constellation’s earnings from continuing operations dropped to 71 cents a share, compared to $1.08 in 2009.

Analysts polled by Thomson Reuters had most recently forecast earnings of 75 cents a share and revenue of $4.16 billion.

Constellation did reaffirm its earnings guidance for 2010 in the range of $3.05 to $3.45 per share. It also reaffirmed its 2011 guidance range of $3.25 to $3.65 per share.

“If they had to postpone the project or even cancel it, it would impact the long-term growth in that segment for Constellation,” Miller said.