EDF may challenge Constellation

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Electricite de France SA, the world’s biggest operator of nuclear reactors, may mount a legal challenge should Constellation Energy Group Inc. demand the Paris-based company pay $2 billion for U.S. power plants under a 2008 agreement, Bank of America Merrill Lynch analysts said Thursday.

Constellation “has the contractual right” expiring at year-end to sell non-nuclear plants to EDF, Lawrence McDonnell, a spokesman for the Baltimore-based utility owner said. No decision has been made whether to exercise the so-called “put” option, part of a 2008 agreement in which EDF paid $4.5 billion for a half stake in the U.S. company’s reactors, he said. The deal kept EDF’s nuclear foothold in the U.S., thwarting a takeover by Warren Buffett’s MidAmerican Energy Holdings Co.

EDF would look for new U.S. partners to build reactors should arrangements with Constellation collapse, according to the Oct. 4 note by analyst Ameet Thakkar, citing an analyst lunch with EDF Group Senior Executive Vice President of Finance Thomas Piquemal.

“EDF believes it has the means to mount a legal challenge to CEG should it exercise the sale option based on the original intent of the agreement,” Thakkar said.

Weighing on both companies is a delay by the Energy Department in Washington in awarding what will probably be the last federal loan guarantee for a new nuclear plant authorized by Congress. Both say the guarantee is crucial to their first project, which would use European-designed reactors.

Should Constellation exercise the $2 billion option, EDF would be willing to sell the reactor stake for an “adequate” offer and divest its 8.5 percent stake in the company, Thakkar said. EDF is Constellation’s largest shareholder.

In another analyst note, this one by Morningstar’s Travis Miller, a legal challenge could be the precursor to a new deal that could give Constellation a greater stake in its joint nuclear power venture with EDF. Miller said exercising the put is far from a “slam dunk” and EDF legal challenge could tie things up and jeopardize the nuclear venture.

“But, we think Constellation is in a good position to call EDF’s bluff,” Miller said.

Miller said to get out of the put, EDF might be willing to give up to 15 percent of its 50 percent stake in the joint nuclear venture.

Constellation’s McDonnell wouldn’t comment on whether the companies are discussing the put option, nor would Carole Trivi, an EDF spokeswoman.

Constellation is considering “collectively” its overall partnerships with EDF and right to sell the assets, Chief Financial Officer Jonathan Thayer said at a Sept. 29 investor conference.

“These things can tend to get contentious,” he said. “There is an optimal outcome that addresses all of those stakeholders and shame on us if we don’t get there.”

Bloomberg contributed to this article.