Constellation Energy French Kissed

Constellation Energy (CEG) and EDF settled their lover’s quarrel with an amicable divorce according to a press statement released by their divorce lawyers.  Under terms of the settlement EDF will buy out CEG interests in the UniStar joint venture to build new nuclear plants for $140 million and give back the 3.5 million shares it holds in CEG stock along with its board seat.  In exchange, CEG agrees to end its poison arrow ‘put’ threat to the heart of EDF’s North American ambitions if it forced EDF to buy CEG existing power plants.  The parties to the divorce agree to retain their existing joint ownership of Constellation nuclear group.

Now this odd couple can each go their separate ways with EDF focused on building new nuclear plants to leverage the French experience into the North American markets.  CEG which recently announced it was acquiring CPower the constant energy management and demand response #3 player (after EnerNOC and Comverge) can focus on managing its regulated utility business in Baltimore and growing its merchant energy and now demand response (DR) business in ERCOT and other markets with about 1500 MW of DR capability once the deal closes. CPower is the largest aggregator in ERCOT, a market hot for DR services and it counts some big name C&I companies as customers including Walmart.

So which side won this lover’s spat?

While the French certainly know how to build and operate nuclear power plants and the US market certainly needs to begin adding new units to its aging nuke fleet, the politics of nuclear make it a long slog with high risk of inflation sending the new projects into the ditch just like they did the first generation nuclear plants.  But this deal with Constellation keeps EDF in the game at a price that seems altogether reasonable.

Constellation is trading its potential upside over the long term in power generation for its nearer term opportunity in energy management and demand response especially in the fast growing ERCOT market.  Expect CEG+CP to expand that footprint into other markets likely in the WECC and Northeast where the opportunity is more conducive than the baseload bulwarks of the Southeast and Midwest.

There’s one more thing,  Moody’s reports that American business is sitting on $1 trillion in cash because it is too uncertain about taxes, health care costs, regulation and the political battles ahead.  So instead of creating jobs some of that money just might get spent by the Walmarts and others to take control over their energy use through constant energy management, solar rooftops at least as long as Uncle Barack is willing to subsidize them, and DR services in smart grid enabled, net metered power markets.

For this deal at least, CEG has the bigger grin on its face.