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Constellation Eyes Profits, Stability from EDF Deal

Reporting a sea of red ink from its aborted merger and the shrinking of its trading business, Constellation Energy Group's senior officials last Wednesday expressed confidence that the pending joint venture on its nuclear power plant fleet with Electricite de France SA (EDF) will bring stability and liquidity to the troubled energy holding company and parent to still-profitable Baltimore Gas and Electric Co. (BG&E).

On a GAAP (generally accepted accounting principles) basis Constellation reported fourth quarter 2008 and full-year losses of $1.4 billion and $1.3 billion, respectively, compared with 2007 profits for the same respective periods of $258.1 million and $821.5 million. On an adjusted basis, taking out the one-time charges for the failed MidAmerican Energy Holdings Co. merger and the trading problems caused by the global financial crisis, Constellation reported positive results of $3.57/share and 3 cents/share for the full year and fourth quarter 2008.

In the face of the global financial meltdown that was centered in the fourth quarter, Constellation CEO Mayo Shattuck said the company moved "rapidly" to pursue a merger and address its balance sheet exposures related to trading. "We moved decisively to protect the company during a time of great stress and preserved the strategic flexibility that allowed us to later enter into a more desirable joint venture with EDF," Shattuck said.

"Entering in a definitive agreement with EDF provides us with the path towards stability and liquidity to remain a viable stand-alone company. This transaction also further cements the relationship between our two companies.

"We are laser focused on closing the EDF transaction and remain excited at the prospect of what our partnership may accomplish in the future. We have also been executing on other fronts with the objective of right-sizing our strategic footprint."

Shattuck stressed to financial analysts in a conference call that in the first six weeks in 2009 Constellation has executed many of the strategic divestitures that were identified last fall -- the sale of its international coal and freight business to a subsidiary of Goldman Sachs, and what he called the "equally significant" announced sales of its Houston-based downstream gas business to a unit of Macquarie, for which the parties are seeking quick approval from the Federal Energy Regulatory Commission (FERC).

As part of the gas agreement, Constellation will enter a deal that Shattuck told analysts will provide the company with the gas supply needed to support its retail gas customer business while reducing the company's credit requirements.

"We expect both transactions to close during the first half of 2009...and based on today's market prices we expect the combined transactions to return approximately $1 billion of currently posted collateral," he said.

FERC last Thursday approved the Constellation-EDF deal, which was struck last year as a means to save struggling Constellation Energy. It offered richer terms than an offer to acquire Constellation Energy from Warren Buffet's MidAmerican Energy Holdings Co.

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