Constellation Energy Group, Inc. (
Q3 2010 Earnings Conference Call
October 29, 2010 8:30 AM ET
Carim Khouzami – Executive Director of Investor Relations
Mayo Shattuck – Chairman, President and CEO
Jack Thayer – SVP and CFO
Kathy Hyle – SVP and COO
Jon Cohen – Morgan Stanley
Angie Storozynski – Macquarie Capital
Gregg Orrill – Barclays Capital
Ameet Thakkar – Bank of America/Merrill Lynch
Raza Hadasi – Decade Capital
Neel Mitra – Simmons & Company International
Paul Fremont – Jefferies
Ali Agha – SunTrust Robinson Humphrey
Julien Domoulin-Smith – UBS
Paul Patterson – Glenrock Associates
Previous Statements by CEG
» Constellation Energy Group Inc. Q2 2010 Earnings Call Transcript
» Constellation Energy Group, Inc. Q1 2010 Earnings Call Transcript
» Constellation Energy Group, Inc. Q4 2009 Earnings Call Transcript
» Constellation Energy Group Q3 2009 Earnings Call Transcript
Good morning, and welcome to the Constellation Energy Group’s Q3 Earnings Conference Call. (Operator Instructions). Today’s conference is being recorded; if you have any objections you may disconnect at this time. I will now turn the meeting over to the Executive Director of Investor Relations for Constellation, Mr. Carim Khouzami. Sir, you may begin.
Thank you, and welcome to Constellation Energy’s Q3 earnings call. We appreciate you being with us this morning.
On slide 2: before I begin my presentation let me remind you that our comments today will include forward-looking statements, which are subject to certain risks and uncertainties. For a complete discussion of these risks, we encourage you to read our documents on file with the SEC. Our presentation is being webcast, and the slides are available on our website, which you can access at www.constellation.com under Investor Relations.
On slide 3 you will notice that we will use non-GAAP financial measures in this presentation to help you understand our operating performance. We have attached an appendix to the charts on the website reconciling non-GAAP measures to GAAP measures. With that, I would like to turn the time over to Mayo Shattuck, President, Chairman, and CEO of Constellation Energy.
Thank you, Carim. Good morning, everyone, and thank you for joining us today. This morning we reported Q3 adjusted earnings of $0.48 per share. Including one-time items, Constellation reported a Q3 GAAP loss of $6.99 per share, primarily driven by an impairment charge related to our investment in CENG. As you will recall, when we closed the joint venture with EDF in November of 2009, we were required to write up the value of our investment to reflect the estimated fair value at that time. Since then, a marked decline in the outlook for forward power prices, particularly in the Q3, has led us to reassess the fair value of our investment in CENG. After completing this valuation, we determined that our investment had declined by approximately $2.3 billion to a fair value of approximately $2.9 billion as of September 30
, 2010. We recorded this decrease as an impairment charge in our Q3 GAAP results. We are reaffirming our guidance range of $3.05 to $3.45 per share for 2010, and $3.25 to $3.65 per share for 2011. Jack will discuss our impairment charges and earnings guidance in more detail during the financial section of the presentation.
As you likely heard earlier this week, we are pleased to announce the favorable agreement with EDF which fundamentally realigns the relationship between our two companies. In the agreement, we addressed outstanding issues related to our UniStar joint venture and a contractual put option. We do so on terms that provide current and future benefits that were roughly economically the same as under the put option.
We have been and will continue to be an advocate for new nuclear, however, as I emphasized many times, new nuclear in America faces multiple challenges that are not faced in other countries where it enjoys strong, sovereign support. Challenges include low demand and gas prices, increasing cost to build, the lack of adequate federal energy security and carbon policy, and a flawed federal loan guarantee process that ultimately proved unworkable for Constellation.
Notwithstanding our exit from UniStar, it is important to recognize that hundreds of people at Constellation, EDF, and UniStar have spent considerable time and effort and made sacrifices to lay foundation for new nuclear in America. That is why we are pleased that one important outcome of our agreement is that this foundation will remain in place, though now solely in EDF’s hands. For EDF and the French government, new nuclear in the United States and other countries represents both an industrial and a national imperative and we wish them well in their pursuit.
Turning our attention to our businesses, let’s now talk about some highlights that occurred during the quarter. Advancing our strategy to purchase new generation assets, earlier this month a judge officially approved Constellation as the stalking-horse bidder for the Boston Generating fleet in New England. This fleet will support our retail and wholesale load serving businesses. This, in addition to the Navasota plants we acquired earlier this year, would complete the company’s previously stated plans to use approximately $1 billion of cash on hand to acquire generation plants. If our bid is successful, we will have added approximately 4800 megawatts of gas-fired generation to our portfolio during 2010.
In September, we announced the acquisition of CPower, adding 850 megawatts of demand response capacity to our portfolio, which more than doubles the size of our load response business. This makes us the second largest provider in the commercial and industrial competitive markets. This acquisition provides us with a proven platform which includes many new customers and partner networks located in electric choice markets. We expect to sell power and other products to these new customers.