UPDATE 1-Constellation out of Calvert Cliffs reactor project

 * Says loan guarantee process unworkable

 * Partner EDF says shocked by withdrawal

 NEW YORK, Oct 9 (Reuters) - Constellation Energy Group
IncCEG.N pulled out of a deal to build a nuclear reactor in
Maryland with French power company EDF SA EDF.PA, probably
killing the multi-billion dollar project.

 Constellation said on Friday it had told the U.S.
Department of Energy that the terms and conditions of the loan
guarantee process for the Calvert Cliffs 3 project were
unworkable. EDF said it was shocked by Constellation's
decision.

 "Constellation knows that we were at the finish line with
the Department of Energy and were making significant progress,"
EDF said in a statement on Saturday.

 "Constellation has withdrawn from Calvert Cliffs 3 in spite
of our repeated efforts to substantially decrease their
exposure and risk to the project."

 An EDF spokeswoman said "it is unclear at this point how
the project would move forward given Constellation's surprising
decision."

 Governments around the world, including the United States,
are willing to invest billions of dollars in the so-called
nuclear renaissance to help meet the growing demand for carbon
free energy as they try to tackle global warming.

 But energy companies are hesitant to take a chance on the
costly reactors without even more government support.

 Constellation said it had told the DOE that the cost of the
loan guarantee calculated by the Office of Management and
Budget (OMB) was unreasonably burdensome and would create
unacceptable risks and costs.

 "There is a significant problem in the way OMB calculates
the credit cost," the company said.

 "After repeated unsuccessful attempts to resolve this issue
with DOE and OMB, we no longer see a timely path to reaching a
workable set of terms and conditions."

 Constellation did not say how much the reactor was expected
to cost, though using an industry estimate of about $4,500 per
kilowatt the proposed Areva SA CEPFi.PA 1,600 MW Evolutionary
Power Reactor would be priced at about $7.2 billion.

 Constellation said its letter to the DOE represented
Constellation's views only. It also said EDF was aware of
Constellation's position.

 Constellation said UniStar -- the partnership between
Constellation and EDF to build new nuclear projects in the
United States -- had not withdrawn its application for a
federal loan guarantee and no decisions have been made
regarding the future of Calvert Cliffs 3.

 Constellation's withdrawal from the project puts a further
strain on relations between the two companies, which are
already entangled in a dispute over a deal signed in 2008 when
Constellation was facing serious liquidity issues.

 Throwing a lifeline to Constellation, EDF had agreed to buy
a 49.9 percent stake in Constellation's operating nuclear
business while giving Constellation an option to sell it up to
$2 billion of non-nuclear power assets. It is that option is
the center of the dispute between the two companies.

 Constellation has said that the proceeds from exercising
the option could be $1.4 billion, but bankers say EDF would
gladly get out of the deal as the market value of gas and
coal-fired power assets has declined markedly since 2008.

 Sources told Reuters last month EDF is considering a range
of options for its U.S. operations, including litigation and
selling its stake in Constellation's operating nuclear plants.

 EDF is still committed to developing nuclear generation in
the United States but could also dissolve UniStar, the
partnership it formed with Constellation to develop new nuclear
plants in the country, sources have told Reuters.

 (Editing by Ted Kerr)