Ontario Power Generation Reports 2013 Financial Results

TORONTO, March 6, 2014 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported its financial and operating results for year ended Dec. 31, 2013.  Net income for the year was $135 million compared to $367 million for the year ended Dec. 31, 2012.

Tom Mitchell, President and CEO said, "Last year's financial results were affected by an increase in nuclear outage activities that were, in part, for the investments required to extend operations of our nuclear facilities as well as for emergent repairs.  This resulted in lower generation and higher operating, maintenance and administration (OM&A) expenses."

OPG's net income was also affected by restructuring costs related to ceasing operation of the coal-fired units at the Lambton Generating Station (GS) and the Nanticoke GS.  The decrease in income was mitigated in part by cost reductions through OPG's on-going business transformation project.

"We thank our host communities and our employees at our coal stations for the safe and reliable operation of these facilities over decades of service to the people of Ontario, and, in particular, for the professional manner in which our employees operated these plants during the shut-down phase," said Mitchell.

With the closing of our major coal-burning facilities at the end of 2013, over 95 per cent of our generation now comes from clean nuclear and hydroelectric sources - which are virtually free of emissions contributing to climate change.

In 2011, OPG initiated a business transformation project aimed at meeting the expectations of ratepayers by being an efficient, low-cost generator.  The company plans to save an estimated $1 billion over six years (2011 - 2016) by reducing overall headcount from on-going operations by 2,330, or 20 per cent of 2011 levels.  The departure of 1,600 people since January 2011 has already saved $275 million as of the end of 2013, including a six per cent reduction in the number of senior managers and a nine per cent reduction in total base salary costs for management.

In 2013, OPG supported the Ontario government's commitment to building a cleaner, more reliable electricity system.

The 10.2 kilometre Niagara Tunnel was completed in March, approximately nine months ahead of the approved project completion date and over $100 million lower than the approved budget.  It will provide clean, reliable power for the next 100 years with additional electricity for about 150,000 homes.

The Lower Mattagami River project in northeast Ontario continues to progress ahead of schedule and budget.  The 67 MW incremental unit at the Little Long GS was declared in-service on Jan. 19, 2014, ahead of its scheduled February 2014 completion date.  When completed in 2015, the project will bring 438 MW of clean, dispatchable, emission-free capacity to the electricity system or enough clean electricity to power more than 300,000 homes, nearly double the peak demand of Greater Sudbury.  OPG's focus on strong project management and partnership with private sector contractors and First Nations continues to benefit ratepayers.

In addition, OPG has invested in continued operation of the six nuclear units at the Pickering station and is preparing for the refurbishment of all four units at the Darlington station in accordance with the 2013 Ontario Long-Term Energy Plan.

Business Segment, Generating, and Operating Performance

OPG's income before interest and income taxes from the electricity generation business segments was $301 million in 2013, compared to $562 million in 2012, due primarily to lower generation from nuclear stations.  The lower nuclear generation was partially offset by higher hydroelectric generation.

The Regulated - Nuclear Waste Management business segment recorded a loss before interest and income taxes of $122 million in 2013, compared to a loss before interest and income taxes of $68 million in 2012.  The lower earnings were primarily due to higher accretion expense and lower recognized earnings from the Decommissioning Segregated Fund. The Decommissioning Segregated Fund is overfunded due to market performance.  As a result, OPG is required to limit the earnings recognized from the Decommissioning Segregated Fund at 5.15 per cent to match the discount factor used to determine the decommissioning obligation under the Ontario Nuclear Funds Agreement.

Total electricity generated in 2013 of 80.3 terawatt hours (TWh) decreased slightly from generation of 83.7 TWh in 2012.  The decrease was mainly due to lower nuclear and thermal generation, partially offset by higher hydroelectric generation.

Nuclear production of 44.7 TWh in 2013 decreased by 4.3 TWh primarily due to extensions to planned outages at the Pickering and Darlington Nuclear generating stations.  Thermal generation decreased by 1.3 TWh due to ceasing operations using coal at the Lambton and Nanticoke generating stations.  The 2.2 TWh increase in hydroelectric generation was primarily due to higher water levels and the in-service of the Niagara Tunnel.  The increase in generation in 2013 was partially offset by the water spilled due to increased Surplus Baseload Generation conditions.

The availability of OPG's regulated and unregulated hydroelectric stations remained at high levels in 2013.  OPG's regulated hydroelectric stations achieved an availability of 90.8 per cent in 2013, compared to 91.4 per cent in 2012.  OPG's unregulated hydroelectric stations achieved an availability of 91.8 per cent in 2013, compared to 91.1 per cent in 2012.

The Darlington Nuclear GS capability factor of 82.9 per cent in 2013 was lower than the 93.2 per cent achieved in 2012, mainly as a result of an additional planned outage in the third quarter of 2013.  At the Pickering Nuclear GS, work continues on plant condition to prepare the station, which is the longest-running nuclear plant in Ontario's fleet, for continued operations.  The capability factor at the Pickering GS decreased to 73.7 per cent in 2013 from 77.8 per cent in 2012, primarily as a result of extensions to planned outages in the first half of 2013.  The decrease was partially offset by the deferral of a fourth quarter 2013 planned outage to the first quarter of 2014.  When it closes, Pickering Nuclear will have provided about a half century of service to Ontario.  It currently supplies about 14 per cent of the province's electricity.

Generation Development

OPG is undertaking a number of generation development projects.  The status of these capacity expansion or life extension projects is as follows:

Darlington Refurbishment

  • The Darlington Refurbishment project is currently in the definition phase and will extend the operating life of the station by approximately 30 years.  A detailed cost and schedule estimate for the refurbishment is expected to be completed in 2015.  Life-to-date capital expenditures were $793 million as at Dec. 31, 2013.

  • In March 2013, the Canadian Nuclear Safety Commission (CNSC) issued a decision on the Environmental Assessment (EA) and confirmed that, taking into account the identified mitigation measures, the refurbishment project and continued operations of the station are not likely to cause significant environmental effect.

  • In July 2013, OPG received the CNSC's staff assessment of the Integrated Safety Review (ISR).  The assessment confirmed that the ISR meets applicable regulatory requirements.  In December 2013, OPG submitted the Global Assessment Report and Integrated Implementation Plan, which incorporate the significant EA and ISR results.

  • In the planning and preparation phase, the refurbishment project is already providing a significant benefit to the Ontario economy through work with companies across the province.  As at Dec. 31, 2013, OPG has issued contracts valued at approximately $1.5 billion, which include suspension and termination provisions.  The most significant contracts include the Retube and Feeder Replacement contract, and the Turbine Generator contract.

  • In June 2013, the Darlington Energy Complex was placed in-service.  The complex will house a training and reactor mock-up facility, warehouse, and office space to support the refurbishment project.  In May 2013, construction of the full-scale reactor mock-up facility began.  The mock-up facility and the specialized tool development and training that will take place are integral to OPG's strategy to ensure certainty in scope, schedule and project cost.  The mock-up facility was completed during the first quarter of 2014 ahead of schedule; the mock-up facility is now being prepared for tool testing and training.

Lower Mattagami

  • The Lower Mattagami River project will increase the capacity of the four generating stations on the Lower Mattagami River by 438 MW.

  • The 67 MW incremental unit at Little Long GS was declared in-service on Jan. 19, 2014, ahead of its scheduled February 2014 completion date.  Construction at the Harmon site was substantially completed during the fourth quarter of 2013, and commissioning has commenced.  This 78 MW incremental unit is expected to be declared in-service during the second quarter of 2014.  Construction continues at the Smoky Falls and Kipling sites with commissioning operations expected to commence in the latter half of 2014.  The project is expected to be completed on schedule by June 2015.  Life-to-date capital expenditures were approximately $1.98 billion as at Dec. 31, 2013 compared to the approved project budget of $2.6 billion.

Niagara Tunnel

  • The 10.2 kilometre Niagara Tunnel was declared in-service in March 2013, nine months ahead of the approved schedule.  The tunnel will provide additional electricity for another 100 years.  It increases annual generation from the Sir Adam Beck GS by an average of 1.5 TWh, depending on water flow.  Total costs of the project after closure activities are expected to be below $1.5 billion, compared to the approved budget of $1.6 billion.

Atikokan Conversion to Biomass

  • In support of conversion to biomass fuel at Atikokan GS, construction of two storage silos and the installation of 15 redesigned burners were completed and commissioning of the combustion system began in 2013.  The project is expected to be completed by August 2014.  Life-to-date capital expenditures were $144 million as at Dec. 31, 2013 compared to the approved project budget of $170 million.

Thunder Bay Conversion to Advanced Biomass

  • In December 2013, the Minister of Energy issued a directive to the Ontario Power Authority (OPA) to negotiate and enter into a contract for electricity from the Thunder Bay GS using advanced biomass fuel.  OPG is in the process of developing detailed plans for the station modifications and fuel supply.

New Post Creek

  • In June 2013, the Minister of Energy directed the OPA to negotiate a power purchase agreement for the proposed 25 MW New Post Creek hydroelectric GS.  Public review of the EA closed in January 2014, and comments are being addressed by OPG and Coral Rapids Power L.P., Taykwa Tagamou Nation's development company and OPG's partner in the project.

New Nuclear Units

  • In the 2013 Long-Term Energy Plan, the Government of Ontario indicated that it will not proceed at this time with the construction of two new nuclear units at the Darlington site.  However, OPG is to undertake activities required to maintain the site preparation licence granted by the CNSC and to support the EA.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
     
         
(millions of dollars - except where noted) 2013   2012
Earnings      
  Revenue 4,863   4,732
  Fuel expense 708   755
  Gross margin 4,155   3,977
  Operations, maintenance and administration 2,747   2,648
  Depreciation and amortization 963   664
  Accretion on fixed asset removal and nuclear waste management liabilities 756   725
  Nuclear Funds (earnings) - a reduction to expense (628)   (651)
  Other net expenses 65   40
  Income before interest and income taxes 252   551
  Net interest expense 86   117
  Income tax expense 31   67
  Net income 135   367
Income (loss) before interest and income taxes      
  Generating segments 301   562
  Nuclear Waste Management segment (122)   (68)
  Other segment 73   57
  Total income before interest and income taxes 252   551
Cash flow      
  Cash flow provided by operating activities 1,174   876
Electricity generation (TWh)      
  Regulated - Nuclear Generation 44.7   49.0
  Regulated - Hydroelectric 18.9   18.5
  Unregulated - Hydroelectric 13.9   12.1
  Unregulated - Thermal 2.8   4.1
  Total electricity generation 80.3   83.7
Average sales prices and average revenue (¢/kWh)      
  Regulated - Nuclear Generation 1 5.7   5.5
  Regulated - Hydroelectric 1 4.0   3.5
  Unregulated - Hydroelectric 1 2.8   2.4
  Unregulated - Thermal 1 2.7   2.6
  Average revenue for OPG 2 5.7   5.2
  Average revenue for all electricity generators, excluding OPG 3 9.9   8.6
Nuclear unit capability factor (per cent)      
  Darlington Nuclear GS 82.9   93.2
  Pickering Nuclear GS 73.7   77.8
Availability (per cent)      
  Regulated - Hydroelectric 90.8   91.4
  Unregulated - Hydroelectric 91.8   91.1
Start Guarantee rate (per cent)      
  Unregulated - Thermal 98.0   97.5
       
Return on equity (per cent) 4 1.5   4.2
       
Funds from operations interest coverage (times) 4 2.8   2.2
Average sales prices are computed as net generation sales or spot market prices divided by net generation volume.
2  Average revenue for OPG is comprised of regulated revenues, market based revenues, and other energy revenues primarily from cost recovery agreements, and revenue from hydroelectric Energy Supply Agreements.
Revenues for other electricity generators are calculated as the sum of hourly Ontario demand multiplied by the hourly Ontario electricity price (HOEP) plus total global adjustment payments, plus the sum of hourly net exports multiplied by the HOEP, less OPG's generation revenue.
4  "Funds from operations interest coverage" and "Return on equity" are non-GAAP financial measures and do not have any standardized meaning prescribed by US GAAP.  Additional information about these measures is provided in OPG's Management's Discussion and Analysis for the year ended Dec. 31, 2013, under the heading, Supplementary Non-GAAP Financial Measures.

Ontario Power Generation Inc. is an Ontario-based electricity generation company whose principal business is the generation and sale of electricity in Ontario.  Our focus is on the efficient production and sale of electricity from our generation assets, while operating in a safe, open and environmentally responsible manner.

Ontario Power Generation Inc.'s audited consolidated financial statements and Management's Discussion and Analysis as at and for the year ended Dec. 31, 2013 can be accessed on OPG's web site (www.opg.com), the Canadian Securities Administrators' web site (www.sedar.com), or can be requested from the Company.

SOURCE Ontario Power Generation Inc.

For further information:


Investor Relations
416-592-6700
1-866-592-6700
investor.relations@opg.com

Media Relations
416-592-4008
1-877-592-4008