Ontario Power Generation reports 2013 first quarter financial results

TORONTO, May 16, 2013 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported its financial and operating results for the three months ended March 31, 2013.  Net income for the first quarter of 2013 was $28 million compared to $154 million for the same quarter in 2012.

Tom Mitchell, President and CEO said, "While net income was lower than last year primarily due to lower earnings from the Nuclear Funds, Ontario Power Generation continues to moderate the overall prices paid by Ontarians for their electricity.

"Our production received an average price of 5.5 cents per kilowatt hour. The average price for all the other power generators in Ontario in the first quarter was 9.2 cents. For me, that shows the value of OPG as a publicly-owned generating company."

Mr. Mitchell added, "In addition to moderating prices, OPG had other successes in the first quarter that will benefit consumers. First among these was the completion of the 10-kilometre Niagara Tunnel below the approved budget and nine months ahead of the approved project completion date.

"This tunnel will provide comparatively inexpensive, clean hydroelectric power for many decades, serving our children and grandchildren - just as the original Sir Adam Beck station still serves Ontario after operating for almost a century."

Looking ahead, Mr. Mitchell said, "The success at the Niagara Tunnel has provided important experience in planning, assessing, developing and managing a major project.

The president noted OPG has a number of other projects currently underway across the province.  Work is proceeding on the Lower Mattagami River project, which adds generating units at the three existing stations.  OPG will also replace the existing Smoky Falls generating station (GS) with a new three-unit station.  This project will add 438 megawatts of hydroelectric generating capacity to OPG's fleet.  The project is on schedule for completion in June 2015.

Mr. Mitchell added that the Atikokan Conversion project is also tracking on schedule.  When complete, the Atikokan station will be the largest 100 per cent biomass fuel plant in North America, providing climate change mitigation.

He also pointed to progress at the Darlington GS, which provides about 20 per cent of Ontario's electricity, essentially free of greenhouse gas emissions.  In the first quarter of 2013, OPG received confirmation from the CNSC on its environmental assessment, which concluded that refurbishment is not likely to cause significant effects on the environment.  The mid-life refurbishment is a planned part of the operating life for all CANDU-designed nuclear plants and will allow 30 or more years of operation.

"The efforts of the many highly-skilled men and women working on these projects will help Ontario ensure it has many diverse sources of safe, clean, affordable electricity for generations to come," Mr. Mitchell said.

Highlights

Net income for the first quarter of 2013 decreased by $126 million compared to the same period in 2012.  This decrease was primarily due to lower earnings from the nuclear fixed asset removal and nuclear waste management funds (Nuclear Funds).  The decrease in net income is also a result of higher operations, maintenance, and administration (OM&A) expenses due to the establishment of a regulatory deferral account in 2012 which resulted in lower other post-employment benefit expenses last year.  OPG's net income for the first quarter of 2013 was also affected by higher nuclear OM&A expenses due to increased outage activities and a decrease in nuclear generation.  The decrease was partially offset by higher generation revenue from the unregulated hydroelectric segment primarily due to higher electricity spot market prices.

OPG's income before interest and income taxes from the electricity generation business segments was $102 million in the first quarter of 2013, compared to $157 million in the same period of 2012.  This decrease of $55 million was largely due to increased outage activities and the establishment of the regulatory deferral account in 2012, as described above.

The Regulated - Nuclear Waste Management business segment recorded a loss before interest and income taxes of $63 million in the first quarter of 2013, compared to income before interest and income taxes of $24 million for the same period in 2012.  This decrease was primarily a result of lower earnings from the Decommissioning Segregated Fund as a result of the fund being in an overfunded position.  When the Decommissioning Segregated Fund is overfunded, OPG limits the earnings it recognizes by recording a payable to the Province.

Total electricity generated during the three months ended March 31, 2013 was 21.1 terawatt hours (TWh) compared to 22.0 TWh for the same period in 2012.  This decrease was mainly due to lower nuclear generation, partially offset by higher generation at OPG's thermal generating stations.

The capability factor at the Darlington nuclear station was 84.1 per cent in the first quarter of 2013 compared to 95.6 per cent for the same quarter in 2012, and reflected an increase in planned outage days to execute scheduled maintenance activities on the facilities.  The Pickering stations had a 79.0 per cent capability factor compared to 77.0 per cent in the first quarter of 2012, primarily as a result of excellent performance at Units 4 to 8, partially offset by the impact of an extension to an outage at Unit 1.  The availability of OPG's hydroelectric generating stations remained at high levels.  The Start Guarantee rate at the thermal generating stations for the first quarter of 2013 was 97.9 per cent, compared to 94.1 per cent for the same period in 2012.  The high Start Guarantee rate for the first quarter of 2013 and 2012 reflected the ability of the thermal generating stations to respond to market requirements when needed.

In March 2013, OPG reached a settlement agreement (Settlement Agreement) with intervenors on all aspects of the Ontario Energy Board (OEB) application submitted in 2012 requesting approval to recover balances in the authorized regulatory variance and deferral accounts as at December 31, 2012, and the adoption of United States generally accepted accounting principles (US GAAP) for regulatory purposes.  On March 25, 2013, the OEB approved the Settlement Agreement.  Under the Settlement Agreement, OPG will recover balances accumulated in a number of its variance and deferral accounts over an extended period.  The Settlement Agreement provided for the continuation of variance and deferral accounts, including the Pension and OPEB Variance Account without a prescribed end date.  The OEB also approved the adoption of US GAAP for regulatory purposes.  Detailed discussion of the Settlement Agreement is included in OPG's 2013 first quarter Management's Discussion and Analysis.

Also, in March 2013, the Ministry of Energy issued a declaration mandating that OPG cease the use of coal at the Nanticoke and Lambton GS by the end of 2013.  The Contingency Support Agreement with the Ontario Electricity Financial Corporation (OEFC) has also been amended.  The amendment allows for OPG to continue to recover actual costs that cannot reasonably be avoided or mitigated during the period from the advanced shutdown date up to the end of 2014, consistent with the duration of the original contract.  The amended agreement terms are expected to be triggered by the OEFC in 2013.

Generation Development

OPG is undertaking a number of generation development projects to support Ontario's long-term electricity supply requirements.  Significant changes from year-end 2012 to the status of these capacity expansion or life extension projects are as follows:

Darlington Refurbishment

  • In March 2013, the Canadian Nuclear Safety Commission (CNSC) issued a decision on the Environmental Assessment (EA) for the refurbishment of the Darlington GS.  The CNSC confirmed that, taking into account identified mitigation measures, Darlington refurbishment and continued operations are not likely to cause significant environmental effect.  The EA was subsequently challenged in April 2013 by way of judicial review in the Federal Court of Canada, on the grounds that the EA failed to comply with requirements of the Canadian Environmental Assessment Act, and that the hearing deprived the applicants certain procedural rights.
  • In March 2013, the Turbine Generator contract for equipment supply and technical services was awarded to Alstom Power and Transport Canada Incorporated.  The contract is valued at approximately $350 million, and contains suspension and termination provisions.

Niagara Tunnel

  • In March 2013, the Niagara Tunnel was completed and declared in-service, approximately nine months ahead of the approved project completion date of December 31, 2013. This additional water diversion capacity of approximately 500 cubic metres per second will increase annual generation from the Sir Adam Beck GS by an average of approximately 1.5 TWh, depending on water flow.  Total costs of the project are being finalized and are expected to be approximately $1.5 billion, compared to the approved budget of $1.6 billion.

Lower Mattagami

  • In December 2012, there was a breach in one section of the recently installed cofferdam at the Kipling site.  All other cofferdams on the project have been inspected and it has been determined that they are safe.  OPG has finalized and executed a remediation plan regarding the cofferdam breach at the Kipling site and construction activity resumed at the Kipling site in May 2013.  This remediation plan is not expected to impact the project schedule and budget.  The project is still expected to be completed on plan by June 2015 within the approved budget of $2.6 billion.


FINANCIAL AND OPERATIONAL HIGHLIGHTS

      Three Months Ended
March 31
(millions of dollars - except where noted)       2013 2012
Earnings          
  Revenue       1,255 1,199
  Fuel expense       183 192
  Gross margin       1,072 1,007
  Operations, maintenance and administration       700 635
  Depreciation and amortization       242 189
  Accretion on fixed asset removal and nuclear waste management liabilities       189 187
  Earnings on Nuclear Funds       (124) (210)
  Other net expenses       8 7
  Income before interest and income taxes       57 199
  Net interest expense       25 32
  Income tax expense       4 13
  Net income       28 154
Income (loss) before interest and income taxes          
  Generating segments       102 157
  Nuclear Waste Management segment       (63) 24
  Other segment       18 18
Total income before interest and income taxes       57 199
Cash flow          
  Cash flow provided by operating activities       245 111
Electricity generation (TWh)          
  Regulated - Nuclear Generation       11.6 12.5
  Regulated - Hydroelectric       4.7 4.9
  Unregulated - Hydroelectric       3.6 3.6
  Unregulated - Thermal       1.2 1.0
  Total electricity generation       21.1 22.0
Average sales prices and average revenue (¢/kWh)          
  Regulated - Nuclear Generation       5.7 5.5
  Regulated - Hydroelectric       3.9 3.5
  Unregulated - Hydroelectric       3.1 2.2
  Unregulated - Thermal       2.9 2.0
  Average revenue for all electricity generators, excluding OPG 1       9.2 8.8
  Average revenue for OPG 2       5.5 5.0
Nuclear unit capability factor (per cent)          
  Darlington GS       84.1 95.6
  Pickering GS       79.0 77.0
Availability (per cent)          
  Regulated - Hydroelectric       89.9 92.2
  Unregulated - Hydroelectric       94.5 92.0
Start Guarantee rate (per cent)          
  Unregulated - Thermal       97.9 94.1
           
Return on equity for the twelve months ended March 31, 2013
  and December 31, 2012 (per cent) 3
      2.7 4.2
Funds from operations interest coverage for the twelve months
  ended March 31, 2013 and December 31, 2012 (times) 3
      2.7 2.3

1  Revenues for other electricity generators are computed 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.
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.
3 "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 period ended March 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 unaudited consolidated financial statements and Management's Discussion and Analysis as at and for the three months ended March 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:

Ontario Power Generation
Media Relations
416-592-4008 or 1-877-592-4008
Follow us @ontariopowergen


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