Ontario Power Generation Reports 2013 Third Quarter Financial Results

TORONTO, Nov. 14, 2013 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported its financial and operating results for the three and nine month periods ended Sept. 30, 2013.  Net income for the third quarter of 2013 was $30 million compared to $139 million for the same quarter in 2012.  Net income for the nine months ended Sept. 30, 2013 was $131 million compared to $336 million for the same period in 2012.

Tom Mitchell, President and CEO said, "OPG's net income continues to be affected by the fact that prices for electricity that are received by our company are significantly below the rates received by other generating companies in the province.

"OPG's lower electricity rates help consumers and businesses because they moderate the higher prices paid to other companies and thus hold down the overall cost of electricity in Ontario.  For the first nine months of this year, we received an average price of 5.7 cents per kilowatt hour.  This is good for consumers, but does put financial pressures on the company."

Mitchell stressed, "A key part of our efforts to contain costs has been our almost three-year business transformation process which is delivering its anticipated results, with further actions underway.

"We have reduced the number of employees by 13 per cent, or 1,500 people, since January 1, 2011 - excluding the refurbishment project at the Darlington station. The reductions, which have been largely based on attrition, will continue with another 500 positions planned by the end of 2015.

"We have done this by streamlining our operations, eliminating duplication of processes, and by challenging employees to accomplish more with fewer resources." Mitchell added, "We undertook the challenge to change our business because -- as a publicly owned company -- our obligation is to provide the best service at the lowest price."

Highlights

Net income for the third quarter of 2013 decreased by $109 million compared to the same quarter in 2012.  The decrease was mainly a result of lower nuclear generation, higher operations, maintenance and administration (OM&A) expenses primarily due to an increase in planned nuclear outage and maintenance activities; and restructuring costs related to the Lambton and Nanticoke generating stations.  These factors were partially offset by additional revenues from the recently approved Thunder Bay Reliability Must Run contract, higher unregulated hydroelectric production, and the favourable impact of headcount reductions and the implementation of other operating efficiencies.

Net income for the first nine months of 2013 decreased by $205 million, compared to the same period in 2012, mainly due to lower nuclear generation; higher OM&A expenses primarily a result of an increase in planned nuclear outage and maintenance activities; and restructuring costs largely related to the Lambton and Nanticoke generating stations.  There were also lower Other Post-Employment Benefits expenses in 2012 resulting from the recognition of a regulatory asset for the Impact for USGAAP Deferral Account established by the Ontario Energy Board in 2012.  These factors were partially offset by higher unregulated revenues due to higher spot market prices, increased unregulated hydroelectric generation, and higher thermal contract revenues.  The net income for the first nine months was also favourably affected by headcount reductions and the implementation of other operating efficiencies.

Income before interest and income taxes from the electricity generation business segments decreased by $148 million for the three months ended Sept. 30, 2013, and by $221 million for the nine months ended Sept. 30, 2013, compared to the same periods in 2012.  These decreases were largely due to lower nuclear generation, higher OM&A expenses, and restructuring costs recognized in 2013 related to the Lambton and Nanticoke generating stations.

The Regulated - Nuclear Waste Management business segment recorded lower earnings for both the three and nine month periods ended Sept. 30, 2013, compared to the same periods in 2012.  The lower third quarter segment earnings were primarily a result of higher accretion expense.  The lower earnings for the nine months ended Sept. 30, 2013 were primarily a result of higher accretion expense and lower earnings from the Decommissioning Segregated Fund, which is currently 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 third quarter of 2013 was 20.0 TWh.  This was a decrease of 0.6 TWh, compared to the same quarter in 2012, mainly a result of lower nuclear and thermal generation, partially offset by higher hydroelectric generation.  Total electricity generation for the first nine months of 2013 was 61.0 TWh - a decrease of 2.1 TWh compared to the same period in 2012. The decrease was primarily the result of extensions to planned outages at the Pickering and Darlington generating stations, partially offset by higher unregulated hydroelectric generation.

For the three and nine month periods in 2013, the capability factors for the Pickering and Darlington generating stations decreased, compared to the same periods in 2012.  The decreases for the three month period were primarily due to increased unplanned outages at the Pickering generating station and increased planned outage days at the Darlington generating station.  The decreases in the capability factor at both stations for the nine months ended Sept. 30, 2013, compared to the same period in 2012, were primarily a result of extensions to planned outages in the first half of 2013.

The availability of OPG's hydroelectric generating stations remained at high levels during the first nine months of 2013.  The thermal generating stations continued to maintain high Start Guarantee rates reflecting their ability to respond to market requirements.

Generation Development

OPG is undertaking several generation development projects to support Ontario's long-term electricity supply requirements.  Significant developments during the third quarter of 2013 are as follows:

Pickering Continued Operations

  • OPG has made good progress on inspection and maintenance activities that support the intention to operate the Pickering units to 2020.  OPG has made investments to continue to improve Pickering's performance through to 2020.  These investments will help to provide a reliable electricity supply for Ontario while the Darlington reactors are being refurbished.  OPG is seeing positive results of that work, including engineering and research assessments that support the safe and reliable operation of the units for a longer operating period.  Recently, Pickering also received its best ever international peer review; a significant accomplishment for a station that has given such long service to Ontarians.

Darlington Refurbishment

  • The Darlington Refurbishment project is currently in the definition phase.  OPG plans to submit the Global Assessment Report and Integrated Implementation Plan, which present the significant Environmental Assessment and Integrated Safety Review results to the Canadian Nuclear Safety Commission in the fourth quarter of 2013.

    Identification of all long-lead materials required for the turbine generator work is completed.  Remaining major contracts, including the steam generator cleaning contract and the turbine generator engineering and execution contract, are expected to be awarded by the first quarter of 2014.

    Construction of the reactor full-scale mock-up facility commenced in May 2013 and is planned to be completed in the second quarter of 2014.  Retube and feeder replacement tooling design and fabrication is progressing in parallel with mock-up facility construction and remains on track for completion in 2015.

Lower Mattagami

  • The Lower Mattagami River project is expected to be completed on schedule by June 2015 within the approved budget of $2.6 billion.  The incremental unit at the Little Long generating station is expected to be declared in-service ahead of schedule during the fourth quarter of 2013.  As incremental units are placed in-service, the Amisk-oo-Skow Finance Corporation, a corporation wholly owned by the Moose Cree First Nation, is expected to obtain a 25 per cent interest in the assets through its investment in the Lower Mattagami Limited Partnership.

New Nuclear Units

  • The Minister of Energy provided a statement in October 2013 that the Ontario government will not include New Nuclear build at Darlington in the upcoming Long-Term Energy Plan (LTEP), but it may be re-considered in the future.  The LTEP is expected to be issued by the Province during the fourth quarter of 2013.

Atikokan Biomass Conversion

  • The Atikokan Biomass Conversion project is expected to be completed on schedule by August 2014 within the approved budget of $170 million.  As of Sept. 30, 2013, construction of two storage silos was completed.  In addition, all 15 redesigned burners were installed and commissioning of the combustion systems has begun.

FINANCIAL AND OPERATIONAL HIGHLIGHTS                  
                   
    Three Months Ended Nine Months Ended
  September 30 September 30
(millions of dollars - except where noted) 2013    2012    2013    2012   
Earnings                
  Revenue 1,244    1,213    3,689    3,537   
  Fuel expense 186    199    541    556   
  Gross margin 1,058    1,014    3,148    2,981   
  Operations, maintenance and administration 684    610    2,027    1,914   
  Depreciation and amortization 243    164    727    495   
  Accretion on fixed asset removal and nuclear waste management liabilities 188    181    567    544   
  Nuclear Funds (earnings) - a reduction to expense (165)   (161)   (462)   (481)  
  Other net expenses 51      60    33   
  Income before interest and income taxes 57    211    229    476   
  Net interest expense 18    26    63    89   
  Income tax expense (recovery)   46    35    51   
  Net income 30    139    131    336   
Income (loss) before interest and income taxes                
  Generating segments 68    216    280    501   
  Nuclear Waste Management segment (22)   (19)   (100)   (59)  
  Other segment 11    14    49    34   
  Total income before interest and income taxes 57    211    229    476   
Cash flow                
  Cash flow provided by operating activities 391    510    983    722   
Electricity generation (TWh)                
  Regulated - Nuclear Generation 11.5    12.8    34.0    37.0   
  Regulated - Hydroelectric 4.9    4.4    14.1    14.1   
  Unregulated - Hydroelectric 2.6    2.0    10.3    8.9   
  Unregulated - Thermal 1.0    1.4    2.6    3.1   
  Total electricity generation 20.0    20.6    61.0    63.1   
Average sales prices and average revenue (¢/kWh)                
  Regulated - Nuclear Generation1 5.7    5.6    5.7    5.5   
  Regulated - Hydroelectric1 4.0    3.5    4.0    3.5   
  Unregulated - Hydroelectric1 2.9    3.0    2.8    2.3   
  Unregulated - Thermal1 3.4    3.5    2.9    2.6   
  Average revenue for OPG2 5.8    5.4    5.7    5.2   
  Average revenue for all electricity generators, excluding OPG3 9.8    8.0    10.0    8.6   
Nuclear unit capability factor (per cent)                
  Darlington GS 87.1    92.4    85.7    91.2   
  Pickering GS 75.7    90.1    73.5    82.1   
Availability (per cent)                
  Regulated - Hydroelectric 91.0    92.8    90.7    91.7   
  Unregulated - Hydroelectric 88.8    87.4    92.0    91.1   
Start Guarantee rate (per cent)                
  Unregulated - Thermal 99.1    98.3    98.3    97.8   
Return on equity for the twelve months ended September 30, 2013         1.8    4.2   
  and December 31, 2012 (per cent)4                
Funds from operations interest coverage for the twelve months         2.8    2.2   
  ended September 30, 2013 and December 31, 2012 (times)4                
1 Average sales prices are computed as net generation sales or spot market sales 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 Energy Supply Agreements.
3 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 period
  ended September 30, 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 and nine month periods ended Sept. 30, 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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