Ontario Power Generation reports 2008 financial results



    TORONTO, Feb. 13 /CNW/ - Ontario Power Generation Inc. ("OPG" or the
"Company") today reported its financial and operating results for the year
ended December 31, 2008. Net income for the year was $88 million compared to
net income of $528 million for the year ended December 31, 2007.
    "OPG's operational performance improved in 2008 with electricity
production and gross margin increasing compared to 2007. However, these
favourable increases were more than offset by the negative impact that the
capital markets had on the market value of the investment funds that have been
established for nuclear fixed asset removal and nuclear waste management,"
said President and CEO Jim Hankinson.
    During the fourth quarter of 2008, OPG revised its reporting segments to
align with its strategic business unit and reporting structure, and to reflect
the manner in which operating decisions are made and performance assessed. A
new business segment titled 'Regulated - Nuclear Waste Management' was
created, which includes: certain activities associated with the management of
used nuclear fuel and low and intermediate level waste; the decommissioning of
OPG's nuclear generating stations; and the management of the investment funds
established for nuclear fixed asset removal and nuclear waste management
("Nuclear Funds"). OPG's other business segments include Regulated - Nuclear
Generation, Regulated - Hydroelectric, Unregulated - Hydroelectric, and
Unregulated - Fossil-Fuelled.
    Income before interest and income taxes of $1,028 million from OPG's
electricity generating segments in 2008 improved significantly compared to
income before interest and income taxes of $594 million in 2007. Gross margin
increased as a result of the Ontario Energy Board's ("OEB") rate decision for
OPG's regulated hydroelectric and nuclear facilities, higher market prices,
and higher nuclear and hydroelectric generation.
    Total electricity generated during 2008 of 107.8 TWh increased from 2007
production of 105.1 TWh. The increase of 2.7 TWh was primarily due to higher
generation from OPG's hydroelectric and nuclear stations. Higher hydroelectric
production was primarily due to increased water flows and excellent station
performance. Higher generation at the nuclear stations was mainly a result of
improved reliability at the Pickering A and Darlington nuclear generating
stations. Generation at the fossil-fuelled stations was lower primarily as a
result of the higher production from OPG's nuclear and hydroelectric
generating stations, and lower market demand.
    The reliability of OPG's nuclear stations improved during 2008 due to a
reduction in outage days at the Darlington and Pickering A generating
stations. The Darlington station continued to achieve exceptional reliability
with a unit capability factor of 94.5 per cent in 2008. The availability of
OPG's regulated and unregulated hydroelectric generating stations remained at
historically high levels. The reliability of OPG's fossil stations decreased
slightly as a result of forced and extended outages at the Lambton and
Atikokan generating stations.
    A loss before interest and income taxes of $670 million in the Regulated
- Nuclear Waste Management segment in 2008 was significantly higher than the
$26 million loss before interest and income taxes in 2007. The loss before
interest and income taxes in 2008 primarily resulted from lower returns on the
Decommissioning Fund caused by significant reductions in the trading levels of
global financial markets, which reduced the current market value of the fund
investments. These losses were partially mitigated by the establishment by the
OEB of a regulatory variance account associated with the stations leased to
Bruce Power, since a portion of the losses from the Nuclear Funds are related
to these stations.
    On December 2, 2008, the OEB issued new payment amounts for production
from OPG's regulated hydroelectric and nuclear facilities. The new regulated
prices are $36.66/MWh and $54.98/MWh for OPG's regulated hydroelectric and
nuclear facilities, respectively. The OEB determined that the appropriate rate
of return on equity for OPG's regulated facilities for the purposes of
determining the new payment amounts is 8.65 percent. This rate is higher than
the 5 percent rate of return on equity established for the period up to April
1, 2008. The new prices apply retrospectively to production from April 1,
2008.
    OPG advanced a number of new generation projects aimed at significantly
contributing to Ontario's long-term electricity supply requirements:

    
    Nuclear

    -  On June 16, 2008, the Province announced that OPG will operate a new
       two-unit nuclear power plant at the Darlington site. OPG is
       participating with Infrastructure Ontario in a competitive process to
       select a nuclear reactor vendor in the spring of 2009. OPG is
       proceeding with initiatives associated with the Environmental Impact
       Statement.

    -  OPG is proceeding with the Pickering B Refurbishment feasibility
       study. OPG submitted a draft Environmental Impact Statement report to
       the Canadian Nuclear Safety Commission ("CNSC") in December 2007. The
       CNSC finalized their Environmental Assessment ("EA") Screening Report
       in October 2008 and conducted a one-day public hearing on December 10,
       2008. On January 26, 2009, the CNSC concluded that, taking into
       account the identified mitigation measures, the refurbishment and
       continued operation of the Pickering B nuclear station is not likely
       to cause significant adverse environmental effects. OPG is preparing
       the final Integrated Safety Review for submission to the CNSC in late
       2009.

    Hydroelectric

    -  At December 31, 2008, the boring machine for the Niagara tunnel had
       advanced to 3,306 metres. Progress continues to be slower than
       expected in the Queenston shale formation, primarily due to excessive
       overbreak in the tunnel crown. To minimize further excavation in the
       Queenston shale, a change in the vertical alignment has been
       initiated. Non-binding recommendations issued by the Dispute Review
       Board in August 2008 are the basis of current negotiations between OPG
       and the contractor to revise the design build contract. The
       negotiations are targeted for completion in the first quarter of 2009,
       and are expected to have a significant impact on the project cost
       estimate and the completion schedule.

    -  OPG is replacing four hydroelectric stations. Three of the stations
       are on the Upper Mattagami River (Wawaitin, Sandy Falls and Lower
       Sturgeon) and the fourth (Hound Chute) is located on the Montreal
       River. The project includes the demolition and decommissioning of the
       four existing powerhouses that are at the end of their useful lives,
       and the rehabilitation of the existing dams and other civil
       structures. Upon completion of the project, the total installed
       capacity of the four stations will increase from 23 MW to 44 MW,
       increasing annual energy production from 134 GWh to 223 GWh.

    -  In February 2009, the Lac Seul generating station is expected to be
       declared in service with a capacity of 12.5 MW. The project was
       originally expected to be in-service by the end of the third quarter
       of 2007. However, it was delayed as a result of various contractor
       difficulties. A settlement in principle has been negotiated to
       compensate the contractor for recovery of certain additional costs.
       The final project cost is expected to be $55 million.

    -  OPG is proceeding with a development plan to increase the generating
       capacity of four hydroelectric generating stations on the Lower
       Mattagami River from 483 MW to 933 MW. A comprehensive Environmental
       Assessment will be submitted to the Minister of the Environment for
       Canada and to the Canadian Environmental Assessment Agency in 2009.
       OPG is also engaged with First Nation stakeholders to address past
       grievances and to establish a new commercial relationship.

    Natural Gas

    -  The Portlands Energy Centre ("PEC") is a 550 MW high-efficiency,
       combined cycle, natural gas generation plant designed to meet downtown
       Toronto's need for electricity. PEC is a limited partnership between
       OPG and TransCanada Energy Ltd. The first phase was completed in a
       simple cycle mode, with a capacity of up to 340 MW, in May 2008. In
       September 2008, the station was taken out of service in order to
       complete construction of the combined cycle mode of operation. PEC is
       expected to be fully operational in the combined cycle configuration
       in the first quarter of 2009, earlier than its contractual in-service
       date of June 1, 2009.


    FINANCIAL AND OPERATIONAL HIGHLIGHTS
    -------------------------------------------------------------------------
                                                              Year Ended
                                                              December 31
    (millions of dollars - except where noted)              2008        2007
    -------------------------------------------------------------------------
    Earnings
    Revenue after revenue limit rebate                     6,082       5,660
    Fuel expense                                           1,191       1,270
    -------------------------------------------------------------------------
    Gross margin                                           4,891       4,390

    Operations, maintenance and administration expense     2,967       2,974
    Depreciation and amortization                            743         695
    Accretion on fixed asset removal and nuclear waste
     management liabilities                                  581         507
    Losses (earnings) on nuclear fixed asset removal
     and nuclear waste management funds                       93        (481)
    Other net expenses                                        71          75
    -------------------------------------------------------------------------
    Income before interest and income taxes                  436         620
    Net interest expense                                     165         143
    Income tax expenses (recoveries)                         183         (51)
    -------------------------------------------------------------------------
    Net income                                                88         528
    -------------------------------------------------------------------------

    Cash flow
    Cash flow provided by operating activities               870         379
    -------------------------------------------------------------------------

    Income (loss) before interest and income taxes
    Generating segments                                    1,028         594
    Nuclear Waste Management segment                        (670)        (26)
    Other segment                                             78          52
    -------------------------------------------------------------------------
    Total income before interest and income taxes            436         620
    -------------------------------------------------------------------------

    Electricity generation (TWh)
    Regulated - Nuclear                                     48.2        44.2
    Regulated - Hydroelectric                               18.8        18.1
    Unregulated - Hydroelectric                             17.6        13.8
    Unregulated - Fossil-Fuelled                            23.2        29.0
    -------------------------------------------------------------------------
    Total electricity generation                           107.8       105.1
    -------------------------------------------------------------------------

    Average electricity sales price (cents/kWh)
    Regulated - Nuclear                                      5.3         4.9
    Regulated - Hydroelectric                                3.9         3.5
    Unregulated - Hydroelectric                              4.8         4.7
    Unregulated - Fossil-Fuelled                             5.0         4.8
    OPG average sales price                                  4.9         4.6
    -------------------------------------------------------------------------
    Nuclear unit capability factor (percent)
    Darlington                                              94.5        89.5
    Pickering A                                             71.8        41.3
    Pickering B                                             71.4        75.0

    Equivalent forced outage rate (percent)
    Unregulated - Fossil-Fuelled                            12.8        11.5

    Availability (percent)
    Regulated - Hydroelectric                               93.8        94.1
    Unregulated - Hydroelectric                             94.6        93.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    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 December
31, 2008, 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.




For further information:

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


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