Ontario Power Generation reports 2009 second quarter financial results



    TORONTO, Aug. 14 /CNW/ - Ontario Power Generation Inc. ("OPG" or the
"Company") today reported its financial and operating results for the three
and six months ended June 30, 2009. Net income for the second quarter of 2009
was $306 million compared to net income of $99 million for the same period in
2008. Net income for the six months ended June 30, 2009 was $297 million
compared to $261 million for the same period in 2008.
    Net income for the second quarter of 2009 was favourably impacted by the
recognition of a regulatory asset related to a tax loss variance account
authorized by the Ontario Energy Board ("OEB") effective April 1, 2008, and
higher earnings from the Nuclear Funds. The favourable net income impacts were
$141 million and $193 million, respectively.
    "In the second quarter, OPG's operating and financial results continued
to be affected by reduced electricity demand in Ontario and lower spot market
electricity prices. In light of these conditions, we have intensified our
efforts on prudent financial operations by instituting cost constraint
measures and pursuing further cost reduction opportunities" said President and
CEO Tom Mitchell.
    Total electricity generated in the second quarter of 2009 of 20.9
terawatt hours ("TWh") was 19 percent lower than second quarter 2008
production of 25.9 TWh, primarily a result of lower electricity production
from the fossil-fuelled and nuclear stations. Fossil-fuelled generation
decreased to 1.8 TWh from 5.5 TWh in the same quarter in 2008. This decrease
was primarily due to lower electricity demand in Ontario and an increase in
electricity production from other Ontario generators. Nuclear production
decreased by 0.9 TWh primarily as a result of a successful planned vacuum
building outage at the Darlington nuclear generating station which required a
shutdown of all four units. This decrease in generation at the Darlington
station was partially offset by an increase in production at the Pickering
stations. For the six months ended June 30, 2009, total production from OPG's
generating stations was 46.5 TWh compared to 55.3 TWh for the same period in
2008. This decrease primarily reflects lower fossil production of 6.4 TWh.
    Capability factors at the Pickering A and B stations improved
significantly during the second quarter in comparison to the second quarter of
2008, while the Darlington station experienced a decrease in its capability
factor as a result of the planned vacuum building outage. The reliability of
the hydroelectric stations improved during the second quarter and on a
year-to-date basis compared with 2008, primarily as a result of strong
equipment performance, and deferral and re-scheduling of planned outages to
increase availability during periods of high water levels. The reliability of
the fossil-fuelled stations also improved during the second quarter and on a
year-to-date basis compared with 2008, consistent with OPG's operating
strategy to limit the number of coal-fired units offered into the electricity
market.

    Segmented Financial Results

    OPG's income before interest and income taxes was $354 million in the
second quarter of 2009 compared to $130 million for the three months ended
June 30, 2008.
    Income before interest and income taxes from OPG's electricity generating
segments was $191 million in the second quarter of 2009 compared to $172
million for the three months ended June 30, 2008. Gross margin increased
primarily due to the recognition of a regulatory asset related to the tax loss
variance account as a result of a 2009 OEB decision and the corresponding
increase in revenue, and higher prices received for production from OPG's
regulated stations. This increase was partially offset by lower prices
received for production from OPG's unregulated stations, lower fossil-fuelled
and nuclear generation, and higher fuel prices and fuel related costs. The
unfavourable impact of lower generation, lower electricity sales prices, and
higher fuel related costs at OPG's fossil-fuelled stations, was largely offset
by revenues related to a contingency support agreement established with the
Ontario Electricity Financial Corporation to provide for the continued
reliability and availability of OPG's Nanticoke and Lambton generating
stations.
    Income before interest and income taxes from OPG's Regulated - Nuclear
Waste Management segment was $143 million in the second quarter of 2009
compared to a loss before interest and taxes of $43 million for the three
months ended June 30, 2008, an improvement of $186 million. Earnings from the
Nuclear Funds, before the impact of a variance account approved by the OEB to
capture the differences between actual and forecast revenues and costs related
to the nuclear generating stations on lease to Bruce Power, were $451 million
for the second quarter of 2009, compared to $108 million in the same quarter
of 2008, an increase of $343 million. This increase in the earnings was
primarily due to favourable returns from the Decommissioning Fund due to
improvements in trading levels of global financial markets. The earnings from
the Nuclear Funds were affected by the establishment of the Bruce variance
account, effective April 1, 2008, for the portion of the earnings from the
Nuclear Funds related to the nuclear generating stations on lease to Bruce
Power. OPG recorded a reduction of $150 million in this variance account
related to the Nuclear Funds during the second quarter of 2009, which reduced
the reported earnings from the Nuclear Funds.
    OPG's income before interest and income taxes was $463 million for the
six months ended June 30, 2009 compared to $324 million for the six months
ended June 30, 2008.
    Income before interest and income taxes from OPG's electricity generating
segments was $434 million for the six months ended June 30, 2009 compared to
$553 million for the same period in 2008. Gross margin decreased primarily as
a result of lower prices received for production from OPG's unregulated
stations, lower fossil and nuclear generation, and higher fuel prices and fuel
related costs. These unfavourable impacts were partially offset by the
recognition of a regulatory asset as a result of the OEB's decision and the
corresponding increase in revenue, higher prices received for production from
OPG's regulated stations, and revenues related to the contingency support
agreement for the Nanticoke and Lambton generating stations. Income before
interest and income taxes for the six months ended June 30, 2009 also
decreased compared to 2008 as a result of higher OM&A expenses due to an
increase in planned outage and maintenance activities.
    For the six months ended June 30, 2009, there was a loss before interest
and income taxes of $21 million in the Regulated - Nuclear Waste Management
segment compared to a loss of $228 million for the same period in 2008. This
improvement was primarily due to favourable returns from the Decommissioning
Fund due to improvements in trading levels of global financial markets.

    Generation Development

    OPG is undertaking a number of generation development projects aimed at
significantly contributing to Ontario's long-term electricity supply
requirements. The status of these projects is as follows:

    
    Nuclear

    -   On June 29, 2009, the Government of Ontario suspended the competitive
        Request for Proposal ("RFP") process to procure two new nuclear
        reactors planned for the Darlington site. In the announcement, the
        Government indicated that the competitive RFP process did not provide
        Ontario with a suitable option at this time. OPG is continuing with
        two initiatives that were underway - the environmental assessment
        process and obtaining a site preparation licence.

    -   During the April 15 to May 25, 2009 period, all four units at the
        Darlington station were taken out of service for the planned vacuum
        building outage, which is a requirement every twelve years. Critical
        inspection and testing associated with key components in the vacuum
        building was performed to ensure its continued availability. During
        the outage, other work, including reactor feeder inspections and
        replacement, pressure tube inspections, turbine-generator
        maintenance, and valve and electrical maintenance was also completed.
        The inspections confirmed the excellent physical condition of the
        containment building. The vacuum building outage was successfully
        completed and three of the four units were returned to service in
        May. The fourth unit was returned to service in July as part of a
        scheduled outage.

    Hydroelectric

    -   With respect to the Niagara tunnel project, at June 30, 2009, the
        tunnel boring machine had advanced to 4,568 metres, which represents
        45 percent of the tunnel length. Progress of the tunnel boring
        machine has improved following realignment of the tunnel to reduce
        overbreak and minimize the remaining excavation in the Queenston
        shale formation. The installation of the tunnel concrete lining is
        progressing well and is ahead of the revised schedule. OPG and the
        contractor renegotiated the design-build contract with a revised
        target cost and schedule. The target cost and schedule take into
        account the difficult rock conditions encountered and the concurrent
        tunnel excavation and liner installation work required for completion
        of the tunnel. The contract includes incentives and disincentives
        related to achieving the target cost and schedule. The original
        project cost was estimated at $985 million with a scheduled
        completion of June 2010. The revised project cost estimate is
        $1.6 billion and the revised schedule completion date is December
        2013.

    -   OPG entered into a partnership agreement with the Lac Seul First
        Nation ("LSFN") regarding the 12.5 MW Lac Seul generating station. In
        July 2009, OPG transferred ownership of the station to the
        partnership. OPG has a 75 percent interest in the partnership, while
        the LSFN have a 25 percent interest.

    -   Project financing was completed for the Upper Mattagami and Hound
        Chute development projects in May 2009. Senior Notes totaling
        $200 million were issued by the UMH Energy Partnership, a general
        partnership between OPG and UMH Energy Inc., a wholly-owned
        subsidiary of OPG. In the second quarter of 2008, OPG entered into a
        $100 million five-year revolving committed bank credit facility in
        support of this project. The total project cost is estimated to be
        $300 million.

    -   The development plan to increase the generating capacity of four
        hydroelectric generating stations on the Lower Mattagami River from
        483 MW to 933 MW is proceeding, and is expected to be finalized in
        the fourth quarter of 2009. A comprehensive study process must be
        followed under Canadian Environment Assessment Agency regulations.
        The Federal Environmental Assessment Comprehensive Study Report will
        be issued for comment in the third quarter of 2009. OPG engaged in
        consultation with Aboriginal communities regarding the project. A
        comprehensive agreement has been negotiated with a local First
        Nations that resolves grievances attributed to the construction and
        subsequent operation and maintenance of OPG facilities in the area.
        The new agreement will also provide the First Nation with an ability
        to purchase up to a 25 percent equity interest in the project.

    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. PEC was declared in-service
        in a combined cycle mode in April 2009, earlier than the contractual
        in-service date of June 2009.



    FINANCIAL AND OPERATIONAL HIGHLIGHTS

    -------------------------------------------------------------------------
                                       Three Months Ended   Six Months Ended
    (millions of dollars -                   June 30             June 30
     except where noted)                  2009      2008      2009      2008
    -------------------------------------------------------------------------
    Earnings
    Revenue after revenue limit rebate   1,397     1,385     2,878     2,948
    Fuel expense                           220       277       481       581
    -------------------------------------------------------------------------
    Gross margin                         1,177     1,108     2,397     2,367
    -------------------------------------------------------------------------

    Operations, maintenance and
     administration expense                762       750     1,504     1,441
    Depreciation and amortization          185       160       363       335
    Accretion on fixed asset removal and
     nuclear waste management liabilities  159       152       318       287
    Earnings on nuclear fixed asset
     removal and nuclear waste management
     funds                                (301)     (108)     (295)      (57)
    Other net expenses                      18        24        44        37
    -------------------------------------------------------------------------
    Income before interest and income
     taxes                                 354       130       463       324
    Net interest expense                    43        39        82        79
    Income tax expenses (recoveries)         5        (8)       84       (16)
    -------------------------------------------------------------------------
    Net income                             306        99       297       261
    -------------------------------------------------------------------------

    Cash flow
    Cash flow (used in) provided by
     operating activities                 (183)      151      (142)      396
    -------------------------------------------------------------------------

    Income (loss) before interest and
     income taxes
    Generating segments                    191       172       434       553
    Nuclear Waste Management segment       143       (43)      (21)     (228)
    Other segment                           20         1        50        (1)
    -------------------------------------------------------------------------
    Total income before interest and
     income taxes                          354       130       463       324
    -------------------------------------------------------------------------

    Electricity Generation (TWh)
    Regulated - Nuclear                    9.2      10.1      21.5      23.4
    Regulated - Hydroelectric              4.9       4.9       9.6       9.5
    Unregulated - Hydroelectric            5.0       5.4       9.3       9.9
    Unregulated - Fossil-Fuelled           1.8       5.5       6.1      12.5
    -------------------------------------------------------------------------
    Total electricity generation          20.9      25.9      46.5      55.3
    -------------------------------------------------------------------------

    Average electricity sales price
     (cents/kWh)
    Regulated - Nuclear                    5.5       4.9       5.5       4.9
    Regulated - Hydroelectric              3.9       3.6       3.7       3.6
    Unregulated - Hydroelectric            2.6       4.7       3.4       4.7
    Unregulated - Fossil-Fuelled           3.2       5.0       4.3       4.9
    OPG average sales price                4.2       4.6       4.6       4.7

    Nuclear unit capability factor
     (percent)
    Darlington                            52.5      80.7      76.1      89.8
    Pickering A                           72.2      63.3      57.4      70.5
    Pickering B                           81.4      57.3      83.2      71.9

    Equivalent forced outage rate
     (percent)
    Unregulated - Fossil-Fuelled           8.4      10.4      10.4      13.1

    Availability (percent)
    Regulated - Hydroelectric             93.7      93.2      94.0      93.4
    Unregulated- Hydroelectric            97.5      97.6      96.5      96.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    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 six months ended June 30, 2009, 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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