OPG reports 2015 third quarter financial results

Quarterly earnings were $80 million as OPG successfully executes the
vacuum building outage at Darlington

TORONTO, Nov. 13, 2015 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported net income attributable to the Shareholder before extraordinary gain for the three months ended Sept. 30, 2015 of $80 million compared to $118 million for the same quarter in 2014. The decreased earnings were mainly a result of lower nuclear generation and higher operations, maintenance and administration (OM&A) expenses reflecting the planned Vacuum Building Outage (VBO) at the Darlington Nuclear Generating Station. 

Net income attributable to the Shareholder before extraordinary gain for the nine months ended Sept. 30, 2015 was $503 million compared to $475 million for the same period in 2014. The increased earnings over this period were mainly attributable to higher sales prices for OPG's regulated facilities authorized by the Ontario Energy Board (OEB) beginning in Nov. 2014, and to income from the new hydroelectric units on the Lower Mattagami River and the converted Atikokan and Thunder Bay biomass generating stations.

Jeff Lyash, OPG's President and CEO said, "I am encouraged by our good financial results to date and especially pleased with the excellent reliability of the Pickering Nuclear Generating Station this year. I am also impressed with the consistently strong performance of our hydroelectric and thermal fleet.  This provides the base that we need as OPG prepares to proceed with our major investment in refurbishing the Darlington Nuclear Generating Station.

"The Darlington station investment would create thousands of jobs over the coming decade and ensure a secure, clean, domestic supply of reliable, economically-priced electricity for several decades. The investment also means the people of Ontario would continue to derive significant benefits from the four units at Darlington, which are a major public asset," added Lyash.

"OPG has been preparing for the refurbishment project for six years. Our focus has been on getting the basics right.  Successfully operating our assets and delivering other major projects demonstrate that the company is ready to undertake this investment."

Overall, OPG received an average of 7.1 cents per kilowatt hour for its power in the third quarter of 2015, which was significantly lower than the average non-OPG commodity cost of electricity in Ontario.

Business Segment, Generating, and Operating Performance

Net income attributable to the Shareholder after extraordinary gain for the third quarter of 2015 was $80 million compared to $361 million for the same quarter in 2014. Net income attributable to the Shareholder after extraordinary gain for the nine months ended Sept. 30, 2015 was $503 million, compared to $718 million for the same period in 2014. The decreases in income primarily reflected the recognition of an extraordinary gain of $243 million in the third quarter of 2014 related to the
48 previously unregulated hydroelectric facilities prescribed for rate regulation beginning in Jul. 2014. The gain represents regulatory assets related to deferred income taxes expected to be recovered from customers through future regulated prices.

OPG's income before interest, income taxes and extraordinary item from the electricity generation business segments for the third quarter of 2015 and 2014 was $232 million and $220 million, respectively.  This increase in income reflected higher earnings from the Regulated – Hydroelectric and Contracted Generation Portfolio segments, partially offset by lower earnings from the Regulated – Nuclear Generation segment. Earnings increased from the Regulated – Hydroelectric segment due to the new regulated prices effective Nov. 2014, and from the Contracted Generation Portfolio segment due to the new hydroelectric units on the Lower Mattagami River and the conversion to biomass fuel of the Atikokan and Thunder Bay generating stations.  Lower earnings from the Regulated – Nuclear Generation segment were mainly due to an increase in OM&A expenses and lower generation as a result of the Darlington VBO, which commenced on Sept. 14, 2015. 

Earnings from the electricity generation business segments were $927 million for the nine months ended Sept. 30, 2015, compared to $666 million for the same period of 2014. The increase reflected higher earnings from the Regulated – Nuclear Generation and Regulated – Hydroelectric segments primarily as a result of the new regulated prices. Improved earnings from the Contracted Generation Portfolio also contributed to the higher earnings from the electricity generation segments.

The nuclear waste management business segment recorded a loss before interest, income taxes and extraordinary item of $59 million in the third quarter of 2015, compared to a loss of $32 million in the same quarter of 2014. For the nine months ended Sept. 30, 2015, the segment recorded a loss of $131 million, compared to a loss of $42 million for the same period in 2014. The decreases in earnings for the three and nine month periods ended Sept. 30, 2015 were primarily a result of higher accretion expense related to fixed asset removal and nuclear waste management liabilities in 2015.

Total electricity generated during the three months ended Sept. 30, 2015 was 19.1 terawatt hours (TWh) compared to 21.0 TWh for the same quarter in 2014. The decrease was mainly due to lower nuclear production as a result of the VBO at the Darlington GS, which required the shutdown of all four units for the duration of the outage, and decreased hydroelectric generation as a result of lower water flows in eastern Ontario. The VBO was completed safely on Oct. 30, 2015.

Total electricity generated during the nine months ended Sept. 30, 2015 was 61.2 TWh, compared to 61.3 TWh for the same period in 2014.  The marginal decrease was mainly due to lower water flows in eastern Ontario and higher generation losses as a result of surplus baseload generation conditions, largely offset by higher nuclear generation primarily due to improved operating performance at the Pickering GS. 

For the three months ended Sept. 30, 2015, the capability factor at the Darlington GS was 75.9 per cent compared to 98.4 per cent for the same quarter in 2014.  For the nine months ended Sept. 30, 2015, the Darlington GS capability factor was 88.3 per cent compared to 90.7 per cent for the same period in 2014. The decreases for the three and nine month periods ended Sept. 30, 2015 were primarily due to the VBO.

At the Pickering GS, the capability factor improved to 82.2 per cent for the three months ended Sept. 30, 2015, compared to 79.9 per cent in the same quarter of 2014. The Pickering GS capability factor of 78.4 per cent for the nine months ended Sept. 30, 2015 was an improvement from the 74.7 per cent for the same period in 2014. The improved capability factors were primarily due to a decrease in the number of unplanned outage days reflecting improvements associated with fuel handling equipment performance, partially offset by an increase in planned outage days.  

The availability of OPG's regulated hydroelectric generating stations for the three and nine month periods ended Sept. 30, 2015 remained above 90 per cent, and was comparable to availability for the same periods in 2014. The availability of OPG's contracted hydroelectric generating stations for the three months ended Sept. 30, 2015 was 81.5 per cent compared to 95.9 per cent for the same period in 2014. The lower availability was due to a higher number of planned outage days at the Lower Mattagami stations. For the nine months ended Sept. 30, 2015, the availability of OPG's contracted hydroelectric generating stations remained above 90 per cent. The thermal Equivalent Forced Outage Rate increased for the three and nine month periods ended Sept. 30, 2015, compared to the same periods in 2014, primarily due to an outage to perform repair work at the Lennox GS. 

Generation Development

OPG is undertaking a number of generation development and refurbishment projects to support Ontario's long-term electricity supply requirements and operate a generation portfolio that is essentially free of greenhouse gases and smog-causing emissions. Significant developments to Sept. 30, 2015 were as follows:

Darlington Refurbishment project

  • The Darlington Refurbishment project is currently in the definition phase.
  • In November 2015, OPG's Board of Directors approved the budget of $12.8 billion including capitalized interest and escalation, and the schedule for the four-unit refurbishment. The approved budget is consistent with the previous total project cost estimate of less than $10 billion in 2013 dollars excluding capitalized interest and escalation. The refurbishment of the last unit is scheduled to be completed by 2026.
  • The budget and schedule will be submitted for Shareholder concurrence. Upon Shareholder concurrence, the project will transition to the execution phase, including commencement of the first unit's refurbishment in late 2016.
  • Life-to-date capital expenditures were $1,980 million as at Sept. 30, 2015.

Peter Sutherland Sr. GS

  • In March 2015, OPG's Board of Directors approved a project to construct a new
    28 MW generating station, Peter Sutherland Sr. GS, on the New Post Creek near its outlet to the Abitibi River, with a planned in-service date in the first half of 2018 and an approved budget of $300 million. Life-to-date capital expenditures were
    $67 million as at Sept. 30, 2015.
  • In the second quarter of 2015, a hydroelectric energy supply agreement was executed for the station with the Independent Electricity System Operator (IESO).
  • Construction work commenced during the second quarter of 2015 and project financing was completed in Oct. 2015.
  • The station will be completed through a partnership between OPG and Coral Rapids L.P., a wholly owned subsidiary of the Taykwa Tagamou Nation.



FINANCIAL AND OPERATIONAL HIGHLIGHTS











Three Months Ended

Nine Months Ended



September 30

September 30

(millions of dollars – except where noted)

2015


2014


2015


2014



Revenue

1,426


1,160


4,164


3,645



Fuel expense

175


161


512


464



Gross margin

1,251


999


3,652


3,181



Operations, maintenance and administration

680


595


1,995


1,931



Depreciation and amortization

350


184


746


546



Accretion on fixed asset removal and nuclear waste management liabilities

224


195


672


586



Earnings on nuclear funds - (a reduction to expenses)

(163)


(161)


(535)


(538)



Income from investments subject to significant influence

(8)


(9)


(30)


(32)



Other net expenses

11


15


37


39



Income before interest, income taxes and extraordinary item

157


180


767


649



Net interest expense

42


15


136


38



Income tax expense

30


46


114


133



Income before extraordinary item

85


119


517


478



Extraordinary item

-


243


-


243



Net income

85


362


517


721



Net income attributable to the Shareholder

80


361


503


718



Net income attributable to non-controlling interest 1

5


1


14


3


Income (loss) before interest, income taxes and extraordinary item










Electricity generation business segments

232


220


927


666



Regulated – Nuclear Waste Management

(59)


(32)


(131)


(42)



Services, Trading, and Other Non-Generation

(16)


(8)


(29)


25



Total income before interest, income taxes and extraordinary item

157


180


767


649


Cash flow










Cash flow provided by operating activities

449


361


1,354


994


Electricity generation (TWh)










Regulated – Nuclear Generation

11.2


12.8


35.7


35.4



Regulated – Hydroelectric










   Existing regulated hydroelectric stations

5.3


5.1


14.6


14.6



   Hydroelectric stations prescribed for rate regulation beginning in 2014

2.0


2.5


8.5


9.1



Contracted Generation Portfolio 2

0.6


0.6


2.4


2.2



Total electricity generation

19.1


21.0


61.2


61.3


Average commodity cost of electricity (¢/kWh) 







Average revenue for OPG 3

7.1


5.1


6.5


5.5



Average non-OPG commodity cost of electricity 4

11.0


10.8


10.9


10.5


Nuclear unit capability factor (per cent)










Darlington GS

75.9


98.4


88.3


90.7



Pickering GS

82.2


79.9


78.4


74.7


Availability (per cent)










Regulated – Hydroelectric

90.5


90.7


91.3


91.4



Contracted Generation Portfolio – hydroelectric stations

81.5


95.9


91.5


93.0


Equivalent forced outage rate










Contracted Generation Portfolio – thermal stations

7.4


2.1


14.1


2.9


Return on common equity for the twelve months ended September 30,





5.9


8.5



2015 and December 31, 2014 (per cent) 5









Return on common equity, excluding extraordinary gain, for the twelve





6.0


6.0



months ended September 30, 2015 and December 31, 2014 (per cent) 5









Funds from operations interest coverage for the twelve months





4.9


2.8



ended September 30, 2015 and December 31, 2014 (times) 5









1     Relates to the 25 per cent interest of a corporation wholly owned by the Moose Cree First Nation in the Lower Mattagami Limited Partnership. 
2     Includes OPG's share of generation volume from its 50 per cent ownership interests in the Portlands Energy Centre (PEC) and Brighton Beach GS.
3     Average revenue for OPG is the quotient of (i) OPG's revenues from regulated prices established by the OEB, plus OPG's market based revenues, plus OPG's revenues from Energy Supply Agreements, and (ii) OPG's generation.  The calculation includes OPG's share of revenues and generation from PEC and Brighton Beach, and in 2014, excludes revenue from the cost recovery agreements related to the Nanticoke GS and the Lambton GS which were shut down in 2013. OPG's average revenue is the average commodity cost of electricity generated by OPG.
4     The average non-OPG commodity cost of electricity is determined as the quotient of (i) the sum of hourly Ontario demand multiplied by the Hourly Ontario Energy Price (HOEP), plus total global adjustment payments, plus the sum of hourly net exports multiplied by the HOEP, less OPG's revenue as described in Note 3 above, and (ii) non-OPG generation. Non-OPG generation is calculated as the Ontario demand as published by the IESO, plus net exports, minus OPG's electricity generation.
5     "Return on common equity" and "Funds from operations interest coverage" 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, 2015, 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 that is 99.7 per cent free of greenhouse gas and smog-causing emissions. 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 September 30, 2015, 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 @opg

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