OPG Reports 2016 Third Quarter Financial Results

Quarterly Earnings were $194 million as OPG Commences Execution of Canada's Largest Clean Energy Project

TORONTO, Nov. 11, 2016 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported income of $194 million for the third quarter of 2016.  On October 15, 2016, OPG began Canada's largest clean energy project, the refurbishment of the Darlington Nuclear Generating Station (GS). 

"The Darlington Nuclear Refurbishment Project is an investment in Ontario's future.  It benefits communities across the province, provides clean, safe and reliable power, and will help moderate customer prices," said Jeff Lyash, OPG's President and CEO.  "Ninety-six per cent of the project's suppliers are based in Ontario, and the project will have a long-term boost to the Ontario economy."

In a recent report, The Conference Board of Canada has said that the Darlington Nuclear GS is a mainstay of the Ontario economy, with refurbishment and operation of Darlington creating $90 billion in economic benefits over the life of the station.  Another report, released by Intrinsik Environmental Sciences Inc., says that the greenhouse gas emission reductions from the continued operations of the Darlington Nuclear GS are "equivalent to removing approximately two million cars from Ontario's roads per year."

"These reports clearly show that the Darlington station will continue to play a major role in Ontario's future economic and environmental success," Lyash said.

The Canadian Nuclear Safety Commission has given OPG's Pickering and Darlington nuclear generating stations its highest possible safety rating.  "Providing clean energy while protecting the environment, the public and our staff is our priority," said Mr. Lyash.  "It is paramount that we operate our nuclear facilities safely, and this assessment validates OPG's commitment to a culture of safety."

OPG also completed the last tranche of the project financing for the Lower Mattagami River Project during the quarter.  "This is a project management success story that was completed ahead of schedule and on budget," said Mr. Lyash.  "In partnership with the Moose Cree First Nation, we have expanded the Lower Mattagami River Complex, which adds to our renewable generation fleet."

OPG produces about half the electricity used in Ontario and the Company's power is priced 40 per cent lower than other generators, which helps moderate customer bills.  

Net income attributable to the Shareholder for the third quarter of 2016 was $194 million compared to $80 million for the same quarter in 2015.  The electricity generation business reported slightly higher earnings before interest and taxes during the third quarter of 2016 compared to the same period last year.  Additionally, there were higher earnings on the nuclear fixed asset removal and nuclear waste management segregated funds (Nuclear Funds) of $85 million, driven by higher market returns on fund assets.

Net income attributable to the Shareholder for the nine months ended September 30, 2016 was $449 million compared to $503 million for the same period in 2015.  The year-over-year decrease in net income was driven by an increase in nuclear unplanned and planned outages during 2016, which increased OM&A expenses by $91 million and reduced generation from the Regulated – Nuclear Generation segment.  The decrease was partially offset by higher earnings on the Nuclear Funds. 

For accounting purposes, OPG limits the Nuclear Funds asset balance on its financial statements to the amount of the underlying obligations determined per the Ontario Nuclear Funds Agreement (ONFA) with the Province.  An update to the obligations under the ONFA is being finalized and targeted to be in place by the end of 2016, subject to the Province's review and approval.  If approved by the Province, the updated obligations are expected to be lower than the obligations currently in place.  OPG projects that this would result in lower earnings on the segregated funds during the fourth quarter of 2016, compared to 2015, in part due to an accounting adjustment that would be required to limit the funds asset values on OPG's financial statements to the lower obligations.  This would partially offset the year-over-year higher Nuclear Funds earnings to date.

Generating and Operating Performance

Electricity generated during the three months ended September 30, 2016 was 19.5 terawatt hours (TWh) compared to 19.1 TWh for the same quarter in 2015. 

Electricity generation increased by 0.4 TWh primarily due to a higher number of planned outage days during the third quarter of 2015 reflecting the four-unit Darlington Vacuum Building Outage (VBO), which was completed at the end of October 2015.  The increase was partially offset by lower generation from the Pickering GS during the third quarter of 2016 due to an increase in unplanned and planned outages.  Lower water flows in parts of Ontario also contributed to lower regulated hydroelectric generation during the third quarter of 2016.

For the nine months ended September 30, 2016, total electricity generated was 59.9 TWh, compared to 61.2 TWh for the same period in 2015.  The decrease in electricity generation was mainly due to a higher number of unplanned and planned outage days at OPG's nuclear generating stations.  Additionally, the Regulated – Hydroelectric segment experienced a decrease in generation primarily due to a higher volume of water spilled as a result of more prevalent surplus baseload generation conditions during the first six months of the year and drier weather conditions throughout the third quarter of 2016 resulting in lower water flows. 

For the three months ended September 30, 2016, the unit capability factor at the Darlington GS was 89.6 per cent compared to 75.9 per cent for the same quarter in 2015.  The higher unit capability factor during the third quarter of 2016 was primarily due to the four-unit VBO which commenced during the third quarter of 2015.

The unit capability factor at the Darlington GS for the nine months ended September 30, 2016 decreased to 87.6 per cent compared to 88.3 per cent for the same period in 2015, primarily due to the timing of scheduled planned outages during the year.   

At the Pickering GS, the unit capability factor was 77.3 per cent for the three months ended September 30, 2016 compared to 82.2 per cent for the same quarter in 2015.  For the nine months ended September 30, 2016, the unit capability factor at the Pickering GS was 73.8 per cent compared to 78.4 per cent for the same period in 2015.  These lower unit capability factors were primarily due to an increase in unplanned outages.

The availability of OPG's regulated hydroelectric generating stations decreased for the three and nine month periods ended September 30, 2016 compared to the same periods in 2015.  The decrease was primarily due to unplanned outages and the scheduled reservoir refurbishment project at the Sir Adam Beck Pump hydroelectric GS, which is expected to be completed during the second quarter of 2017.

For the contracted hydroelectric stations, the decrease in availability for the three and nine month periods ended September 30, 2016 reflected an increase in unplanned and planned outage days.

The thermal Equivalent Forced Outage Rate improved during the three and nine month periods ended September 30, 2016, compared to the same periods in 2015, primarily due to the higher number of unplanned outage days in 2015 to perform repair work at the Lennox GS.

Generation Development

OPG is undertaking a number of generation development and life extension projects.  Significant developments during the third quarter of 2016 were as follows:

Darlington Refurbishment

In October 2016, OPG commenced the refurbishment of the first Darlington GS unit, Unit 2, as part of the Darlington Refurbishment project.  The unit was taken offline on October 15, 2016.  Once refurbished, Unit 2 is scheduled to be returned to service in the first quarter of 2020, at which time capital expenditures of approximately $4.8 billion are planned to be placed in service.  This includes expenditures incurred during the definition and planning phase of the project.  Refurbishment of the units is expected to extend the operating life of the station by approximately 30 years. 

Execution of the unit refurbishment is progressing in line with the schedule.  Life-to-date capital expenditures on the project were $2,881 million as at September 30, 2016. 

Peter Sutherland Sr. GS

Construction work on the new 28 MW hydroelectric generating station on the New Post Creek is tracking on budget and is estimated to be completed prior to the end of 2017, ahead of the original planned schedule of the first half of 2018.  The approved budget for the project is $300 million.  Life-to-date capital expenditures were $199 million as at September 30, 2016.




FINANCIAL AND OPERATIONAL HIGHLIGHTS





















Three Months Ended

Nine Months Ended



September 30

September 30

(millions of dollars – except where noted)

2016


2015


2016


2015



Revenue

1,400


1,426


4,265


4,164



Fuel expense

187


175


541


512



Gross margin

1,213


1,251


3,724


3,652



Operations, maintenance and administration

666


680


2,061


1,995



Depreciation and amortization

313


350


941


746



Accretion on fixed asset removal and nuclear waste management liabilities

232


224


696


672



Earnings on nuclear funds - (a reduction to expenses)

(248)


(163)


(620)


(535)



Income from investments subject to significant influence

(11)


(8)


(28)


(30)



Other net expenses

13


11


12


37



Income before interest and income taxes

248


157


662


767



Net interest expense

28


42


92


136



Income tax expense

22


30


109


114



Net income

198


85


461


517



Net income attributable to the Shareholder

194


80


449


503



Net income attributable to non-controlling interest 1

4


5


12


14


Income (loss) before interest and income taxes










Electricity generation business segments

238


232


736


927



Regulated – Nuclear Waste Management

18


(59)


(70)


(131)



Services, Trading, and Other Non-Generation

(8)


(16)


(4)


(29)



Total income before interest and income taxes

248


157


662


767


Cash flow










Cash flow provided by operating activities

554


449


1,268


1,354


Electricity generation (TWh)










Regulated – Nuclear Generation

11.7


11.2


34.6


35.7



Regulated – Hydroelectric

6.9


7.3


22.8


23.1



Contracted Generation Portfolio 2

0.9


0.6


2.5


2.4



Total electricity generation

19.5


19.1


59.9


61.2


Nuclear unit capability factor (per cent)










Darlington GS

89.6


75.9


87.6


88.3



Pickering GS

77.3


82.2


73.8


78.4


Availability (per cent)










Regulated – Hydroelectric

84.1


90.5


89.8


91.3



Contracted Generation Portfolio – Hydroelectric

68.2


81.5


79.6


91.5


Equivalent forced outage rate










Contracted Generation Portfolio – Thermal

2.1


7.4


1.3


14.1


Return on Equity Excluding Accumulated Other Comprehensive Income










(ROE Excluding AOCI) for the twelve months ended September 30,










2016 and December 31, 2015 (%) 3





3.3


4.0


Funds from operations (FFO) Adjusted Interest Coverage for the twelve










months ended September 30, 2016 and December 31, 2015 (times) 3





4.7


5.0













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 and Brighton Beach GS.

3    

ROE Excluding AOCI and FFO Adjusted 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 three and nine month periods ended September 30, 2016, under the sections Highlights – ROE Excluding AOCI and Highlights – FFO Adjusted Interest Coverage, as well as 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 providing low cost power in a safe, clean, reliable and sustainable manner for the benefit of our customers and shareholder.

Ontario Power Generation Inc.'s unaudited interim consolidated financial statements and Management's Discussion and Analysis as at and for the three and nine month periods ended September 30, 2016 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: 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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