Ontario Power Generation reports 2008 second quarter financial results

    TORONTO, Aug. 22 /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, 2008. Net income for the second quarter of 2008
was $99 million compared to net income of $125 million for the same period in
2007. Net income for the six months ended June 30, 2008 was $261 million
compared to $296 million for the same period in 2007.
    "While OPG's second quarter operational performance was essentially level
with the second quarter of 2007, earnings on nuclear fixed asset removal and
waste management segregated funds were lower as a result of the continued
decline in the capital markets," said President and CEO Jim Hankinson.
    On June 16, 2008, the Province of Ontario (the "Province") announced the
selection of OPG as the operator of two new nuclear units that will be located
at the Darlington site. "OPG takes great pride in being selected to operate
these units at the Darlington site," Hankinson said.
    Electricity generated in the second quarter of 2008 was 25.9 terawatt
hours ("TWh") compared to production of 26.0 TWh in the second quarter of
2007. Hydroelectric production of 10.3 TWh was higher than production of
8.6 TWh during the second quarter of 2007 mainly due to higher river flows
across the province. Nuclear production decreased by 1.0 TWh primarily as a
result of outages at the Pickering B station. Electricity production from
OPG's fossil stations decreased to 5.5 TWh in the second quarter of 2008
compared to 6.3 TWh in 2007, primarily as a result of higher hydroelectric
production. For the six months ended June 30, 2008, total production from
OPG's generating stations was 55.3 TWh compared to 54.2 TWh for the same
period in 2007. This increase reflects higher hydroelectric and nuclear
production partly offset by lower fossil production.
    The reliability of OPG's fossil and hydroelectric stations improved
during the second quarter in comparison to the second quarter of 2007.
Availability factors at OPG's fossil stations have improved considerably over
the past four years while availability factors at the Company's hydroelectric
stations remain near historically high levels. During the quarter, the
Darlington nuclear station performed additional outage work resulting in a
marginally lower capability factor compared to the second quarter of 2007.
However, on a year to date basis, the station's capability factor has
improved. On a quarterly and year to date basis, capability factors at the
Pickering A nuclear station continue to improve over 2007. While the
availability of the Pickering B nuclear station has improved on a year to date
basis over 2007, unplanned outages during the second quarter of 2007 had an
unfavourable impact on the station's capability factor.
    Net income of $99 million during the three months ended June 30, 2008 was
lower than net income of $125 million in the second quarter of 2007. Gross
margin increased primarily due to higher generation from OPG's unregulated
hydroelectric generating stations and a marginally higher electricity sales
price, partially offset by lower generation from the nuclear and
fossil-fuelled generating stations. Operations, Maintenance and Administration
(OM&A) expenditures decreased primarily as a result of additional expenses
related to past grievance settlements with First Nations that were incurred
during the second quarter of 2007 and did not reoccur in 2008. Lower pension
and other post employment benefits costs also contributed to this decrease in
OM&A. Income tax expense decreased due to a reduction in income tax
liabilities as a result of the resolution of a number of tax uncertainties.
These favourable impacts were offset by a decrease in earnings on the nuclear
fixed asset removal and nuclear waste management funds, primarily as a result
of continuing significant volatility and unfavourable returns in the capital
    Net income of $261 million during the six months ended June 30, 2008 was
lower than net income of $296 million for the same period in 2007. Gross
margin increased primarily due to higher generation from OPG's unregulated
hydroelectric stations and nuclear stations, partially offset by lower fossil
generation. On a year to date basis, OM&A expenses, income taxes, and earnings
on the nuclear fixed asset removal and nuclear waste management funds
decreased for the same reasons as during the second quarter of 2008.
    In May 2008, the Province announced limits on CO(2) emissions from OPG's
coal-fired generating stations to ensure that such emissions are reduced by
two-thirds below 2003 levels by 2011. The government has directed OPG to stage
the reduction measures to meet interim emission targets. It is expected that
the Province will ensure that an appropriate cost recovery mechanism is
established to enable OPG to recover the costs of its coal-fired generating
stations following the implementation of the CO(2) reductions.
    On August 13, 2008, Standard & Poor's (S&P) announced that it raised
OPG's long-term credit rating to "A-" with a stable outlook from "BBB+" with a
positive outlook. At the same time, S&P affirmed OPG's "A-2" global scale and
"A-1(Low)" Canada scale commercial paper rating. S&P stated that the upgrade
in the long-term rating reflects a closer relationship between the company and
its higher-rated owner, the Province (AA/Stable/A-1+), and a slightly stronger
stand-alone credit profile, given the regulatory oversight of OPG's nuclear
and baseload hydroelectric assets and an expected improvement in cash flow
    The Portlands Energy Centre ("PEC") is a 550 MW high-efficiency, combined
cycle, natural gas generation plant designed to meet downtown Toronto's urgent
need for electricity. PEC is a limited partnership between OPG and TransCanada
Energy Ltd. Construction of the station started in 2006 and the first phase
was completed on schedule and on budget, in a simple cycle mode, with a
capacity of up to 340 MW on May 31, 2008. In September 2008, the station will
be taken out of service in order to complete construction of the combined
cycle mode. PEC is expected to be completed and fully operational in the
combined cycle configuration earlier than it's contractual in service date of
June 1, 2009.

    OPG's progress on a number of new generation projects aimed at
significantly contributing to Ontario's long-term electricity supply
requirements is as follows:

    -   At June 30, 2008, the boring machine for the Niagara tunnel had
        advanced 2,399 metres. The contractor previously advised OPG that due
        to excavation difficulties under the St. David's gorge, the
        in-service date of the tunnel will be delayed. To mitigate the impact
        of the schedule delay, the contractor continues to pursue
        alternatives including realignment of a portion of the tunnel. The
        project cost estimate of $985 million will be reviewed in conjunction
        with any changes to the project completion schedule and the issues
        being considered in the ongoing dispute resolution process that is
        primarily focused on whether the actual subsurface rock conditions
        differ from the baseline established within the design-build

    -   During the second quarter of 2008, the contractor advised OPG that
        completion of the 12.5 MW, Lac Seul generating station will be
        further delayed as a result of various contractor difficulties. These
        include the replacement by the contractor of the major subcontractor
        on two occasions, as well as delays related to cofferdam
        construction, intake construction and cofferdam removal. The expected
        in-service date for the new station will now be in the fourth quarter
        of 2008.

    -   In July 2008, OPG and the Ontario Power Authority executed a
        Hydroelectric Energy Supply Agreement for the Upper Mattagami and
        Hound Chute projects and continued negotiations regarding the Healey
        Falls project.

    -   On June 16, 2008, the Province announced that OPG will operate two
        new nuclear reactors at the Darlington site. OPG is proceeding with
        initiatives associated with the Environmental Impact Statement, which
        is planned for completion in early 2009. OPG is participating with
        Infrastructure Ontario in a process to select a nuclear reactor
        vendor. In addition, over the next several months, OPG plans to
        pursue cost recovery mechanisms and explore financing options for the
        new nuclear reactors.

                                                Three Months     Six Months
                                                    Ended           Ended
                                                   June 30         June 30
    (millions of dollars - except where noted)  2008    2007    2008    2007
    Revenue after revenue limit rebate         1,385   1,373   2,948   2,897
    Fuel expense                                 277     298     581     626
    Gross margin                               1,108   1,075   2,367   2,271

    Operations, maintenance
     and administration                          750     776   1,441   1,470
    Other expenses                               267     145     681     419
    Income tax expenses (recoveries)              (8)     29     (16)     86
    Net income                                    99     125     261     296

    Cash flow
    Cash flow (used in) provided
     by operating activities                     152     312     401     475

    Electricity Generation (TWh)
    Regulated - Nuclear                         10.1    11.1    23.4    22.7
    Regulated - Hydroelectric                    4.9     4.7     9.5     9.3
    Unregulated - Hydroelectric                  5.4     3.9     9.9     7.8
    Unregulated - Fossil-Fuelled                 5.5     6.3    12.5    14.4
    Total electricity generation                25.9    26.0    55.3    54.2

    Average electricity
     sales price (cents/kWh)
    Regulated - Nuclear(1)                       4.9     4.9     4.9     4.9
    Regulated - Hydroelectric(1)                 3.6     3.5     3.6     3.6
    Unregulated - Hydroelectric(2)               4.7     4.6     4.7     4.7
    Unregulated - Fossil-Fuelled(2)              5.0     4.7     4.9     4.8
    OPG average sales price                      4.6     4.6     4.7     4.6

    Nuclear unit capability factor (per cent)
    Darlington                                  80.7    84.4    89.8    88.9
    Pickering A                                 63.3    61.6    70.5    62.5
    Pickering B                                 57.3    72.2    71.9    70.9

    Equivalent forced outage rate (per cent)
    Unregulated- Fossil-Fuelled                 10.4    11.6    13.1    11.7

    Availability (per cent)
    Regulated - Hydroelectric                   93.2    93.2    93.4    92.6
    Unregulated - Hydroelectric                 97.6    95.4    96.6    95.2
    (1) Electricity generated from stations in the Regulated - Hydroelectric
        segment received a fixed price of 3.3cents/kWh for the first 1,900
        MWh of generation in any hour, and the Ontario spot electricity
        market price for generation above this level.
    (2) Eighty-five per cent of the electricity generated from unregulated
        stations, excluding the Lennox generating station, those stations
        where generation output is subject to a Hydroelectric Energy Supply
        Agreement with the Ontario Power Authority, and forward sales as of
        January 1, 2005, is subject to a revenue limit. During the period
        from May 1, 2006 to April 30, 2007, the revenue limit was set at
        4.6 cents/kWh. The revenue limit increased to 4.7 cents/kWh effective
        May 1, 2007 and to 4.8 cents/kWh effective May 1, 2008.

    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 interim consolidated financial
statements and Management's Discussion and Analysis as at and for the three
and six months ended June 30, 2008, can be accessed on OPG's website
(www.opg.com), the Canadian Securities Administrators' website
(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,

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