Ontario Power Generation reports 2009 financial results

TORONTO, March 8 /CNW/ - Ontario Power Generation Inc. ("OPG" or the "Company") today reported its financial and operating results for the year ended December 31, 2009. Net income for the year was $623 million compared to net income of $88 million for the year ended December 31, 2008.

Tom Mitchell, President and CEO of OPG, said, "I am pleased that OPG achieved this level of income in the face of challenging electricity demand conditions in Ontario, which resulted in lower electricity generation from OPG's assets, and lower Ontario spot electricity market prices. Despite the lower demand, OPG's nuclear, hydroelectric and thermal generating stations achieved high levels of reliability."

Mr. Mitchell noted, "Overall, OPG received an average price of 4.5 cents per kilowatt hour for the electricity it generated in 2009. To put this in context, the current price for generation charged to residential and other consumers of smaller volumes of electricity under the Regulated Price Plan of the OEB is 5.8 cents per kilowatt hour for the first 1,000 kilowatt hour and 6.7 cents per kilowatt hour thereafter."

Mr. Mitchell added, "The prices that OPG received for approximately 70 percent of the electricity it generated in 2009 were set through a regulatory process at the OEB."


Net income in 2009 was favourably impacted by an increase in earnings from the segregated investment funds due to improved global financial markets. These funds were established to provide for the future costs of OPG's nuclear fixed asset removal and nuclear waste management liabilities. Net income also increased due to the recognition of a regulatory asset related to tax losses established as a result of the 2009 Ontario Energy Board ("OEB") decision. These factors were partially offset by a decrease in gross margin related to lower average sales prices for production from OPG's unregulated generation segments and lower thermal generation. Lower generation, lower electricity prices, and increased fuel expenses at the thermal generating stations were in turn partially offset by additional revenues related to an agreement with the Ontario Electricity Financial Corporation ("OEFC"). The agreement with the OEFC is intended to provide for the continued reliability and availability of OPG's Lambton and Nanticoke generating stations.

Total electricity generated during 2009 of 92.5 TWh decreased from 2008 production of 107.8 TWh. The decrease of 15.3 TWh was primarily due to lower generation from OPG's thermal and nuclear generating stations. The decrease in production from the thermal generating stations of 13.7 TWh was primarily due to the impact of lower primary demand in Ontario, and higher electricity generation from other Ontario generators.

The reliability of OPG's Pickering B nuclear station improved during 2009 due to a reduction in the number of outage days. The Darlington station achieved a lower unit capability factor in 2009 compared to 2008 primarily as a result of a planned vacuum building outage. The unit capability factor at the Pickering A nuclear station was lower in 2009 due to an increase in the number of planned outage days. The availability of OPG's regulated and unregulated hydroelectric generating stations remained at high levels. The reliability of the thermal generating fleet improved as a result of optimizing how coal-fired units are offered into the market.

Segmented Financial Results

Income before interest and income taxes of $827 million from OPG's electricity generating segments in 2009 was lower than income before interest and income taxes of $1,028 million in 2008. The reduction in income was primarily due to a decrease in average sales price in the unregulated generation segments due to lower Ontario spot electricity market prices, lower thermal generation, and higher coal prices and costs related to contract adjustments to coal supply contracts. The unfavourable impact of these factors was partially offset by the recognition of revenue related to the contingency support agreement with the OEFC, and the recognition of a regulatory asset related to the tax loss variance account authorized by the OEB in 2009, but effective on April 1, 2008.

Income before interest and income taxes of $52 million in the Regulated - Nuclear Waste Management segment in 2009 improved significantly compared to a loss before interest and income taxes of $670 million in 2008. The income before interest and income taxes in 2009 primarily resulted from higher returns on the Decommissioning Segregated Fund due to improvements in valuation levels of global financial markets. The favourable impact of these factors was partially offset by the reduction in 2009 of a variance account approved by the OEB related to the earnings associated with the stations leased to Bruce Power, since a portion of the earnings from the Nuclear Funds are related to these stations.

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 capacity expansion or life extension projects is as follows:


    -   On June 29, 2009, the Government of Ontario suspended the competitive
        Request for Proposal 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. The bids that were received
        during this process have subsequently expired. The Government has not
        yet announced its revised plans for procurement of two new nuclear
        reactors. OPG continues with two initiatives that were underway - the
        environmental assessment process and obtaining a site preparation
        licence. On September 30, 2009, OPG submitted the Environmental
        Impact Statement ("EIS") and an updated application for the "Licence
        to Prepare Site" to the Canadian Environmental Assessment Agency and
        the Canadian Nuclear Safety Commission ("CNSC"). On November 16,
        2009, the Joint Review Panel ("JRP") announced the start of the six-
        month public review period for the EIS and the "Licence to Prepare
        Site". On February 3, 2010, the JRP requested additional information
        in support of the EIS and application for the "Licence to Prepare

    -   In February 2010, OPG announced its decision to commence the detailed
        planning phase for the refurbishment of the Darlington nuclear
        generating station. The refurbishment is expected to extend the
        service life of the Darlington nuclear station to provide an
        additional 30 years of nuclear generation. In the detailed planning
        phase, all regulatory work will be completed including the
        Environmental Assessment, the Integrated Safety Review ("ISR"), and
        the Integrated Improvement Plan ("IIP"). As part of the definition
        phase, OPG will also complete engineering and detailed project
        planning, establish the project management organization, develop
        required infrastructure, and prepare a detailed cost and schedule
        estimate for project approval by mid-2014, with construction expected
        to start in about 2016.

    -   In February 2010, OPG announced its decision to continue the safe and
        reliable operation of OPG's Pickering B nuclear generating station.
        Pickering B nuclear generating units are currently predicted to reach
        their nominal end of life between 2014 and 2016. OPG is undertaking a
        coordinated set of initiatives to evaluate the opportunity to
        continue safe and reliable operations of Pickering B for an
        additional four to six years. Following this, OPG will place the
        units into safe-storage and then begin the long-term decommissioning


    -   The Niagara tunnel boring machine ("TBM") had advanced 5,481 metres,
        or 54 percent of the tunnel length, as of December 31, 2009. The
        advancement of the TBM was temporarily interrupted from September 11,
        2009 to December 8, 2009 to repair a short section of the temporary
        tunnel liner about 1,800 metres behind the TBM location at that time,
        and to complete a planned overhaul of the TBM cutterhead, conveyor
        systems and other tunnel construction equipment. Installation of the
        lower one-third of the permanent tunnel concrete lining is
        progressing ahead of schedule. Installation of the upper two-thirds
        of the concrete lining is scheduled to begin in the spring of 2010.

    -   Construction of the Upper Mattagami and Hound Chute development
        projects continued during 2009 with fabrication of supplied parts and
        systems, and delivery of certain major Water-to-Wire equipment. The
        capacity of the four stations that are being replaced will increase
        from 23 MW to 44 MW. The stations are expected to be in service by
        April 2011.

    -   Project development activities for the planned Lower Mattagami
        project, which will increase the capacity of four stations from
        483 MW to 933 MW, continued from 2009 into 2010. These activities
        include completing cost estimates, finalizing a design-build
        contract, obtaining regulatory approvals, consultation discussions
        and negotiations with Aboriginal communities, and negotiating a
        Hydroelectric Energy Supply Agreement with the Ontario Power
        Authority. As well, a Federal Environmental Assessment ("EA")
        consultation was completed at the end of 2009 and the EA was
        submitted to the Federal Minister.


    -   In September 2009, together with the Ministry of Energy and
        Infrastructure, OPG announced its decision to close four coal-fired
        units - two units at the Lambton generating station and two units at
        the Nanticoke generating station. The decision was based on the
        impact of declining Ontario primary demand, forecast surplus capacity
        and demand profiles, and reductions in operations, maintenance and
        administration expense. The closures are expected to occur in October
        2010. By the end of 2014, all units currently burning coal will have
        ceased burning coal and either have been converted to alternative
        fuels or shut down.

    -   The Lennox generating station operated under a Reliability Must Run
        ("RMR") contract with the Independent Electricity System Operator
        ("IESO"), as approved by the OEB, for the period beginning on October
        1, 2008 to September 30, 2009. This contract was justified on the
        basis of analysis by the IESO that all four units at the Lennox
        generating station were required for the purpose of local area
        reliability during the period. Given an indication from the OPA that
        it would require the four units at the Lennox generating station, as
        documented in the OPA's preliminary Integrated Power System Plan, OPG
        continued to operate the facility following the expiry of the RMR
        contract. On January 6, 2010, the Minister of Energy and
        Infrastructure issued a Directive to the OPA to contract with OPG for
        the capacity of the station commencing October 1, 2009. OPG and the
        OPA are working towards execution of a new agreement.

    -   The strategy to convert coal-fired units to alternate fuels continues
        to advance. Detailed design engineering work on the conversion of the
        Atikokan generating station to biomass is progressing. OPG is also
        conducting concept phase engineering for possible conversion of other
        coal-fired units at other stations. OPG requires cost recovery
        agreements with the OPA for conversion of the units and the
        electricity generated post-conversion, before seeking Board of
        Directors approval to proceed with unit conversions. OPG is in
        discussion with the Ministry of Energy and Infrastructure to issue a
        directive to the OPA to negotiate a cost recovery agreement with OPG.

                                                               Year Ended
                                                              December 31
    (millions of dollars - except where noted)             2009         2008
    Revenue after revenue limit rebate                    5,613        6,082
    Fuel expense                                            991        1,191
    Gross margin                                          4,622        4,891
    Operations, maintenance and administration
     expense                                              2,882        2,967
    Depreciation and amortization                           760          743
    Accretion on fixed asset removal and nuclear
     waste management liabilities                           634          581
    (Earnings) losses on nuclear fixed asset removal
     and nuclear waste management funds                    (683)          93
    Other net expenses                                       76           71
    Income before interest and income taxes                 953          436
    Net interest expense                                    185          165
    Income tax expenses                                     145          183
    Net income                                              623           88

    Cash flow
    Cash flow provided by operating activities              299          870

    Income (loss) before interest and income taxes
    Generating segments                                     827        1,028
    Nuclear Waste Management segment                         52         (670)
    Other segment                                            74           78
    Total income before interest and income taxes           953          436

    Electricity Generation (TWh)
    Regulated - Nuclear                                    46.8         48.2
    Regulated - Hydroelectric                              19.4         18.8
    Unregulated - Hydroelectric                            16.8         17.6
    Unregulated - Thermal                                   9.5         23.2
    Total electricity generation                           92.5        107.8

    Average electricity sales price (cents/kWh)
    Regulated - Nuclear                                     5.5          5.3
    Regulated - Hydroelectric                               3.7          3.9
    Unregulated - Hydroelectric                             3.2          4.8
    Unregulated - Thermal                                   3.9          5.0
    OPG average sales price                                 4.5          4.9

    Nuclear unit capability factor (percent)
    Darlington                                             85.9         94.5
    Pickering A                                            64.2         71.8
    Pickering B                                            84.0         71.4

    Availability (percent)
    Regulated - Hydroelectric                              93.6         93.8
    Unregulated- Hydroelectric                             92.4         94.6

    Equivalent forced outage rate (percent)
    Unregulated - Thermal                                   8.5         12.8

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, 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.

SOURCE Ontario Power Generation Inc.

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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