Ontario Power Generation reports 2009 third quarter financial results

TORONTO , Nov. 20 /CNW/ - Ontario Power Generation Inc. ("OPG" or the "Company") today reported its financial and operating results for the three and nine month periods ended September 30, 2009 . Net income for the third quarter of 2009 was $259 million compared to a net loss of $142 million in the third quarter of 2008. Net income for the nine months ended September 30, 2009 was $556 million compared to $119 million for the same period in 2008.

Net income for the third quarter of 2009 was favourably affected by an increase in earnings from the segregated investment funds that have been established for nuclear fixed asset removal and nuclear waste management (the "Nuclear Funds"). Compared to the same period in 2008, earnings from operations continued to be negatively impacted by a decrease in gross margin related to lower fossil-fuelled generation, lower spot market prices and higher fuel related charges.

"Operational results were significantly affected by a reduction in electricity demand in Ontario and lower spot market prices, which substantially reduced revenue. We continue to focus on enhancing our performance as a public power company committed to operating prudently and efficiently, and on identifying cost reduction opportunities", said President and CEO Tom Mitchell .

Total electricity generated in the third quarter of 2009 of 22.6 terawatt hours ("TWh") was 17 percent lower than third quarter 2008 production of 27.3 TWh. The decrease was mainly as a result of lower generation at OPG's fossil-fuelled stations due to lower primary demand and an increase in generation from other Ontario generators. Unregulated hydroelectric generation declined 0.7 TWh in the third quarter of 2009 compared to the same quarter in 2008 primarily due to lower water levels and the impact of controlled water spills due to unusual Surplus Baseload Generation conditions. Nuclear production increased 0.7 TWh as a result of a decrease in unplanned outage days at the Pickering B nuclear generating station.

For the nine months ended September 30, 2009 , total production from OPG's generating stations was 69.1 TWh compared to 82.6 TWh for the same period in 2008. This decrease primarily reflects lower fossil production of 11.4 TWh, with OPG's nuclear and hydroelectric generating stations continuing to achieve high levels of reliability, while producing electricity virtually free of greenhouse gas-causing emissions.

Capability factors at the Pickering A and B nuclear stations continued to improve during the third quarter of 2009 compared to the same period in 2008, with the Pickering B station achieving a capability factor of 94.2 percent. The Darlington nuclear station reported a capability factor of 91.8 percent in comparison to 99.1 percent in the third quarter of 2008. Hydroelectric availability remained at a high level of 93.2 percent for OPG's regulated stations, and 87.2 percent for the unregulated stations. Improved reliability of the fossil-fuelled stations reflects the change in operating strategy to optimize the number of coal-fired units offered into the electricity market.

Segmented Financial Results

OPG's third quarter income before interest and income taxes was $324 million in 2009 compared to a loss before interest and income taxes of $37 million in 2008.

Third quarter income before interest and income taxes from OPG's electricity generation business segments was $219 million in 2009 compared to $262 million in 2008. Gross margin decreased primarily as a result of lower electricity sales prices for OPG's unregulated generation, lower fossil-fuelled and unregulated hydroelectric generation, and an increase in fuel prices and fuel-related costs. The unfavourable impact of lower generation, lower electricity sales prices and higher fuel prices and fuel related costs were partially offset by revenues related to a contingency support agreement with the Ontario Electricity Financial Corporation ("OEFC") to provide for the continued reliability and availability of the Nanticoke and Lambton generating stations, and by higher prices received for production from OPG's regulated stations.

Income before interest and income taxes from OPG's Regulated - Nuclear Waste Management segment was $96 million for the third quarter of 2009 compared to a loss of $340 million in 2008, an increase of $436 million primarily due to higher earnings from the Nuclear Funds. The increase in the earnings from the Nuclear Funds was primarily due to improvements in valuation levels of global financial markets, which increased the current market value of the Decommissioning Fund.

OPG's income before interest and income taxes was $787 million for the nine months ended September 30, 2009 compared to $287 million for the same period in 2008.

Income before interest and income taxes from OPG's electricity generation segments was $653 million for the nine months ended September 30, 2009 compared to $815 million for the nine months ended September 30, 2008 . Gross margin was lower primarily as a result of lower electricity market prices for production from OPG's unregulated generating stations, lower fossil-fuelled production, and an increase in fuel prices and fuel-related costs. These unfavourable impacts were largely offset by revenues related to the contingency support agreement with the OEFC to maintain availability of the Nanticoke and Lambton stations, 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.

Income before interest and income taxes from OPG's Regulated - Nuclear Waste Management segment was $75 million for the nine months ended September 30, 2009 compared to a loss before interest and taxes of $568 million for the nine months ended September 30, 2008 , an improvement of $643 million due to higher earnings from the Nuclear Funds.

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. OPG continued 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 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
        announced the start of the six month public review period for the EIS
        and the "Licence to Prepare Site".

    -   Planning work for the assessment of the feasibility of refurbishing
        the Darlington nuclear generating station began in early 2008. A
        preliminary feasibility assessment has been completed based on the
        anticipated Darlington station refurbishment project scope and
        expected post-refurbishment operating life. OPG is continuing with
        technical, regulatory and preparatory work, and other analysis
        related to refurbishing the Darlington nuclear generating station.

    -   In September 2009, OPG submitted its final Integrated Safety Review
        report for the Pickering B nuclear generating station to the CNSC.
        The report concludes that the Pickering B generating station
        demonstrates a high level of compliance with modern codes and
        standards. OPG anticipates approval of this report by the CNSC in
        mid-2010. OPG is assessing a variety of options with respect to
        future operations at the Pickering nuclear generating stations to
        determine the preferred strategy for maximizing asset value,
        including continued operations of the Pickering B nuclear generating
        station units beyond the current nominal operating lives of 2014 to
        2016.

    Hydroelectric

    -   The Niagara tunnel boring machine ("TBM") had advanced 5,418 metres
        as of September 30, 2009. The TBM reached the milestone of completing
        50 percent of the tunnel excavation on August 4, 2009. The
        advancement of the TBM has been temporarily interrupted since
        September 11, 2009 to reinforce a short section of the temporary
        tunnel liner that failed about 1,800 metres behind the current
        location of the TBM. Installation of the permanent tunnel concrete
        lining is progressing well and is ahead of the revised schedule.
        Restoration of the circular cross-section of the tunnel before
        installation of the upper two-thirds of the concrete lining began, as
        planned, in September 2009.

    -   Construction of the Upper Mattagami and Hound Chute development
        projects continued during the third quarter 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. Total project costs are
        expected to be $300 million.

    -   Definition phase activities for the planned Lower Mattagami
        development to increase the capacity of four stations from 483 MW to
        933 MW continued in the third quarter of 2009. Definition phase
        activities include finalizing cost estimates, negotiating a
        design-build contract, obtaining regulatory approvals, and
        negotiating a Hydroelectric Energy Supply agreement with the Ontario
        Power Authority.

    Fossil

    -   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.

    -   The Lennox generating station operated under a reliability must run
        contract with the Independent Electricity System Operator as approved
        by the OEB for the period beginning on October 1, 2008 to
        September 30, 2009. OPG continues to operate the facility and is in
        discussions with the Government of Ontario regarding the issuance of
        a Directive to the OPA to contract with OPG for the capacity of the
        station for the period commencing October 1, 2009.

    -   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 in
        discussion with the Ministry of Energy and Infrastructure to
        determine the appropriate mechanism for cost recovery associated with
        electricity generation using biomass. A cost recovery mechanism is
        needed prior to OPG issuing a request for proposal for fuel
        procurement and seeking Board approval to proceed with plant
        conversions. These two activities are contingent upon discussions
        with the Ministry. OPG is conducting concept phase engineering for
        the potential conversion of other coal-fired units.


    FINANCIAL AND OPERATIONAL HIGHLIGHTS
    -------------------------------------------------------------------------
                                        Three Months Ended  Nine Months Ended
    (millions of dollars -                 September 30        September 30
     except where noted)                  2009      2008      2009      2008
    -------------------------------------------------------------------------
    Earnings
    Revenue after revenue limit rebate   1,345     1,513     4,223     4,461
    Fuel expense                           249       334       730       915
    -------------------------------------------------------------------------
    Gross margin                         1,096     1,179     3,493     3,546
    -------------------------------------------------------------------------

    Operations, maintenance and
     administration expense                653       689     2,157     2,130
    Depreciation and amortization          187       162       550       497
    Accretion on fixed asset removal and
     nuclear waste management liabilities  158       151       476       438
    (Earnings) losses on nuclear fixed
     asset removal and nuclear waste
     management funds                     (254)      190      (549)      133
    Other net expenses                      28        24        72        61
    -------------------------------------------------------------------------
    Income before interest and income
     taxes                                 324       (37)      787       287
    Net interest expense                    48        41       130       120
    Income tax expenses (recoveries)        17        64       101        48
    -------------------------------------------------------------------------
    Net income                             259      (142)      556       119
    -------------------------------------------------------------------------

    Cash flow
    Cash flow (used in) provided by
     operating activities                  203       434        61       830
    -------------------------------------------------------------------------

    Income (loss) before interest and
     income taxes
    Generating segments                    219       262       653       815
    Nuclear Waste Management segment        96      (340)       75      (568)
    Other segment                            9        41        59        40
    -------------------------------------------------------------------------
    Total income before interest and
     income taxes                          324       (37)      787       287
    -------------------------------------------------------------------------

    Electricity Generation (TWh)
    Regulated - Nuclear                   12.9      12.2      34.4      35.6
    Regulated - Hydroelectric              5.0       4.7      14.6      14.2
    Unregulated - Hydroelectric            3.5       4.2      12.8      14.1
    Unregulated - Fossil-Fuelled           1.2       6.2       7.3      18.7
    Total electricity generation          22.6      27.3      69.1      82.6

    Average electricity sales price
     (cents/kWh)
    Regulated - Nuclear                    5.5       4.9       5.5       4.9
    Regulated - Hydroelectric              3.7       3.8       3.7       3.6
    Unregulated - Hydroelectric            2.4       4.8       3.2       4.7
    Unregulated - Fossil-Fuelled           3.1       5.1       4.1       5.0
    OPG average sales price                4.5       4.8       4.5       4.7

    Nuclear unit capability factor
     (percent)
    Darlington                            91.8      99.1      81.4      92.9
    Pickering A                           85.1      84.3      66.7      75.1
    Pickering B                           94.2      64.2      86.9      69.3

    Equivalent forced outage rate
     (percent)
    Unregulated - Fossil-Fuelled           5.4       7.4       8.6      11.1

    Availability (percent)
    Regulated - Hydroelectric             93.2      93.9      93.7      93.4
    Unregulated- Hydroelectric            87.2      93.5      93.3      95.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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 nine months ended September 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: Investor Relations, [phone], 1-866-592-6700, [email protected]; Media Relations, [phone], 1-877-592-4008