Ontario Power Generation reports 2011 financial results

TORONTO, March 2, 2012 /CNW/ - Ontario Power Generation Inc. ("OPG" or the "Company") today reported its financial and operating results for the year ended December 31, 2011.  Net income for the year was $416 million compared to net income of $649 million for the year ended December 31, 2010.

Tom Mitchell, President and Chief Executive Officer said, "In the face of challenging economic and market conditions, our net income in 2011 declined.  Despite these challenging conditions, operating performance was strong and we achieved our targeted milestones.  An increase in OPG's nuclear and hydroelectric generation was achieved at the same time as a reduction in the Company's operating costs."

"In 2011, 96 per cent of OPG's generation came from sources that produce virtually no emissions that contribute to smog, acid rain or global warming.  Output at our nuclear and hydroelectric plants increased by six per cent and we achieved our best workplace safety record in our history."

"OPG achieved a major milestone in 2011, as we closed two additional units at the Nanticoke coal-fired station, in advance of the Government's policy of phasing out coal-fired generation by 2014."

Mr. Mitchell added, "OPG received an average price of 5.3 cents per kilowatt hour, which had a moderating effect on the price of electricity in Ontario."

"Two significant areas of focus for OPG in 2011 were the continued reduction of costs, and the advancement of major generation projects for the long-term benefit of Ontarians", said Mr. Mitchell.  "During 2011, OPG achieved significant progress on the Niagara Tunnel and the Lower Mattagami River projects, and continued the planning and preparatory work for the Darlington refurbishment project.  These projects will contribute to a sustainable supply of electricity for current and future generations of Ontarians", added Mr. Mitchell.

Net income of $416 million in 2011 decreased from net income of $649 million in 2010 primarily as a result of lower earnings from the nuclear fixed asset removal and nuclear waste management funds ("Nuclear Funds"), a reduction in revenue related to amounts recorded in a regulatory variance account associated with tax losses, an increase in pension and other post-employment benefit costs, largely as a result of lower discount rates, and the impact of lower Ontario spot electricity market prices on the Unregulated - Hydroelectric business segment.  These reductions were partially offset by an increase in generation at OPG's nuclear generating stations, and lower operations, maintenance, and administration ("OM&A") costs as OPG continues to focus on efficiencies and cost reductions.

OPG's income before income taxes from the electricity generation business segments was $680 million for the year ended December 31, 2011 compared to $679 million for the same period in 2010.  This slight increase in income from the electricity generation business segments was primarily due to higher nuclear and hydroelectric generation and lower OM&A costs of approximately $160 million, largely offset by a reduction of revenue related to the regulatory variance account associated with tax losses and the impact of lower Ontario electricity prices. The Regulated - Nuclear Waste Management business segment recorded a loss before income taxes of $194 million for the year ended December 31, 2011 compared to income before income taxes of $8 million in 2010.  This decrease was primarily due to lower earnings from the Nuclear Funds as a result of a decline in the valuation levels of global financial markets in 2011.

Generating and Operating Performance

Total electricity generated in 2011 of 84.7 TWh decreased from 2010 generation of 88.6 TWh.  The reduction of 3.9 TWh was primarily due to lower thermal generation, partially offset by higher generation from OPG's nuclear and hydroelectric stations.  Nuclear production in 2011 was 48.6 TWh, an increase of 2.8 TWh compared to 2010. The increase was primarily as a result of excellent performance achieved at the Darlington generating station.  Electricity generation from OPG's hydroelectric stations was 32.4 TWh, 1.8 TWh higher than 2010 primarily due to the impact of higher water flows.  Thermal generation of 3.7 TWh was significantly lower than production of 12.2 TWh in 2010 primarily due to increased production from other Ontario generators and OPG's nuclear and hydroelectric stations.

In 2011, Darlington achieved the lowest level of unplanned outages in its history, with an excellent unit capability factor of 95.2 per cent.  The capability factor for the Pickering A station in 2011 was 67.9 per cent compared to 62.4 per cent in 2010.  The increase in the capability factor was primarily due to lower planned outage days in 2011 compared to 2010, largely as a result of the planned Pickering Vacuum Building Outage in 2010.  The Pickering B station's capability factor of 76.2 per cent in 2011 compared to 76.3 per cent in 2010 reflected an increase in unplanned outage days, largely offset by a lower number of planned outage days in 2011.  In 2011, five of our ten units operated at a capability factor of greater than 90 per cent, and two other units operated at a capability factor greater than 80 per cent.

Availability of OPG's regulated and unregulated hydroelectric stations for 2011 remained at high levels of 89.7 per cent and 91.5 per cent, respectively, compared to 92.8 per cent and 91.6 per cent in 2010.  The availability of OPG's hydroelectric stations in 2011 decreased slightly compared to 2010 largely due to an increase in planned maintenance activities.

The Equivalent Forced Outage Rate of the thermal generating fleet of 9.2 per cent in 2011 was higher than in 2010 primarily as a result of increased unplanned outage days at the Nanticoke and Lambton stations.  The higher number of unplanned outage days was expected given the implementation of a management strategy, which entails carefully managing outage expenditures, duration, and scope while ensuring the units are available as required during a period of reduced production.

On December 31, 2011, Units 1 and 2 at the Nanticoke coal-fired generating station were removed from service resulting in an 880 MW reduction in capacity.

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:

Nuclear

• In February 2010, OPG announced its decision to commence the definition phase for the refurbishment of the Darlington nuclear generating station to extend the operating life of the station by approximately 30 years.  In 2011, the technical scope was finalized, and the Environmental Assessment ("EA") and final Integrated Safety Review ("ISR") were submitted to the Canadian Nuclear Safety Commission ("CNSC").  The ISR will be subject to a formal review by the CNSC which is expected to be completed by mid-2013.  On March 1, 2012, OPG awarded the retube and feeder replacement contract, which includes the planning, design, testing of tooling, design and construction of a full scale reactor mock-up facility for testing and training, and removal and replacement of major reactor components of the four reactors at the Darlington generating station.  The contract will be completed in two phases - a definition phase and an execution phase.  The contract value during the definition phase is estimated at over $600 million for a period of three to four years.  The execution phase work, which is still to be estimated and valued, includes removal and replacement of the 480 pressure tubes and calandria tubes, and 960 feeder pipes for each of the station's four reactors.
• During 2011, OPG continued with initiatives in preparation for new nuclear units at Darlington.  Public hearings on the EA and "Licence to Prepare Site" were completed in early 2011.  In August 2011, the Joint Review Panel submitted its report to the federal Minister of the Environment, concluding that the project is not likely to cause significant adverse environmental effects, given mitigation.  The federal government will now prepare its response for approval by the Governor in Council, with a final determination of whether or not the EA should be accepted.
• OPG is undertaking a coordinated set of initiatives to evaluate the opportunity to continue the safe and reliable operation of its Pickering B nuclear generating station for approximately an additional four to six years beyond its nominal end of life.  In 2010, OPG submitted a Pickering B Continued Operations Plan to the CNSC. At a public meeting in March 2011, the CNSC staff presented their review of the Pickering B Continued Operations Plan and indicated that there were no significant regulatory or safety issues.  By the end of 2012, OPG expects to have completed the necessary work to demonstrate with sufficient confidence that the pressure tubes will achieve the additional life as predicted.

Hydroelectric

• During 2011, at the Niagara Tunnel, the tunnel boring machine mining activity was completed.  The disassembly of the machine is now in progress.  Installation of the lower third of the permanent concrete lining reached 7,625 metres by July 2, 2011, when this work was temporarily interrupted for reinforcement repair work in the 6,050 metre area of the tunnel.  This lining work resumed in February 2012.  All other tunnel lining activities were uninterrupted.  Life-to-date capital expenditures for the project were $1.1 billion as of December 31, 2011.  The Niagara Tunnel is expected to be completed within the approved budget of $1.6 billion and the approved project completion date of December 2013.
• Construction activities on the Lower Mattagami River project continued in 2011.  At the Smoky Falls site, a cofferdam was installed and excavation was completed, including additional rock consolidation work to remediate unexpected geotechnical conditions.  During the fourth quarter of 2011, a shelter was erected to allow for continuous construction during the winter.  At December 31, 2011, concrete operations were 50 per cent completed at the Little Long site; cofferdam installation was complete and concrete operations had commenced at the Harmon site; and cofferdam installation continued at the Kipling site. Upon completion, the project will increase the capacity of the four stations by 438 MW.  Life-to-date capital expenditures for the project were $766 million at December 31, 2011.  The project is expected to be completed within the approved budget of $2.6 billion and is expected to be in service by June 2015.

Thermal

• Conversion of the Atikokan generating station to biomass is currently in the definition phase.  OPG is proceeding with detailed engineering, and negotiations of fuel supply contracts and an engineering, procurement and construction contract.
• In August 2011, the Minister of Energy issued a directive to the OPA to negotiate a long-term energy supply contract with OPG for the conversion of two coal-fired units at the Thunder Bay generating station to natural gas.  Discussions for a long-term supply contract with the OPA are on-going.
• As outlined in Ontario's Long-Term Energy Plan and Supply Mix Directive to the OPA, OPG continues to explore the possible conversion of some units at the Lambton and Nanticoke generating stations to natural gas, with an option for co-firing with biomass, if required for system reliability.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

(millions of dollars - except where noted)			2011	2010
Earnings
Revenue			5,061	5,367
Fuel expense			754	900
Gross margin			4,307	4,467
Operations, maintenance and administration expense			2,756	2,913
Depreciation and amortization			723	688
Accretion on fixed asset removal and nuclear waste management liabilities			702	660
Earnings on nuclear fixed asset removal and nuclear waste management funds			(509)	(668)
Restructuring			21	27
Other net expenses			22	82
Income before interest and income taxes			592	765
Net interest expense			165	176
Income tax expense (recovery)			11	(60)
Net income			416	649
Income before interest and income taxes
Generating segments			680	679
Nuclear Waste Management segment			(194)	8
Other segment			106	78
Total income before interest and income taxes			592	765
Cash flow
Cash flow provided by operating activities			990	817
Electricity generation (TWh)
Regulated - Nuclear			48.6	45.8
Regulated - Hydroelectric			19.5	18.9
Unregulated - Hydroelectric			12.9	11.7
Unregulated - Thermal			3.7	12.2
Total electricity generation			84.7	88.6
Average revenue (¢/kWh)
Average revenue for all electricity generators in Ontario ^1			7.2	6.5
Regulated - Nuclear			5.5	5.5
Regulated - Hydroelectric			3.5	3.7
Unregulated - Hydroelectric			3.2	3.7
Unregulated - Thermal			3.3	4.3
Average revenue for OPG ^2			5.3	5.2
Nuclear unit capability factor (per cent)
Darlington			95.2	87.6
Pickering A			67.9	62.4
Pickering B			76.2	76.3
Availability (per cent)
Regulated - Hydroelectric			89.7	92.8
Unregulated- Hydroelectric			91.5	91.6
Equivalent forced outage rate (per cent)
Unregulated - Thermal			9.2	7.3
Return on equity (per cent) ^3			5.0	8.3

^1	Computed as the total of average HOEP and average global adjustment payments.
^2	Includes other energy revenues primarily from cost recovery agreements for the Nanticoke, Lambton, and Lennox generating stations and revenue from HESA agreements for the hydroelectric generating stations.
^3	For definition and details on the determination of OPG's Return on equity, a non-GAAP financial measure, see OPG's 2011 annual MD&A under the headings, Key Generation and Financial Performance Indicators and 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 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, 2011, 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.

 

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