Ontario Power Generation reports 2012 financial results

TORONTO, March 8, 2013 /CNW/ - Ontario Power Generation Inc. ("OPG" or the "Company") today reported its financial and operating results for the year ended December 31, 2012.  Net income for the year was $367 million, compared to net income of $338 million for the year ended December 31, 2011.

Tom Mitchell, President and Chief Executive Officer, said "OPG's business transformation has resulted in significant cost savings as a result of workforce reductions through attrition and productivity improvements.  These cost reductions were a major factor underlying the company's financial results for 2012.

"Creating a leaner organization is key to our efforts to hold down the prices that people pay for electricity. We are proud of being Ontario's low cost electricity generator."

Mr. Mitchell added, "In addition to operating with fewer people and implementing numerous efficiency improvements, OPG had a solid year in the areas of safety, environmental stewardship, operations, and new projects. For example, our Pickering nuclear units had their best year of production reliability since 2002."

Net income of $367 million in 2012 increased from $338 million in 2011. This increase was primarily the result of higher earnings from the nuclear fixed asset removal and nuclear waste management funds ("Nuclear Funds"), and a reduction in operations, maintenance and administration ("OM&A") expenses.  This increase was mainly offset by a decrease in revenues as a result of lower electricity market prices, and an increase in income tax expense.

OPG's income before interest and income taxes from the electricity generation business segments was $566 million in 2012, compared to $567 million in 2011.  This marginal decrease was largely due to the impact of lower Ontario electricity prices.  The average revenue that OPG received for a kilowatt hour ("kWh") of electricity in 2012 was 5.1 ¢/kWh, compared to 5.3 ¢/kWh in 2011. This was significantly below the average revenue of 8.6 ¢/kWh received by all other generators in Ontario.  Income before income taxes improved as a result of headcount and other cost reductions, and the recognition of losses in 2011 due to an increase in the asset retirement obligation related to certain thermal generating stations.

The Regulated - Nuclear Waste Management business segment recorded a loss before interest and income taxes of $68 million for the year ended December 31, 2012, compared to a loss before income taxes of $194 million in 2011.  This improvement primarily resulted from higher earnings from the Nuclear Funds, due to a greater increase in the market value of the securities held in the funds in 2012 compared to 2011.

In January 2013, the Ministry of Energy announced the advanced shutdown of the remaining coal-fired units at the Lambton and Nanticoke generating stations by December 31, 2013, in advance of the previous December 31, 2014 deadline.  OPG plans to place the units in reserve status and to preserve the option to convert them to natural gas and/or biomass in the future, if required.

In September 2012, OPG filed an application with the Ontario Energy Board ("OEB") requesting approval to recover balances in the authorized regulatory variance and deferral accounts as at December 31, 2012.  The application requested the recovery of these balances to be reflected through new rate riders effective January 1, 2013.  OPG is in continuing settlement discussions with the intervenors regarding all aspects of the rate application.  If an agreement is reached, a settlement agreement will be filed with the OEB and will be subject to approval by the OEB.

Generating and Operating Performance

Total electricity generated in 2012 of 83.7 terawatt hours ("TWh") decreased slightly from generation of 84.7 TWh in 2011.  The 1.0 TWh decrease was primarily due to a reduction in hydroelectric generation as a result of lower water levels on the lower Great Lakes and the Northeastern and Eastern Ontario watersheds.  Nuclear production of 49.0 TWh in 2012 increased by 0.4 TWh primarily due to fewer unplanned and planned outage days at the Pickering stations.  Thermal generation of 4.1 TWh in 2012 represents an increase of 0.4 TWh, compared to 2011 primarily due to lower hydroelectric generation, increased electricity demand due to warmer temperatures during the summer of 2012, and the utilization of coal inventories prior to the shutdown of the stations.

The Darlington nuclear station achieved a capability factor of 93.2 per cent in 2012, compared to 95.2 per cent in 2011.  This performance was mainly due to an increase in unplanned outage days.  The capability factor at the Pickering stations improved to 77.8 per cent in 2012 from 73.4 per cent in 2011. This performance reflected fewer unplanned and planned outage days.

The availability of OPG's regulated and unregulated hydroelectric stations remained at high levels in 2012. OPG's regulated hydroelectric stations achieved an availability factor of 91.4 per cent in 2012, compared to 89.7 per cent in 2011.  OPG's unregulated hydroelectric stations achieved an availability factor of 91.1 per cent in 2012, compared to 91.5 per cent in 2011.

The Start Guarantee rate of the thermal generating fleet was 97.5 per cent in 2012, from 94.7 per cent in 2011.  The high Start Guarantee rate reflects the ability of the thermal fleet to respond to market requirements when needed.

Generation Development

OPG is undertaking a number of generation development projects to support Ontario's long-term electricity supply requirements.  The status of these capacity expansion or life extension projects is as follows:

Nuclear

• The activities associated with the definition phase of the Darlington refurbishment project continue.  Based on the Environmental Assessment ("EA") that OPG submitted in 2011, the Canadian Nuclear Safety Commission ("CNSC") and Fisheries and Oceans Canada issued a final Environmental Assessment Screening Report in September 2012. This report formed the basis for the EA public hearing, held in December 2012. The report was consistent with OPG's analysis.  It concluded that, taking into account the identified mitigation measures, Darlington refurbishment and continued operations are not likely to cause adverse effects on the environment.  The CNSC's decision on the EA is expected by the second quarter of 2013.
  
  During 2012, OPG awarded a Retube and Feeder Replacement contract, which includes the planning, design and 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 procurement processes for the Turbine and Generator Contract, and the Defueling Contract were initiated in 2012.
  
  Construction of the Darlington Energy Complex continued in 2012.  The facility was substantially completed in January 2013.
  
  Capital project expenditures for 2012 were $232 million and the life-to-date capital expenditures as at December 31, 2012 were $362 million.  A detailed cost and schedule estimate for the refurbishment of the four units is expected to be completed in 2015. The execution phase is expected to start in 2016.

• During 2012, OPG substantially completed a coordinated set of initiatives to evaluate the continued safe and reliable operation of Pickering Units 5 to 8 for approximately an additional four to six years.  OPG completed the necessary work to demonstrate with sufficient confidence that the pressure tubes will achieve the additional life, as predicted.  Continued operations work related to equipment improvements and inspections will continue until the end of 2014, as planned.
  
  
• In 2012, the CNSC approved the application for the Power Reactor Site Preparation ("Licence to Prepare Site") for the new nuclear units at Darlington.  Subsequently, a notice of application for a judicial review of the Licence to Prepare Site was filed by third parties.  OPG is preparing its response to the application.

Hydroelectric

• All major tunnel lining activities at the Niagara Tunnel were completed in 2012, with the exception of pre-stress grouting to complete the attachment of the concrete liner with the surrounding rock.  This activity had progressed to 9,525 metres as at December 31, 2012.  In early March 2013, final testing is underway with water flowing through the Niagara Tunnel prior to declaring it in-service, more than nine months ahead of the approved project completion date of December 2013. Upon completion of the tunnel, the average annual generation from the Sir Adam Beck generating stations is expected to increase by approximately 1.5 TWh, depending on water flow.  Life-to-date capital expenditures as at December 31, 2012 were $1.4 billion.  Total costs of the project at completion are expected to be approximately $1.5 billion, compared to the approved budget of $1.6 billion.
  
  
• The Lower Mattagami River project will increase the capacity of the four generating stations on the Lower Mattagami River by 438 MW.  Concrete operations continued throughout 2012 at the Little Long, Harmon, and Smoky Falls sites, with all key milestone dates being met or bettered.  In December 2012, there was a breach in one section of the recently installed cofferdam at the Kipling site.  All other cofferdams on the project have been inspected and it has been determined that they are safe.  While the cost impact of this incident is not expected to be significant, work continues to finalize a remediation plan and to determine the impact on the completion date of the project of June 2015.  Life-to-date capital expenditures were $1.4 billion as at December 31, 2012.

Thermal

• In the third quarter of 2012, OPG and the Ontario Power Authority ("OPA") executed the Atikokan Biomass Energy Supply Agreement.  The converted station is expected to have a capacity of 200 MW.  The conversion project has an approved cost estimate of $170 million and is expected to be completed in the first half of 2014.  Life-to-date capital expenditures were $59 million as at December 31, 2012.
  
  
• OPG has suspended further work on the Thunder Bay generating station conversion to natural gas, pending an OPA review of electricity needs in Northwestern Ontario.  The OPA has informed OPG that more time is required to explore other options for electricity supply in the region.
  
  
• In conjunction with the status of the conversion of the Thunder Bay generating station, OPG requested deregistration of the plant in November 2012. In January 2013, the Independent Electricity System Operator ("IESO") determined that at least one unit is required in Thunder Bay to maintain reliability of the IESO-controlled grid. Accordingly, OPG and the IESO entered into negotiations for a Reliability Must Run contract covering the period from January 1, 2013 to December 31, 2013. The contract has been executed by OPG and the IESO and is subject to OEB approval.

FINANCIAL AND OPERATIONAL HIGHLIGHTS ¹

(millions of dollars - except where noted)			2012	2011
Earnings
Revenue			4,732	4,964
Fuel expense			755	754
Gross margin			3,977	4,210
Operations, maintenance and administration			2,648	2,781
Depreciation and amortization			664	694
Accretion on fixed asset removal and nuclear waste management liabilities			725	704
Earnings on Nuclear Funds			(651)	(509)
Other net expenses			40	75
Income before interest and income taxes			551	465
Net interest expense			117	154
Income tax expense (recovery)			67	(27)
Net income			367	338
Income before interest and income taxes
Generating segments			566	567
Nuclear Waste Management segment			(68)	(194)
Other segment			53	92
Total income before interest and income taxes			551	465
Cash flow
Cash flow provided by operating activities			876	1,179
Electricity generation (TWh)
Regulated - Nuclear			49.0	48.6
Regulated - Hydroelectric			18.5	19.5
Unregulated - Hydroelectric			12.1	12.9
Unregulated - Thermal			4.1	3.7
Total electricity generation			83.7	84.7
Average sales prices and average revenue (¢/kWh)
Regulated - Nuclear Generation			5.5	5.5
Regulated - Hydroelectric			3.5	3.5
Unregulated - Hydroelectric			2.4	3.2
Unregulated - Thermal			2.6	3.3
Average revenue for all electricity generators, excluding OPG ^2			8.6	8.4
Average revenue for OPG ^3			5.1	5.3
Nuclear unit capability factor (per cent)
Darlington			93.2	95.2
Pickering			77.8	73.4
Availability (per cent)
Regulated - Hydroelectric			91.4	89.7
Unregulated - Hydroelectric			91.1	91.5
Start Guarantee rate (per cent)
Unregulated - Thermal			97.5	94.7 ^4
Return on equity (per cent) ^5			4.2	4.0
Funds from operations interest coverage (times) ^5			2.3	3.1

^1	OPG has adopted United States generally accepted accounting principles ("US GAAP") effective January 1, 2012.  Financial information for 2011 has been adjusted to US GAAP.
^2	Revenues for other electricity generators are computed as the sum of hourly Ontario demand multiplied by the hourly Ontario electricity price ("HOEP") plus total global adjustment payments, plus the sum of hourly net exports multiplied by the HOEP, less OPG's generation revenue.
^3	Average revenue for OPG is comprised of regulated revenues, market based revenues, and other energy revenues primarily from cost recovery agreements, and revenue from Hydroelectric Energy Supply Agreements.
^4	As estimated.
^5	"Funds from operations interest coverage" and "Return on equity" 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 year ended December 31, 2012, under the heading, 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, 2012 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.

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