Ontario Power Generation reports 2012 first quarter financial results

TORONTO, May 25, 2012 /CNW/ - Ontario Power Generation Inc. ("OPG" or the "Company") today reported its financial and operating results for the three months ended March 31, 2012.  Net income for the first quarter of 2012 was $154 million compared to $153 million for same quarter in 2011.

Tom Mitchell, President and CEO of OPG said, "The Company had a successful first quarter in holding down costs while reliably and safely providing almost 60 per cent of the power produced in the province."

"I understand that Ontarians are concerned about their electricity bills. I can assure them that OPG continues to look at internal cost savings in order to continue to moderate its impact on the total bill for consumers."

"The average revenue that OPG received for a kilowatt hour of electricity in the first quarter of 2012 was 5.0 cents. This is slightly below the average revenue that we received in the same period a year earlier of 5.2 cents, and it is well below the prices currently paid by consumers under Ontario's regulated price plan, which range from 6.5 cents to 11.7 cents per kilowatt hour."

Mr. Mitchell noted the following regarding the performance recognition for OPG's largest nuclear station, "I am very pleased to share that in March, our Darlington nuclear station received its best ever safety and performance peer review by the World Association of Nuclear Operators ("WANO"). In its review, WANO found twelve different areas of strength, which they noted as worthy of international benchmarking - including our response to the Fukushima nuclear event last year. This achievement demonstrates our strong focus on safety and our commitment to performance excellence and reliability. It was a tremendous opportunity to receive feedback and continue to further improve our performance to the benefit of the people of Ontario."

Highlights

Net income for the first quarter of 2012 of $154 million increased by $1 million compared to the first quarter of 2011.  The increase in net income was primarily a result of higher earnings from the Nuclear Fixed Assets Removal and Nuclear Waste Management Funds ("Nuclear Funds") primarily due to a greater increase in the valuation levels of global equity markets, and lower operations, maintenance, and administration ("OM&A") costs primarily due to the impact of deferral and variance accounts established by the Ontario Energy Board.  The increase in net income was partially offset by the impact of lower spot market electricity prices for production from unregulated hydroelectric stations, and higher depreciation and amortization expenses.

OPG's income before interest and income taxes from the electricity generation business segments was $157 million for the first quarter of 2012 compared to $244 million for the same period in 2011.  This decrease in income from the electricity generation business segments was primarily due to lower Ontario spot electricity market prices and higher depreciation and amortization expenses, partially offset by lower OM&A costs.  The Regulated - Nuclear Waste Management business segment recorded income before interest and income taxes of $24 million for the first quarter of 2012 compared to a loss before interest and income taxes of $34 million for the same period in 2011.  This increase was primarily due to higher earnings from the Nuclear Funds in 2012.

Total electricity generated during the first quarter of 2012 of 22.0 TWh was slightly lower than the 22.2 TWh produced in the first quarter of 2011.  The slight decrease was primarily due to lower unregulated hydroelectric generation as a result of below normal precipitation and water flows across the northwestern Ontario river systems, largely offset by an increase in regulated hydroelectric generation due to higher water flows on the St. Lawrence River.

The capability factor at the Darlington nuclear station was 95.6 per cent in the first quarter of 2012 compared to 97.9 per cent for the same quarter in 2011, and reflected a marginal increase in unplanned outage days.  The Pickering stations had a 77.0 per cent capability factor compared to 78.0 per cent in the first quarter of 2011, primarily as a result of higher planned outage days.  The availability of OPG's regulated and unregulated hydroelectric generating stations remained at high levels.  The Start Guarantee at the thermal generating stations for the first quarter of 2012 was 94.1 per cent, which was consistent with the result for the same period in 2011.  The high Start Guarantee for the first quarter of 2012 and 2011 reflects the ability of the thermal generating stations 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

• For the refurbishment of the Darlington generating station, OPG awarded the Retube and Feeder Replacement contract on March 1, 2012.  The contract is one of several contracts that will be awarded.  The next major contract to be awarded is the Turbine/Generator contract. Construction on the Darlington Energy Complex ("Complex") remains on target for occupancy in the fall of 2013.  The Complex will house the full-scale reactor mock-up, a warehouse, and office space to support the Darlington Refurbishment project.
  
  
• In May 2012, the federal government approved the Darlington New Nuclear Project Environmental Assessment ("EA").  The approval of the EA provides independent review and confirmation that the project will not result in any significant adverse environmental impacts, given mitigation.
  
  
• OPG is continuing to undertake a coordinated set of initiatives to evaluate the opportunity to continue the safe and reliable operation of Units 5 to 8 at the Pickering nuclear generating station for approximately an additional four to six years beyond its nominal end of life.  OPG completed the necessary inspection and equipment improvements of the Unit 8 reactor in May 2012 and began planning work for the Unit 7 outage.  OPG expects to complete the necessary work by the end of 2012 to demonstrate, with sufficient confidence, that the pressure tubes will achieve the additional life as predicted.

Hydroelectric

• The installation of the permanent concrete liner, as well as other lining and grouting activities continues at the Niagara Tunnel.  The tunnel is expected to be completed within the approved budget of $1.6 billion, and by the approved completion date of December 2013.  As at March 31, 2012, the life-to-date capital expenditures were $1.2 billion.
  
  
• The Lower Mattagami River project continues to progress. During the first quarter of 2012, concrete work was in progress at the Smoky Falls, Little Long and Harmon sites.  Cofferdam installation continued at the Kipling site.  The project is expected to be completed within the approved budget of $2.6 billion by the approved completion date of June 2015.  As at March 31, 2012, the life-to-date capital expenditures were $897 million.

Thermal

• OPG and the Ontario Power Authority ("OPA") are in the final stages of negotiating the Atikokan Biomass Energy Supply Agreement, and in the early stages of negotiating an Energy Supply Agreement for the Thunder Bay thermal generating station.  OPG is continuing to proceed with related detailed engineering work to burn biomass at the Atikokan generating station and natural gas at the Thunder Bay generating station.
  
  
• 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 ¹

				Three Months Ended March 31
(millions of dollars - except where noted)			2012		2011
Earnings
Revenue			1,199		1,284
Fuel expense			192		166
Gross margin			1,007		1,118
Operations, maintenance and administration			635		708
Depreciation and amortization			189		148
Accretion on fixed asset removal and nuclear waste management liabilities			187		173
Earnings on nuclear fixed asset removal and nuclear waste management funds			(210)		(138)
Other net expenses			7		1
Income before interest and income taxes			199		226
Net interest expense			32		38
Income tax expense			13		35
Net income			154		153
Income before interest and income taxes
Generating segments			157		244
Nuclear Waste Management segment			24		(34)
Other segment			18		16
Total income before interest and income taxes			199		226
Cash flow
Cash flow provided by operating activities			111		403
Electricity generation (TWh)
Regulated - Nuclear			12.5		12.6
Regulated - Hydroelectric			4.9		4.6
Unregulated - Hydroelectric			3.6		4.0
Unregulated - Thermal			1.0		1.0
Total electricity generation			22.0		22.2
Average sales prices and average revenue (¢/kWh)
Regulated - Nuclear Generation			5.5		5.5
Regulated - Hydroelectric			3.5		3.6
Unregulated - Hydroelectric			2.2		3.3
Unregulated - Thermal			2.0		3.1
Average revenue for all electricity generators serving Ontario, including OPG ^2			7.3		6.9
Average revenue for OPG ^3			5.0		5.2
Nuclear unit capability factor (per cent)
Darlington			95.6		97.9
Pickering			77.0		78.0
Availability (per cent)
Regulated - Hydroelectric			92.2		92.0
Unregulated- Hydroelectric			92.0		93.9
Start Guarantee (per cent)
Unregulated - Thermal			94.1		93.8 ^4
Return on equity for the twelve months ended March 31, 2012 and December 31, 2011 (per cent) ^5			4.0		4.0
Funds from operations interest coverage for the twelve months   ended March 31, 2012 and December 31, 2011 (times) ^5			3.1		3.1

^1	OPG has adopted United States generally accepted accounting principles ("US GAAP") for the presentation of its consolidated financial statements, effective January 1, 2012.  Financial information derived from the consolidated financial statements for the 2011 comparative periods has been adjusted to US GAAP.
^2	Computed as the total of average hourly Ontario spot electricity market price and average global adjustment payments.
^3	Includes other energy revenues primarily from cost recovery agreements for the Nanticoke, Lambton, and Lennox generating stations and revenue from Hydroelectric Energy Supply Agreements for the hydroelectric generating stations.
^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 period ended March 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 unaudited consolidated financial statements and Management's Discussion and Analysis as at and for the three months ended March 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. 

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