Ontario Power Generation Reports 2012 Third Quarter Financial Results

TORONTO, Nov. 16, 2012 /CNW/ - Ontario Power Generation Inc. ("OPG" or the "Company") today reported its financial and operating results for the three and nine months ended September 30, 2012.  Net income for the third quarter of 2012 was $139 million compared to a net loss of $154 million in the third quarter of 2011.  Net income for the nine months ended September 30, 2012 was $336 million compared to $108 million for the same period in 2011.

"I want to note that the improved bottom line at OPG resulted from better returns on our invested funds that are held on a long-term basis to fund the eventual decommissioning of our nuclear stations, not from increases in prices," said Tom Mitchell, President and Chief Executive Officer at the company.

"In fact, for the first nine months of this year OPG received, on average, less for every kilowatt hour that we generated than we did in the first nine months of last year. This year we received an average of 5.1 cents per kilowatt hour. Last year we received 5.3 cents," Mr. Mitchell said.

"This is very good news for folks and businesses in Ontario, shifting prices downward significantly compared to what they would be without the effect of OPG's moderating impact."

Mr. Mitchell added that OPG's contribution to the generating system is essential to providing power while protecting the environment.

"OPG generates about 60 per cent of the electricity used in Ontario," he said.  "Fully 95 per cent of that electricity is free of emissions that contribute to smog and climate change. Our generation will move closer to 100 per cent free of these emissions, when we shut down our remaining coal-burning units by the end of 2014."

Mr. Mitchell noted, "OPG's top priority is operating safely to protect our employees and the people of Ontario.  We want to have zero workplace injuries.  We know the target of zero injuries is achievable.  OPG was recently recognized for its safety excellence after achieving the best safety results in the Company's history in 2011.  We will do even better.

Operational performance excellence is another critical focus for OPG, Mr. Mitchell said. "Pickering Nuclear's performance this year to date is an excellent example of a strong outcome of our continued investment in the condition of the plant and the dedication of our employees," said Mr. Mitchell. 

In September 2012, OPG filed an application with the Ontario Energy Board ("OEB") requesting approval to recover balances in the OEB authorized regulatory variance and deferral accounts as at December 31, 2012.  The application requests the recovery of these balances to be reflected in new rate riders beginning in 2013, as part of regulated prices applicable to production from OPG's regulated hydroelectric and nuclear facilities.

Highlights

OPG's net income in the third quarter of 2012 increased by $293 million compared to the third quarter of 2011.  Net income for the nine months ended September 30, 2012 increased by $228 million compared to the same period in 2011.  The increase for the three and nine month periods ended September 30, 2012 was primarily due to higher earnings from the Nuclear Fixed Assets Removal and Nuclear Waste Management Funds ("Nuclear Funds"), and the recognition of losses in 2011 due to an increased asset retirement obligation related to certain thermal generating stations.  The increase in net income was partially offset by lower electricity market prices and lower hydroelectric generation in 2012 compared to the same periods in 2011.  The average revenue that OPG received for a kilowatt hour ("kWh") of electricity in the nine months ended September 30, 2012 was 5.1 ¢/kWh compared to 5.3 ¢/kWh for the same period of 2011, and was well below the average revenue of 8.6 ¢/kWh received by all other generators.

Total electricity generated during the three months ended September 30, 2012 was 20.6 terawatt hours ("TWh") compared to 21.4 TWh for the same period in 2011.  Total generation for the nine months ended September 30, 2012 was 63.1 TWh compared to 64.3 TWh in 2011.  The decrease in electricity generation for the three and nine months ended September 30, 2012 compared to the same periods in 2011 was primarily due to a decrease in hydroelectric generation resulting from below normal water levels.

The Darlington nuclear station continued to perform well with capability factors of 92.4 per cent and 91.2 per cent for the three and nine months ended September 30, 2012, respectively.  These capability factors decreased compared to the same periods in 2011 primarily due to an increase in unplanned outage days.  The capability factors for the Pickering stations for the three and nine months ended September 30, 2012 were 90.1 per cent and 82.1 per cent, respectively, compared to 78.1 per cent and 76.1 per cent for the same periods in 2011.  The significant improvement in the capability factors was due to a decrease in planned outage days.  The availability of OPG's regulated and unregulated hydroelectric generating stations remained at high levels.  The Start Guarantee rate of the thermal generating stations for the three and nine months ended September 30, 2012 improved compared to the same periods in 2011, reflecting the ability of these 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

• Engineering deliverables critical to the current phase of the Darlington refurbishment project continue to progress on schedule. An Environmental Assessment ("EA") public hearing scheduled to be held in November 2012 is now rescheduled to December 2012.  The decision on the EA is expected by the second quarter of 2013.
  
  
• Work is substantially complete on the initiatives to evaluate the continued safe and reliable operation of Units 5 to 8 at the Pickering generating stations for approximately an additional four to six years beyond their nominal end of life.  In June 2012, OPG submitted documentation related to the extension of the pressure tube service life to the CNSC.  In the third quarter of 2012, the CNSC agreed that OPG will, through continued specified monitoring, the successful completion of on-going research and development, and specified station improvements, be capable of confirming fitness-for-service of Pickering fuel channels for the duration of the proposed continued operations period to 2020.  During the fourth quarter of 2012, OPG expects to confirm its plans for the continued operation of the Pickering station.
  
  
• In August 2012, the Canadian Nuclear Safety Commission ("CNSC") approved the application for the Power Reactor Site Preparation (License to Prepare Site) for new nuclear units at Darlington.  Subsequently, a notice of application for judicial review of the License to Prepare Site was filed by third parties on the grounds that the CNSC's issuance of the license is invalid and does not comply with requirements of the Canadian Environmental Assessment Act.  OPG is preparing its response to the application.

Hydroelectric

• The Niagara Tunnel project continues to progress.  The installation of the permanent concrete liner was completed in the fourth quarter of 2012 while other lining and grouting activities continue at the Niagara Tunnel.  The tunnel is expected to be completed within the approved budget of $1.6 billion and the approved project completion date of December 2013.  OPG's contractor, Strabag, has informed OPG that they expect to advance the completion date to mid-2013 and are developing options to further advance the schedule. As at September 30, 2012, the life-to-date capital expenditures were $1.3 billion.
  
  
• The Lower Mattagami River project continues to progress.  During the third quarter of 2012, concrete work was in progress at the Smoky Falls, Harmon and Kipling sites.  The powerhouse steel superstructure was completed at the Little Long site.  The project is expected to be completed within the approved budget of $2.6 billion and the last unit is planned to be in service by June 2015.  As at September 30, 2012, the life-to-date capital expenditures were $1.2 billion.

Thermal

• OPG and the Ontario Power Authority ("OPA") have executed the Atikokan Biomass Energy Supply Agreement for the conversion of the Atikokan generating station to biomass fuel.  The project is now in the execution phase.  The project is expected to cost $170 million and be completed in the first half of 2014.  OPG is suspending further work on the Thunder Bay generating station conversion, pending a review by the OPA of electricity needs in northwestern Ontario.  The OPA has informed OPG that it needs time to explore other options for electricity supply in the northwest part of the province.  Costs of $9 million were incurred for the conversion during the definition phase.
  
  
• As outlined in Ontario's Long-Term Energy Plan and Supply Mix Directive to the OPA, OPG is also exploring 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 Ontario's system reliability.  Without an indication that conversion will proceed, the units will continue to be made available to the system until the mandated cessation of coal consumption.

FINANCIAL AND OPERATIONAL HIGHLIGHTS ¹

		Three Months Ended September 30		Nine Months Ended September 30
(millions of dollars - except where noted)		2012	2011	2012	2011
Earnings
	Revenue	1,213	1,250	3,537	3,736
	Fuel expense	199	217	556	566
	Gross margin	1,014	1,033	2,981	3,170
	Operations, maintenance and administration	610	634	1,914	2,026
	Depreciation and amortization	164	183	495	511
	Accretion on fixed asset removal and nuclear waste management liabilities	181	176	544	526
	(Earnings) loss on nuclear fixed asset removal and nuclear waste management funds	(161)	16	(481)	(286)
	Other net expenses	9	89	33	92
	Income (loss) before interest and income taxes	211	(65)	476	301
	Net interest expense	26	37	89	113
	Income tax expense	46	52	51	80
	Net income (loss)	139	(154)	336	108
Income (loss) before interest and income taxes
	Generating segments	216	95	501	475
	Nuclear Waste Management segment	(19)	(192)	(59)	(240)
	Other segment	14	32	34	66
	Total income (loss) before interest and income taxes	211	(65)	476	301
Cash flow
	Cash flow provided by operating activities	510	429	722	983
Electricity generation (TWh)
	Regulated - Nuclear	12.8	12.6	37.0	36.6
	Regulated - Hydroelectric	4.4	4.9	14.1	14.5
	Unregulated - Hydroelectric	2.0	2.0	8.9	10.1
	Unregulated - Thermal	1.4	1.9	3.1	3.1
	Total electricity generation	20.6	21.4	63.1	64.3
Average sales prices and average revenue (¢/kWh)
	Regulated - Nuclear Generation	5.6	5.6	5.5	5.5
	Regulated - Hydroelectric	3.5	3.5	3.5	3.5
	Unregulated - Hydroelectric	3.0	3.7	2.3	3.3
	Unregulated - Thermal	3.5	3.9	2.6	3.5
	Average revenue for all electricity generators, excluding OPG ^2	8.0	8.1	8.6	8.3
	Average revenue for OPG ^3	5.3	5.3	5.1	5.3
Nuclear unit capability factor (per cent)
	Darlington	92.4	97.5	91.2	93.9
	Pickering	90.1	78.1	82.1	76.1
Availability (per cent)
	Regulated - Hydroelectric	92.8	93.4	91.7	91.0
	Unregulated- Hydroelectric	87.4	87.5	91.1	91.9
Start Guarantee rate (per cent)
	Unregulated - Thermal	98.3	95.8^4	97.8	95.1^4
Return on equity for the twelve months ended September 30, 2012
	and December 31, 2011 (per cent) ^5			6.6	4.0
Funds from operations interest coverage for the twelve months
	ended September 30, 2012 and December 31, 2011 (times) ^5			2.8	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	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 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 September 30, 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 and nine months ended September 30, 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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