OPG Reports 2017 Third Quarter Financial Results

Darlington Refurbishment Project Remains on Time and on Budget at
One-Year Mark

TORONTO, Nov. 9, 2017 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported net income attributable to the Shareholder of $131 million for the third quarter of 2017, compared to $194 million for the same period in 2016.

"The Company's focus continues to be on ensuring the success of the Darlington Refurbishment Project.  After the one-year mark of work on Darlington's Unit 2, Canada's largest clean energy project remains on time and on budget," said Jeff Lyash, OPG President and CEO.  "This is a ten-year project that will extend the life of the Darlington nuclear plant by 30 years, boosting Ontario's GDP by $90 billion and creating more than 14,000 jobs."

The 2017 Long-Term Energy Plan issued by Ontario's Ministry of Energy in October 2017 recognizes the refurbishment of Ontario's nuclear generating fleet as the most cost-effective option for producing emission-free baseload generation to meet Ontario's future needs and reaffirms the Province's commitment to the refurbishment of the four units at the Darlington Nuclear Generating Station (GS).  OPG's Enterprise Total Generating Cost, which measures the overall productivity of the Company's nuclear, hydroelectric and thermal generating assets, was 4.8 cents per kilowatt hour for the first nine months of 2017. 

Lyash continued, "I am also pleased with the strong performance of our Pickering Nuclear plant, which has so far generated 2.1 terawatt hours of electricity more than last year.  We are applying for a licence to extend the operation of the station until 2024.  This will ensure a reliable, clean source of low cost power during the Darlington Refurbishment Project and avoid 17 million tonnes of carbon emissions.  The 2017 Long-Term Energy Plan confirms the value to customers of continuing Pickering operations to 2024."

"The successful performance of our assets is built around a strong safety culture.  This quarter, the Canadian Nuclear Safety Commission has once again given our Pickering and Darlington stations the highest possible safety ratings," Lyash went on to say.  "Darlington has now achieved this rating for eight consecutive years and Pickering has achieved the highest possible safety rating for the second year in a row."

"Additionally, OPG successfully completed its first public debt issuance in October, raising $500 million for our general corporate needs and to fund OPG's investment in Ontario's Fair Hydro Plan," added Lyash.  "This will provide OPG with financial flexibility and further our ability to invest in projects to the benefit of customers and stakeholders."

The earnings for the third quarter of 2017 were impacted by the expected year-over-year decline in generation revenue, reflecting lower nuclear electricity generation due to the refurbishment outage for Unit 2 at the Darlington GS without the resetting of base regulated prices, largely offset by higher generation from the strong performance of the Pickering GS.  The lower earnings were mitigated by lower operations, maintenance and administration (OM&A) expenses across all business segments. 

OPG provides electricity at a price that is 40 per cent less than other generators and is the only electricity generator in Ontario that has its prices set through a public hearing process by the Ontario Energy Board (OEB).  Earlier in 2017, OPG completed the public hearing process for its current application with the OEB that will set prices for the Company's nuclear and most of its hydroelectric generation for the next five years, with a proposed effective date of January 1, 2017.  The OEB is expected to make a decision on the rate application prior to the end of the year.  In the meantime, OPG is operating under base regulated prices that were set in 2014 and do not reflect this year's reduced nuclear electricity generation, which is primarily due to the Darlington Refurbishment.  As in the earlier quarters of this year, the continuation of these prices has negatively affected revenue and net income in the third quarter of 2017.  The outcome of the current rate application and the effective date of the new regulated prices are expected to affect OPG's revenue and net income for the fourth quarter of 2017.

Net income attributable to the Shareholder was $498 million for the nine months ended September 30, 2017, compared to $449 million for the same period in 2016.  The gain of $283 million on the sale of OPG's head office building and parking facility recorded in the second quarter of 2017 offset the year-to-date reduction in generation revenue and was the main driver of the increase in net income for the nine months ended September 30, 2017, compared to the same period in 2016.

Lower earnings on the nuclear fixed asset removal and nuclear waste management segregated funds of $52 million during the third quarter of 2017 and $41 million during the nine months ended September 30, 2017, compared to the corresponding periods in 2016, also contributed to the year-over-year change in net income.

Generation and Operating Performance

Electricity generated during the three months ended September 30, 2017 was 19.4 terawatt hours (TWh), compared to 19.5 TWh for the same quarter in 2016.  Total electricity generated during the nine months ended September 30, 2017 decreased to 56.0 TWh from 59.9 TWh for the same period in 2016.  The decrease in electricity generation reflected the expected lower generation from the Darlington GS and lower generation from the contracted plants.  For the third quarter of 2017, the decrease was largely offset by higher generation from the Pickering GS, primarily due to fewer outage days, and higher generation from the regulated hydroelectric stations.

Regulated – Nuclear Generation Segment

Lower nuclear generation of 0.4 TWh and 4.0 TWh during the three and nine month periods ended September 30, 2017, respectively, was primarily due to the removal from service of Unit 2 at the Darlington GS for the duration of the unit's refurbishment that began in October 2016 and is expected to continue until early 2020.  Offsetting the reduction in generation from the Darlington GS was an increase in generation of
0.9 TWh and 2.1 TWh from the strong performance of the Pickering GS during the three and nine month periods ended September 30, 2017, respectively.

For the three months ended September 30, 2017, the unit capability factor for the operating units at the Darlington GS was 96.2 per cent, compared to 89.6 per cent for the same quarter in 2016.  The increase was primarily due to a lower number of planned outage days during the third quarter of 2017.  For the nine months ended September 30, 2017, the unit capability factor for the operating units at the Darlington GS was 82.1 per cent, compared to 87.6 per cent for the same period in 2016.  The decrease was primarily a result of a higher number of planned outage days at the station in the first half of 2017, largely driven by constraints related to the transition of the station toward refurbishment.  

At the Pickering GS, the unit capability factor increased to 88.7 per cent and 83.8 per cent for the three and nine month periods ended September 30, 2017, respectively, compared to 77.3 and 73.8 per cent for the same periods in 2016, primarily due to outage optimization, favourable unit conditions and execution of planned outage work resulting in a lower number of unplanned and planned outage days at the station in 2017.

Regulated – Hydroelectric Segment

Higher generation from the regulated hydroelectric stations of 0.4 TWh and 0.7 TWh during the three and nine month periods ended September 30, 2017, respectively, compared to the same periods in 2016, was due to higher water flows, primarily on the eastern Ontario river systems.

The availability of 87.6 per cent at these stations in the third quarter of 2017 was higher than 84.1 per cent for the same quarter in 2016, primarily due to a higher number of planned outage days in 2016 as a result of refurbishing the Sir Adam Beck Pump GS reservoir between April 2016 and February 2017.  For the nine months ended September 30, 2017, the availability of the stations marginally decreased to 89.0 per cent, from 89.8 per cent for the same period in 2016.  The marginal decrease in the availability was primarily due to a higher number of unplanned outage days at the Northwestern Ontario and Niagara region hydroelectric stations, partially offset by higher availability from the Sir Adam Beck Pump GS.

Contracted Generation Portfolio Segment

Lower generation from the Contracted Generation Portfolio of 0.1 TWh and 0.6 TWh during the three and nine month periods ended September 30, 2017, respectively, compared to the same periods in 2016, was mainly due to lower generation from the segment's hydroelectric plants.

The availability of these hydroelectric stations for the three months ended September 30, 2017 was 66.1 per cent, compared to 68.2 per cent for the same quarter in 2016.  The stations' availability for the nine months ended September 30, 2017 was 76.9 per cent, compared to 79.6 per cent for the same period in 2016.  The decrease in the availability was primarily due to an increase in the number of planned outage days at the Lower Mattagami River hydroelectric generating stations.

Total Generating Cost

The Enterprise Total Generating Cost per megawatt hour (MWh) for the three months ended September 30, 2017 was $46.65, compared to $50.72 for the same quarter in 2016.  The decrease was mainly due to lower OM&A expenses before the impact of regulatory variance and deferral accounts and higher hydroelectric electricity generation adjusted for surplus baseload generation, partially offset by the expected reduction in nuclear electricity generation due to the Unit 2 refurbishment outage at the Darlington GS.  The Enterprise Total Generating Cost per MWh for the nine months ended September 30, 2017 was $47.77, compared to $46.74 for the same period in 2016.  The increase was expected and mainly a result of lower electricity generation due to the Unit 2 refurbishment outage at the Darlington GS, which was largely offset by lower OM&A expenses before the impact of regulatory variance and deferral accounts and higher hydroelectric electricity generation adjusted for surplus baseload generation.

If Unit 2 at the Darlington GS was not currently undergoing refurbishment and had continued to operate in a manner consistent with the performance of the remaining units at the station, adjusted for generation constraints on these units related to the transition of the station toward refurbishment, the Enterprise Total Generating Cost would have been approximately $4 per MWh lower for the three and nine month periods ended September 30, 2017.  This sensitivity was calculated using the estimated incremental electricity generation and associated fuel cost that are expected to have resulted in the absence of the refurbishment.

Generation Development

OPG is undertaking a number of generation development and life extension projects in support of Ontario's electricity planning initiatives.  Significant developments during the third quarter of 2017 were as follows:

Darlington Refurbishment

The Darlington Refurbishment project is expected to extend the operating life of the four-unit Darlington GS by approximately 30 years.  The approved budget for the four-unit refurbishment is $12.8 billion, which includes the costs of the pre-requisite projects in support of the execution phase of the refurbishment.  In October 2016, OPG commenced the refurbishment of the first unit, Unit 2.  The de-fuelling and islanding of the reactor was completed in the first half of 2017.  The Re-tube Tooling Platform for hosting the tooling for the removal, inspection and installation activities, and the setup of specialized tooling and equipment needed for the removal and replacement of the reactor components were completed in the third quarter of 2017.  The disassembly of reactor components began in August 2017, with the removal of all 960 feeder tubes completed safely in September 2017.  The removal of fuel channel assemblies is in progress and expected to continue through the first quarter of 2018.   

Most of the pre-requisite projects, including construction of facilities, infrastructure upgrades and installation of safety enhancements, have been completed and placed in service.  The Re-tube Waste Processing Building is expected to be completed in November 2017.  The completion of the Heavy Water Storage and Drum Handling Facility, which has been delayed due to challenges with construction, will resume following the substantial completion of the Re-tube Waste Processing Building.  The Heavy Water Storage and Drum Handling Facility is not on the critical path for the Darlington Refurbishment project, which continues to track on schedule.  OPG is in the process of finalizing the increased cost estimate for the Heavy Water Storage and Drum Handling Facility.  The change in the cost estimate for the facility will not impact the overall Darlington Refurbishment project budget of $12.8 billion, as it will be accommodated within that budget.  Taking into account the execution performance of the Unit 2 refurbishment, the overall Darlington Refurbishment project continues to track on budget.    

In addition to the execution of refurbishment activities for Unit 2, OPG is continuing planning activities for the refurbishment of the second unit, Unit 3, and is entering into associated commitments to procure major components that require long lead times.  As of September 30, 2017, $70 million has been invested in planning activities related to the refurbishment of the second unit.    

Total life-to-date capital expenditures on the project were approximately $4.1 billion as at September 30, 2017.

Ranney Falls Hydroelectric GS

During the third quarter of 2017, OPG continued construction work for a 10 MW single-unit powerhouse on the existing Ranney Falls GS site, as part of the Regulated – Hydroelectric segment.  The new unit will replace an existing unit that reached its end of life in 2014.  The existing forebay structure demolition has been completed and the upstream cofferdam has been constructed ahead of schedule.  Construction continues on the expanded forebay, powerhouse and spillway.  The project's expected in-service date is in the fourth quarter of 2019, with a budget of $77 million.  The project is tracking on schedule and on budget.

Nanticoke Solar Facility  

The construction of a 44 MW solar facility at OPG's Nanticoke GS site and adjacent lands under a Large Renewable Procurement contract with the IESO, through Nanticoke Solar LP, a partnership between OPG and a subsidiary of the Six Nations of Grand River Development Corporation, is planned to commence in the first quarter of 2018.  During the third quarter of 2017, the partnership continued work to obtain approvals and permits required to enable the commencement of construction, and progressed procurement activities for equipment and for engineering and construction services.  The facility is expected to be completed in the first quarter of 2019, with a budget of $107 million.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
		Three Months Ended				Nine Months Ended
		September 30				September 30
(millions of dollars – except where noted)		2017		2016		2017		2016
	Revenue	1,217		1,400		3,539		4,265
	Fuel expense	185		187		518		541
	Gross margin	1,032		1,213		3,021		3,724
	Operations, maintenance and administration	635		666		2,054		2,061
	Depreciation and amortization	178		313		517		941
	Accretion on fixed asset removal and nuclear waste management liabilities	235		232		709		696
	Earnings on Nuclear Segregated Funds - (a reduction to expenses)	(196)		(248)		(579)		(620)
	Income from investments subject to significant influence	(11)		(11)		(29)		(28)
	Other net expenses (gains)	11		13		(350)		12
	Income before interest and income taxes	180		248		699		662
	Net interest expense	21		28		56		92
	Income tax expense	19		22		128		109
	Net income	140		198		515		461
	Net income attributable to the Shareholder	131		194		498		449
	Net income attributable to non-controlling interest ^1	9		4		17		12
Income (loss) before interest and income taxes
	Electricity generation business segments	217		238		436		736
	Regulated – Nuclear Waste Management	(36)		18		(123)		(70)
	Services, Trading, and Other Non-Generation	(1)		(8)		386		(4)
	Total income before interest and income taxes	180		248		699		662
Cash flow
	Cash flow provided by operating activities	485		530		698		1,211
Electricity generation (TWh)
	Regulated – Nuclear Generation	11.3		11.7		30.6		34.6
	Regulated – Hydroelectric	7.3		6.9		23.5		22.8
	Contracted Generation Portfolio ^2	0.8		0.9		1.9		2.5
	Total electricity generation	19.4		19.5		56.0		59.9
Nuclear unit capability factor (per cent) ^3
	Darlington Nuclear GS	96.2		89.6		82.1		87.6
	Pickering Nuclear GS	88.7		77.3		83.8		73.8
Availability (per cent)
	Regulated – Hydroelectric	87.6		84.1		89.0		89.8
	Contracted Generation Portfolio – hydroelectric stations	66.1		68.2		76.9		79.6
Equivalent forced outage rate
	Contracted Generation Portfolio – thermal stations	2.6		2.1		6.0		1.3
Enterprise Total Generating Cost per MWh ($/MWh) ^4		46.65		50.72		47.77		46.74
Return on Equity Excluding Accumulated Other Comprehensive Income
	(ROE Excluding AOCI) for the twelve months ended September 30, 2017
	and December 31, 2016 (%) ^4					4.4		4.2
Funds from Operations (FFO) Adjusted Interest Coverage for the twelve  months ended September 30, 2017 and December 31, 2016 (times) ^4
						4.2		5.1

^1	Relates to the 25 per cent interest of the Amisk-oo-Skow Finance Corporation, a corporation wholly owned by the Moose Cree First Nation, in the Lower Mattagami Limited Partnership, the 33 per cent interest of Coral Rapids Power Corporation, a corporation wholly owned by the Taykwa Tagamou Nation, in the PSS Generating Station Limited Partnership, and the 10 per cent interest of a corporation wholly owned by the Six Nations of Grand River Development Corporation in the Nanticoke Solar LP.
^2	Includes OPG's share of generation volume from its 50 per cent ownership interests in the Portlands Energy Centre and Brighton Beach GS.
^3	Nuclear unit capability factor excludes unit(s) during the period in which they are undergoing refurbishment.  Unit 2 of the Darlington GS is excluded from the measure effective October 15, 2016, when the unit was taken offline for refurbishment.
^4	Enterprise Total Generating Cost per MWh, ROE Excluding AOCI, and FFO Adjusted Interest Coverage are non-GAAP financial measures and do not have any standardized meaning prescribed by US GAAP.  Additional information about the non-GAAP measures is provided in OPG's Management's Discussion and Analysis for the three and nine months ended September 30, 2017, in the sections Highlights – FFO Adjusted Interest Coverage, Highlights – Return on Common Equity Excluding Accumulated Other Comprehensive Income, and Highlights – Enterprise Total Generating Cost per MWh, as well as 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 mission is providing low cost power in a safe, clean, reliable and sustainable manner for the benefit of our customers and shareholder.

Ontario Power Generation Inc.'s unaudited interim consolidated financial statements and Management's Discussion and Analysis as at and for the three and nine month periods ended September 30, 2017 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.

Investor Relations: 416-592-6700, [email protected]; Media Relations: 416-592-4008, 1-877-592-4008

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