OPG reports Q3 net income attributable to the shareholder of $118 million before extraordinary gain

TORONTO, Nov. 14, 2014 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported net income attributable to the Shareholder before extraordinary gain for the three months ended Sep. 30, 2014 of $118 million compared to $30 million for the same quarter in 2013.  The increased earnings were mainly a result of increased nuclear generation, lower operations, maintenance and administration (OM&A) expenses, and lower salary costs due to headcount reductions.  As well, the increased earnings reflect spending restraints implemented over the past three years under the company's Business Transformation program. 

Net income attributable to the Shareholder before extraordinary gain for the nine months ended Sep. 30, 2014 was $475 million compared to $131 million for the same period in 2013.

Tom Mitchell, OPG's President and CEO, said the improved financial results "illustrate the success of our determined and detailed business transformation.

"In addition to successfully ending the use of coal in our plants and operating a virtually emissions-free generation business, we have also lowered spending and achieved operational efficiencies by implementing improvements to our systems and processes.  This has enabled OPG to reduce the number of employees from ongoing operations by about 2,000 to below 10,000.  This was only accomplished with the dedicated efforts of all members of OPG staff."

Mr. Mitchell stressed that, "The positive financial results also include the impact of one-time events, including the extremely cold winter, and a gain in the value of the fund we have set aside to pay for the long-term storage of used nuclear fuel.  OPG continues to generate electricity at a significantly lower price than the average of all other electricity generators."

Net income attributable to the Shareholder after extraordinary gain for the third quarter of 2014 was $361 million compared to $30 million for the same quarter in 2013.  The increase primarily reflects the recognition of an extraordinary gain of $243 million related to the forty-eight previously unregulated hydroelectric facilities prescribed for rate regulation effective Jul. 1, 2014.  The gain relates to deferred income taxes expected to be recovered from customers through future regulated prices in respect of these newly regulated facilities.

Net income attributable to the Shareholder after extraordinary gain for the nine months ended Sep. 30, 2014 was $718 million compared to $131 million for the same period in 2013.  This increase was primarily due to the extraordinary gain recorded in the third quarter of 2014, and increased revenue from higher electricity spot market prices and trading revenue as a result of unseasonably cold weather during the first quarter in 2014.  The improvement was also due to higher earnings from the Used Fuel Fund, an increase in nuclear generation, higher revenue from generating stations included in the Lower Mattagami River project, and lower salary costs due to headcount reductions. 

Business Segment, Generating, and Operating Performance

Income before interest, income taxes, and extraordinary item from the electricity generation business segments was $220 million in the third quarter of 2014, compared to $77 million in the same quarter of 2013.  The increase was primarily a result of increased nuclear generation and lower nuclear OM&A expenses due to fewer outage days.

Income before interest, income taxes, and extraordinary item from the electricity generation business segments was $666 million for the nine months ended Sep. 30, 2014, compared to $304 million for the same period of 2013.  The increase was primarily due to higher hydroelectric generation revenue as a result of higher electricity spot market prices received for production from the 48 hydroelectric generating stations that have been prescribed for rate regulation which is effective Jul. 1, 2014. The increase was also due to higher earnings from the Regulated – Nuclear Generation segment.  The Contracted Generation Portfolio segment's earnings increased by $101 million for the nine months ended Sep. 30, 2014 primarily due to higher revenue from the generating stations included in the Lower Mattagami River project.  

The improved earnings for the Regulated – Nuclear Waste Management business segment of $58 million for the first nine months of 2014 was primarily due to higher earnings on the Used Fuel Fund.

Total electricity generated during the three months ended Sep. 30, 2014 was 21.0 terawatt hours (TWh), compared to 20.1 TWh for the same quarter in 2013.  This increase was mainly due to higher nuclear and regulated hydroelectric generation, partially offset by the impact of ending coal-fired generation.  Total electricity generated during the nine months ended Sep. 30, 2014 was 61.3 TWh, compared to 61.4 TWh for the same period in 2013 as the impact of ending coal-fired generation was partially offset by higher nuclear generation and generation from the hydroelectric stations included in the Lower Mattagami River project.

For the three months ended Sep. 30, 2014, the capability factor at the Darlington Nuclear generating station (GS) was 98.4 per cent compared to 87.1 per cent for the same quarter in 2013.  The increase was primarily due to a decrease in planned outage days.  For the nine months ended Sep. 30, 2014, the capability factor increased to 90.7 per cent compared to 85.7 per cent for the same period in 2013 due to a decrease in unplanned outage days for the first nine months of the year.  At the Pickering Nuclear GS, the capability factor improved to 79.9 per cent for the three months ended Sep. 30, 2014, compared to 75.7 per cent in the same quarter of 2013 due to a decrease in the number of planned outage days.  The capability factor at the Pickering Nuclear GS of 74.7 per cent for the nine months ended Sep. 30, 2014 reflected a slight improvement from the 73.5 per cent for the same period in 2013.

The availability of OPG's hydroelectric generating stations in the Contracted Generation Portfolio segment for the nine month period ended Sep. 30, 2014 remained above 90 per cent, but decreased marginally due to unplanned outages. 

Generation Development

OPG is undertaking a number of generation development and life extension projects to support Ontario's long-term electricity supply requirements and operate a generation portfolio that is essentially free of greenhouse gases and smog-causing emissions.  Significant developments during the third quarter of 2014 are as follows:

Darlington Refurbishment

• The Darlington Refurbishment project is currently in the definition and site preparation phase. A detailed schedule and budget for the refurbishment of the four units is expected to be completed in 2015.
• The Retube and Feeder Replacement project is the largest work package of the Darlington Refurbishment project and represents a majority of the critical path schedule. On Sep. 30, 2014, a significant step towards completion of tooling delivery was made with the installation of the first retube platform at the mock-up facility at the Darlington Energy Complex. Prototype testing has commenced on the retube platform as part of the tooling scope.
• The remaining major project work packages including Turbines and Generators, Defueling and Fuel Handling, and Steam Generators are on schedule.

Lower Mattagami ·

• The Lower Mattagami River project is expected to be completed on schedule by Jun. 2015 and within the approved budget of $2.6 billion. The first 89 megawatt (MW) unit at the new Smoky Falls GS was declared in-service on Sep. 30, 2014, ahead of its original target completion date of Nov. 2014. The second 89 MW unit was declared in-service in Oct. 2014, ahead of the original target completion date of Jan. 2015 and the remaining unit at the Smoky Falls GS is expected to be declared in-service in Nov. 2014. The last incremental unit of the project, a 78 MW unit at the Kipling GS, is expected to be declared in-service ahead of the project's original target completion date of Jun. 2015. As incremental units are placed in-service, the Amisk-oo-Skow Finance Corporation, a corporation wholly owned by the Moose Cree First Nation, may acquire up to a 25 per cent interest in the assets placed in-service through its investment in the Lower Mattagami Limited Partnership (LMLP).
• During the first nine months of 2014, the Amisk-oo-Skow Finance Corporation made equity contributions to LMLP to acquire a 25 per cent interest in the value of the incremental units at the Little Long GS and Harmon GS. In Oct. 2014, the Amisk-oo-Skow Finance Corporation made equity contributions to acquire a 25 per cent interest in Unit 1 and Unit 2 of the new Smoky Falls GS.  Life-to-date capital expenditures were $2,282 million as of Sep. 30, 2014. 

Atikokan Conversion

• In Jul. 2014, construction to convert the Atikokan GS from coal to biomass fuel was completed ahead of its original target completion date of late Aug. 2014. The station was declared in-service as of Jul. 24, 2014. While the total project cost is being finalized, the project's total cost is tracking to the budget of $170 million. The converted station has a capacity of 205 MW and is subject to an energy supply agreement with the OPA. The Atikokan GS is the largest generating station in North America fuelled by 100 per cent biomass.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
			Three Months Ended				Nine Months Ended
			September 30				September 30
(millions of dollars – except where noted)			2014		2013		2014		2013
	Revenue		1,160		1,244		3,645		3,689
	Fuel expense		161		186		464		541
	Gross margin		999		1,058		3,181		3,148
	Operations, maintenance and administration		595		684		1,931		2,027
	Depreciation and amortization		184		243		546		727
	Accretion on fixed asset removal and nuclear waste management liabilities		195		188		586		567
	Nuclear Funds (earnings) – a reduction to expense		(161)		(165)		(538)		(462)
	Income from investments subject to significant influence		(9)		(9)		(32)		(28)
	Other net expenses		15		60		39		88
	Income before interest, income taxes, and extraordinary item		180		57		649		229
	Net interest expense		15		18		38		63
	Income tax expense		46		9		133		35
	Income before extraordinary item		119		30		478		131
	Extraordinary item		243		-		243		-
	Net income		362		30		721		131
	Net income attributable to the Shareholder		361		30		718		131
	Net Income attributable to non-controlling interest ^1		1		-		3		-
Income (loss) before interest, income taxes, and extraordinary item
	Electricity generation business segments		220		77		666		304
	Regulated – Nuclear Waste Management		(32)		(22)		(42)		(100)
	Services, Trading, and Other Non-Generation		(8)		2		25		25
	Total income before interest, income taxes, and extraordinary item		180		57		649		229
Cash flow
	Cash flow provided by operating activities		360		391		993		983
Electricity generation (TWh)
	Regulated – Nuclear Generation		12.8		11.5		35.4		34.0
	Regulated – Hydroelectric
		Existing regulated hydroelectric stations	5.1		4.9		14.6		14.1
		Hydroelectric stations subject to rate regulation effective July 1, 2014	2.5		2.3		9.1		9.4
	Contracted Generation Portfolio ^2		0.6		1.4		2.2		3.9
	Total electricity generation		21.0		20.1		61.3		61.4
Average sales prices and average revenue (¢/kWh)
	Average revenue for OPG ^3		5.1		5.8		5.5		5.7
	Average revenue for all electricity generators, excluding OPG ^4		10.8		9.8		10.5		10.0
Nuclear unit capability factor (per cent)
	Darlington GS		98.4		87.1		90.7		85.7
	Pickering GS		79.9		75.7		74.7		73.5
Availability (per cent)
	Regulated – Hydroelectric		90.7		90.2		91.4		91.8
	Contracted Generation Portfolio – Hydroelectric		95.9		95.3		93.0		95.6
Equivalent forced outage rate
	Contracted Generation Portfolio – Thermal		2.1		5.7		2.9		8.7
Return on common equity for the 12 months ended Sep. 30, 2014							7.7		1.5
	and Dec. 31, 2013 (%) ^5
Return on common equity, excluding extraordinary gain, for the							5.1		1.5
	12 months ended Sep. 30, 2014 and Dec. 31, 2013 (%) ^5
Funds from operations interest coverage for the 12 months							2.5		2.8
	ended Sep. 30, 2014 and Dec. 31, 2013 (times) ^5

^1	Relates to the 25 per cent interest of a corporation wholly owned by the Moose Cree First Nation in the incremental assets of the Lower Mattagami Limited Partnership.
^2	Includes OPG's share of generation volume from its 50 per cent ownership interests in the Portlands Energy Centre (PEC) and Brighton Beach.
^3	Average revenue for OPG is comprised of regulated, market, energy supply agreement, and cost recovery agreement revenue. In 2014, average revenue for OPG excludes revenue from the cost recovery agreement for termination costs for the Nanticoke GS and Lambton GS and OPG's share of revenues and generation from PEC and Brighton Beach.
^4	Revenues for other electricity generators are calculated 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.
^5	"Funds from operations interest coverage" and "Return on common 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 Sep. 30, 2014, 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 month periods ended Sep. 30, 2014, 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.

Ontario Power Generation, Media Relations, 416-592-4008 or 1-877-592-4008, Follow us @ontariopowergen