OPG reports strong 2014 results

Reliable generation, cold weather and cost savings result in income of
$568 million, before extraordinary gain

TORONTO, March 13, 2015 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported income of $568 million, before extraordinary gain, for 2014 compared to $135 million for 2013.  Net income, after extraordinary gain, for 2014 was $811 million, compared to $135 million in 2013.

OPG's strong financial performance contributes to the results of its shareholder, the Province, and benefits the people of Ontario.  In addition to its net income, OPG also contributed over $400 million in gross revenue charges and current income taxes to the Province's results. 

Tom Mitchell, President and CEO said, "In addition to our strong earnings of over $800 million in 2014, when you add in taxes and other payments we make to the Province, we have returned over $1.2 billion to our Shareholder this year.  This was accomplished while OPG continues to generate electricity at a significantly lower price than the average of all other electricity generators. 

"Our financial achievements are the result of significant organization-wide efforts in transforming the Company to be more efficient.  Our Operations, Maintenance & Administration expenses in 2014 reflected the substantial reduction in OPG staff levels over the past four years.  They are also a tribute to the people at OPG who met the challenge to demonstrate that the Company could be more cost-effective without sacrificing safety or reliability."

Also in 2014, OPG closed the last of its coal-fired generating units and completed the addition of 438 megawatts of clean, renewable hydroelectric capacity at four stations on the Lower Mattagami River in northeastern Ontario.

Mr. Mitchell added, "It is rewarding for all of us at OPG to contribute to Ontario both financially and by generating clean, reliable electricity. Successfully delivering the Province's commitment to cleaner air by closing down our coal generation is considered North America's largest single climate change initiative. We're proud to be Ontario's largest clean energy provider."

Net income after extraordinary gain for 2014 was $811 million compared to $135 million for 2013. OPG recognized an extraordinary gain of $243 million in 2014 related to the forty-eight hydroelectric facilities, which were prescribed for rate regulation beginning in 2014.  The gain relates to deferred income taxes expected to be recovered from customers through regulated prices in respect of these newly regulated facilities.  Effective November 2014, OPG receives new regulated prices for its regulated facilities, including regulated prices for the forty-eight hydroelectric facilities.

Business Segment, Generating, and Operating Performance

OPG's income before interest, income taxes, and extraordinary item from the electricity generation business segments was $830 million in 2014, compared to $332 million in 2013, primarily due to higher earnings from each of the Regulated – Nuclear Generation, Contracted Generation Portfolio, and the Regulated – Hydroelectric business segments.  Higher earnings from the Contracted Generation Portfolio segment reflected the in-service of the Lower Mattagami units during 2014 along with higher prices resulting from the unseasonably cold weather in the first quarter of 2014.

The Regulated – Nuclear Waste Management business segment recorded a loss before interest and income taxes of $76 million in 2014, compared to a loss of $122 million in 2013.  Higher earnings on the Used Fuel Fund in 2014 contributed to this segment's improvement over 2013.

The Services, Trading, and Other Generation segment recorded income of $33 million in 2014, down from $42 million in 2013. The lower income was primarily due to costs related to the Nanticoke generating station (GS) and Lambton GS which ceased generation in 2013. This decrease was largely offset by higher trading margins of $51 million in 2014.

Total electricity generated increased in 2014 to 82.2 terawatt hours (TWh) from generation of 80.8 TWh in 2013.  The increase was mainly due to higher nuclear generation, partially offset by production forgone by OPG's hydroelectric facilities due to surplus baseload conditions. 

Nuclear production of 48.1 TWh in 2014 increased by 3.4 TWh, compared to 2013, primarily due to fewer unplanned outage days at the Pickering and Darlington stations.  Generation of 31.3 TWh in 2014 from the Regulated – Hydroelectric segment was comparable to generation of 31.4 TWh in 2013.

Contracted generation increased by 0.8 TWh as a result of higher production from stations included in the Lower Mattagami River project which were completed in 2014.  The increase was offset by a decrease in generation of 2.9 TWh due to ceasing coal-fired generation at the Lambton and Nanticoke generating stations in 2013. 

Fewer unplanned outage days in 2014 at the Darlington Nuclear GS and Pickering Nuclear GS resulted in significantly higher capability factors for both stations. The Darlington Nuclear GS capability factor increased to 92.1 per cent in 2014, compared to the 82.9 per cent achieved in 2013.  The capability factor at the Pickering Nuclear GS increased to 75.3 per cent in 2014 from 73.7 per cent in 2013. 

The availability of OPG's regulated and unregulated hydroelectric stations remained at high levels in 2014.  OPG's regulated hydroelectric stations achieved an availability of 91.4 per cent in 2014, compared to 91.3 per cent in 2013. 

OPG's contracted hydroelectric stations achieved an availability of 90.2 per cent in 2014 compared to 95.0 per cent in 2013.  The decrease reflected the impact of an unplanned unit outage in 2014.  OPG's contracted thermal stations achieved an equivalent forced outage rate of 8.9 per cent in 2014 compared to 8.6 per cent in 2013. 

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 2014 were as follows:

Darlington Refurbishment

• The Darlington Refurbishment project is aimed at extending the operating life of the station by approximately 30 years. The project is currently in the definition phase. In November 2014, OPG's Board of Directors reconfirmed the project's high confidence cost estimate at less than $10 billion in 2013 dollars, excluding capitalized interest and escalation. A budget and schedule for the refurbishment are expected to be completed in 2015. Life-to-date capital expenditures were $1,462 million as at Dec. 31, 2014.
• In December 2012, the project's environmental assessment (EA) was deemed to have met all regulatory requirements and was accepted by the Canadian Nuclear Safety Commission (CNSC). In April 2013, the EA was challenged by way of a judicial review on the grounds that the EA failed to comply with requirements of the Canadian Environmental Assessment Act, 2012 (the Act), and that the hearing deprived the applicants certain procedural rights. In November 2014, the court dismissed the challenge and concluded that the CNSC, and Fisheries and Oceans Canada committed no error in their decision under the Act. In December 2014, an appeal of the federal court ruling was filed.
• OPG continues to receive positive feedback from its nuclear regulator on its filings to date. OPG's Global Assessment Report was accepted by the CNSC in April 2014 as meeting all regulatory requirements. In December 2014, CNSC staff notified OPG that the regulatory scope defined in the Integrated Implementation Plan was accepted and is unlikely to change.

Lower Mattagami

• During 2014, all six generating units were placed in-service.  The Lower Mattagami River project was completed approximately six months ahead of the project's target completion date of June 2015 and within the budget of $2.6 billion.  The project has increased the capacity of the four generating stations on the Lower Mattagami River by 438 MW.  The Amisk-oo-Skow Finance Corporation, a corporation wholly owned by the Moose Cree First Nation, has acquired a 25 per cent interest in the Lower Mattagami Limited Partnership as at December 31, 2014.  Generation from the stations on the Lower Mattagami River is subject to an Energy Supply Agreement (ESA) with the Independent Electricity System Operator (IESO).

Atikokan Conversion to Biomass

• In July 2014, OPG completed the conversion of the 205 MW Atikokan GS from coal to biomass fuel, ahead of its original target completion date.  The project cost is expected to be within the budget of $170 million.  The converted station is subject to an ESA with the IESO and is the largest generating station in North America fuelled by 100 per cent biomass.

Thunder Bay Conversion to Advanced Biomass

• In June 2014, OPG and the IESO executed the Thunder Bay Biomass ESA with respect to the conversion of the Thunder Bay GS to advanced biomass fuel.  The 153 MW converted unit was placed in-service in January 2015, ahead of schedule and within the budget of $7 million.

FINANCIAL AND OPERATIONAL HIGHLIGHTS
(millions of dollars – except where noted)		2014	2013
	Revenue	4,963	4,863
	Fuel expense	641	708
	Gross margin	4,322	4,155
	Operations, maintenance and administration	2,615	2,747
	Depreciation and amortization	754	963
	Accretion on fixed asset removal and nuclear waste management liabilities	797	756
	Nuclear Funds (earnings) – a reduction to expense	(714)	(628)
	Regulatory disallowance related to the Niagara Tunnel project	77	-
	Income from investments subject to significant influence	(41)	(35)
	Other net expenses	47	100
	Income before interest, income taxes, and extraordinary item	787	252
	Net interest expense	80	86
	Income tax expense	139	31
	Income before extraordinary item	568	135
	Extraordinary item	243	-
	Net income	811	135
	Net income attributable to the Shareholder	804	135
	Net income attributable to non-controlling interest^1	7	-
Income (loss) before interest, income taxes, and extraordinary item
	Electricity generation business segments	830	332
	Regulated - Nuclear Waste Management	(76)	(122)
	Services, Trading, and Other Non-Generation	33	42
	Total income before interest, income taxes, and extraordinary item	787	252
Cash flow
	Cash flow provided by operating activities	1,433	1,174
Electricity generation (TWh)
	Regulated – Nuclear Generation	48.1	44.7
	Regulated – Hydroelectric
	Existing regulated hydroelectric stations	19.2	18.9
	Hydroelectric stations prescribed for rate regulation beginning in 2014	12.1	12.5
	Contracted Generation Portfolio^2	2.8	4.7
	Total electricity generation	82.2	80.8
Average revenue (¢/kWh)
	Average revenue for OPG ^3	5.6	5.7
	Average revenue for all electricity generators, excluding OPG ^4	10.7	9.9
Nuclear unit capability factor (per cent)
	Darlington Nuclear GS	92.1	82.9
	Pickering Nuclear GS	75.3	73.7
Availability (per cent)
	Regulated – Hydroelectric	91.4	91.3
	Contracted Generation Portfolio - Hydroelectric	90.2	95.0
Equivalent forced outage rate
	Contracted Generation Portfolio - Thermal	8.9	8.6
Return on equity (%)^5		8.5	1.5
Return on equity, excluding extraordinary gain (%)^5		6.0	1.5
Funds from operations interest coverage (times) ^5		2.8	2.8

^1	Relates to the 25 per cent interest of the Moose Cree First Nation in the Lower Mattagami Limited Partnership.
^2	Includes OPG's share of generation 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 revenues, market based revenues, revenues from hydroelectric Energy Supply Agreements and other energy revenues primarily from cost recovery agreements.
^4	Average revenue for other electricity generators is comprised 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	"Return on equity" and "Funds from operations interest coverage" 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 Dec. 31, 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 audited consolidated financial statements and Management's Discussion and Analysis as at and for the year ended Dec. 31, 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.

Investor Relations, 416-592-6700, 1-866-592-6700, [email protected]; Media Relations, 416-592-4008, 1-877-592-4008