News Column

Ontario Power Generation Reports 2014 Second Quarter Financial Results

August 15, 2014

TORONTO, Aug. 15, 2014 /CNW/ - Ontario Power Generation Inc. (OPG or Company) today reported its financial and operating results for the three and six months ended June 30, 2014.  Net income attributable to the Province for the second quarter of 2014 was $115 million compared to $73 million for the same quarter in 2013.  Net income attributable to the Province for the six months ended June 30, 2014 was $357 million compared to $101 million for the same period in 2013.

Tom Mitchell, President and CEO said, "OPG continues efforts to hold down our costs.  By 2016, we plan to have saved an estimated $1 billion by reducing the overall headcount from ongoing operations by 20 per cent from 2011 levels, primarily through attrition.  To date, the departure of 1,900 people since January 2011 has already saved $400 million.  At the same time, we continue to reinvest in our facilities to ensure future reliability and value for the people of Ontario.  OPG continues to generate electricity at a lower price than the average of all other electricity generators." 

Mr. Mitchell added, "OPG has successfully closed Ontario's coal facilities without any disruption to the safety or reliability of our operations, which generate more than half of Ontario's electricity.  This delivers the government's commitment to cleaner air and represents North America's single largest greenhouse gas reduction initiative to-date.  OPG's generation is now almost one hundred per cent free of greenhouse gas and smog causing emissions."

Net income attributable to the Province for the second quarter of 2014 increased by

$42 million compared to the same quarter in 2013.  The increase was primarily due to higher earnings from the Used Fuel Segregated Fund (Used Fuel Fund), and higher revenue as a result of increased production from generating stations included in the Lower Mattagami River project.  The increase in earnings was also due to lower income tax expense.  These increases were partially offset by an increase in outage expenditures.

Net income attributable to the Province for the six months ended June 30, 2014 increased by $256 million compared to the same period in 2013.  This increase was primarily due to increased revenue as a result of 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, and higher generation revenue from generating stations included in the Lower Mattagami River project and the Thunder Bay generating station (GS). 

Business Segment, Generating, and Operating Performance

OPG's income before interest and income taxes from the electricity generation business segments was $100 million in the second quarter of 2014, compared to $118 million in the same quarter of 2013.  The decrease was a result of lower earnings from OPG's regulated segments, primarily due to higher Operations, maintenance and administration expenses related to planned outage activities.  The decrease from the regulated segments was partially offset by higher earnings from the Contracted Generation Portfolio segment.

OPG's income before interest and income taxes from the electricity generation business segments was $446 million for the six months ended June 30, 2014, compared to $227 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 the generation produced by the 48 hydroelectric generating stations that have been prescribed for rate regulation effective July 1, 2014. 

The improved earnings for the Regulated – Nuclear Waste Management business segment of $39 million in the second quarter of 2014 and $68 million for the first half of 2014 was primarily due to higher earnings on the Used Fuel Fund.

The increase in income before interest and income taxes of $10 million for the Services, Trading, and other Non-Generation business segment for the first half of 2014 was primarily a result of higher trading margin for electricity sold to neighbouring energy markets.

Total electricity generated during the three months ended June 30, 2014 was 19.8 terawatt hours (TWh), compared to 20.0 TWh for the same quarter in 2013.  This decrease was mainly due to lower generation from the hydroelectric stations prescribed for rate regulation effective July 1, 2014.  Total electricity generated during the six months ended June 30, 2014 was 40.3 TWh, compared to 41.3 TWh for the same period in 2013.  This decrease was mainly due to lower generation from the Contracted Generation Portfolio segment and lower production from the hydroelectric stations subject to rate regulation effective July 1, 2014.

For the three months ended June 30, 2014 the capability factor at the Darlington Nuclear GS was 77.6 per cent compared to 85.9 per cent for the same quarter in 2013.  The decrease was primarily due to an increase in planned outage days.  For the six months ended June 30, 2014, the capability factor increased to 86.7 per cent compared to 85.0 per cent for the same period in 2013 due to a decrease in unplanned outage days for the first six months of the year.  At the Pickering Nuclear GS, the capability factor improved to 77.4 per cent for the three months ended June 30, 2014, compared to 65.9 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 72.0 per cent for the six months ended June 30, 2014 was essentially unchanged compared to 72.4 per cent for the same period in 2013.

The availability of OPG's hydroelectric generating stations in the Contracted Generation Portfolio segment for the three and six month periods ended June 30, 2014 decreased primarily 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.  Significant developments during the second quarter of 2014 are as follows:

Darlington Refurbishment

•The Darlington Refurbishment project is currently in the definition phase.  A detailed cost and schedule estimate for the refurbishment of the four units is expected to be completed in 2015.  •There are 19 pre-requisite projects currently underway at Darlington that are to be completed in advance of the execution phase.  A small number of these projects are experiencing execution challenges that have resulted in cost and schedule changes for those projects.  This is not expected to alter the overall cost and schedule of the Darlington Refurbishment project.  Early in 2014, in response to these challenges, OPG began implementing corrective actions such as new collaborative planning processes with vendors, dedicating resident engineers in vendor offices, exercising contract audit rights, and negotiating contract amendments.  •The cost variances relating to the impacted projects are estimated to be 2 to 3 per cent of the Darlington Refurbishment project's total $10 billion high confidence estimate in 2013 dollars, excluding capitalized interest and escalation.  OPG remains confident that the cost of the refurbishment project will remain less than the high confidence estimate. 

Lower Mattagami

The Lower Mattagami River project is expected to be completed on schedule by June 2015 and within the approved budget of $2.6 billion.  The 78 MW incremental unit at Harmon GS was declared in-service on June 3, 2014, ahead of its original target completion date of September 2014.  This is the second incremental unit to be completed on the Lower Mattagami River project, as the incremental unit at the Little Long GS was declared in-service in the first quarter of 2014.  In addition, the  first 89 MW incremental unit at the Smoky Falls GS is expected to be declared in-service ahead of its original target completion date of November 2014.  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 through its investment in the Lower Mattagami Limited Partnership (LMLP).  During the first half of 2014, the Amisk-oo-Skow Finance Corporation made equity contributions to the LMLP to acquire a 25 per cent interest in the value of the incremental units at the Little Long GS and the Harmon GS.  Life-to-date capital expenditures were $2,202 million as of June 30, 2014. 

Atikokan Conversion

•Construction to convert the Atikokan GS from coal to use biomass fuel was completed in July 2014, ahead of its original target completion date of late August 2014.  OPG has submitted documentation to the OPA to declare the Atikokan GS in Commercial Operation, effective as of July 24, 2014.  The project's total cost is tracking to the approved budget of $170 million.  The converted station has a capacity of 205 MW.

Thunder Bay Conversion to Advanced Biomass

•In June 2014, OPG and the Ontario Power Authority executed the Thunder Bay Biomass Energy Supply Agreement with respect to the conversion of one unit at the Thunder Bay GS to advanced biomass fuel.  Upon completion, the converted unit is expected to have a capacity of approximately 150 MW.  The Thunder Bay GS Advanced Biomass Conversion project has an approved cost estimate of $7 million and is expected to be placed in-service in the first half of 2015. 

FINANCIAL AND OPERATIONAL HIGHLIGHTS









































Three Months Ended

Six Months Ended





June 30

June 30

(millions of dollars – except where noted)

2014



2013



2014



2013



Earnings



















Revenue

1,098



1,190



2,485



2,445





Fuel expense

154



172



303



355





Gross margin

944



1,018



2,182



2,090





Operations, maintenance and administration

666



643



1,336



1,343





Depreciation and amortization

181



242



362



484





Accretion on fixed asset removal and nuclear waste management liabilities

195



190



391



379





Nuclear Funds (earnings) – a reduction to expense

(217)



(173)



(377)



(297)





Income from investments subject to significant influence

(10)



(9)



(23)



(19)





Other net expenses

10



10



24



28





Income before interest and income taxes

119



115



469



172





Net interest expense

11



20



23



45





Income tax (recovery) expense

(8)



22



87



26





Net income

116



73



359



101





Net income attributable to the Province

115



73



357



101





Net Income attributable to non-controlling interest 1

1



-



2



-



Income (loss) before interest and income taxes



















Electricity generation business segments

100



118



446



227





Regulated – Nuclear Waste Management

24



(15)



(10)



(78)





Services, Trading, and Other Non-Generation

(5)



12



33



23





Total income before interest and income taxes

119



115



469



172



Cash flow



















Cash flow provided by operating activities

205



347



633



592



Electricity generation (TWh)



















Regulated – Nuclear Generation

11.0



10.9



22.6



22.5





Regulated – Hydroelectric



















   Existing regulated hydroelectric generating stations

4.7



4.5



9.5



9.2





   Hydroelectric generating stations subject to rate regulation effective 

3.3



3.7



6.6



7.1





July 1, 2014



















Contracted Generation Portfolio 2

0.8



0.9



1.6



2.5





Total electricity generation

19.8



20.0



40.3



41.3



Average sales prices and average revenue (¢/kWh) 



















Average revenue for OPG 3

5.1



5.6



5.7



5.6





Average revenue for all electricity generators, excluding OPG 4

10.7



11.1



10.4



10.1



Nuclear unit capability factor (per cent)



















Darlington GS

77.6



85.9



86.7



85.0





Pickering GS

77.4



65.9



72.0



72.4



Availability (per cent)



















Regulated – Hydroelectric

91.2



92.0



91.8



92.6





Contracted Generation Portfolio – Hydroelectric

87.0



93.5



91.4



95.7



Equivalent forced outage rate



















Contracted Generation Portfolio – Thermal

3.7



5.7



3.3



10.1



Return on common equity for the twelve months ended June 30, 2014









4.3



1.5





and December 31, 2013 (per cent) 5

















Funds from operations interest coverage for the twelve months









2.7



2.8





ended June 30, 2014 and December 31, 2013 (times) 5







































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 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 revenues, market based revenues, revenues from energy supply agreements, and other energy revenue from cost recovery agreements.  In 2014, average revenue for OPG excludes the revenue from the cost recovery agreement for termination costs for the Nanticoke GS and Lambton GS as these stations ended coal-fired operations in 2013.  Average revenue for OPG also excludes 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, including revenue from the Nanticoke GS and Lambton GS cost recovery agreement.

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 June 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 six month periods ended June 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.


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