OPG reports 2019 second quarter financial results
OPG signs acquisition agreements in Ontario and US; grows scale of operations
Toronto – Ontario Power Generation Inc. (OPG or Company) today reported net income attributable to the Shareholder of $351 million for the second quarter of 2019, compared to $121 million for the same quarter of 2018.
“As Ontario’s only publicly-owned electricity generator, OPG is pleased to report that our second quarter results once again provided a strong return for our shareholder, the Province of Ontario,” said Ken Hartwick, OPG President and CEO. “Our strong generation performance is a testament to the quality and commitment of our employees, ensuring we deliver real value throughout our operations.”
OPG also provided an update on the Darlington Refurbishment project. “Execution of the Darlington Refurbishment began in October 2016 and remains on budget, having completed the installation of fuel channel assemblies and upper and middle feeders on Unit 2 during the quarter,” said Hartwick. “We expect that Unit 2 will return to service in the second quarter of 2020, rather than the first quarter as previously anticipated, as a result of slower than expected installation of lower feeders. This revised schedule also reflects our unwavering commitment to safety as the number one priority in everything we do. We continue to expect the project overall to be executed on time and on budget.”
OPG experienced higher water levels in Ontario during the quarter. “In some parts of the province, high water levels represented an additional challenge to our operations,” said Hartwick. “Our renewable generation team worked closely with municipalities and other stakeholders on mitigating impacts to communities, while managing the water in a safe and coordinated manner.”
OPG recently announced that it has entered into purchase and sale agreements to grow its scale of operations through the acquisitions of a portfolio of combined-cycle natural gas-fired plants in Ontario and hydropower facilities in the eastern United States (US). “OPG is a clean energy leader and a trusted community partner with a strong track record of excellent, safe and sustainably-minded operations. Expanding our natural gas portfolio through these strategic acquisitions will help us to maintain scale with the upcoming end of Pickering nuclear station’s commercial operations,” said Hartwick. “Expanding our US hydroelectric portfolio is a natural fit and will support further growth in the electricity markets in which we operate. This is also an opportunity to grow our revenue base over the long term and provide increased returns to our shareholder,” Hartwick added.
The Company’s net income for the second quarter of 2019 was favourably impacted by a decrease in planned outage days at the Darlington and Pickering nuclear generating stations, compared to the same quarter in 2018. This resulted in higher electricity generation and higher revenue from the Regulated – Nuclear Generation segment, and lower associated operations, maintenance and administration expenses, compared to the same quarter in 2018.
OPG continues to provide electricity at a price that is approximately 40 per cent less than the average of other generators in Ontario. OPG is the only electricity generator in Ontario that has its prices set through a public hearing process by the Ontario Energy Board.
Acquisition of natural gas assets in Ontario
In July 2019, OPG, under a new subsidiary, entered into a purchase and sale agreement with affiliates of TC Energy (formerly TransCanada Corporation) to acquire a portfolio of combined-cycle natural gas-fired plants in Ontario for $2.87 billion, subject to customary working capital and other adjustments. The acquired portfolio includes the 900 MW Napanee generating station (GS), the 683 MW Halton Hills GS, and the remaining 50 per cent interest in the 550 MW Portlands Energy Centre. The acquisition is subject to a number of closing conditions, including the receipt of various regulatory approvals and the commencement of commercial operations at the Napanee GS. Closing is expected to occur towards the end of 2019 or in the first quarter of 2020.
In June 2019, OPG entered into a purchase and sale agreement with ATCO Power Canada Ltd., an affiliate of Canadian Utilities Limited, to acquire the remaining 50 per cent interest in the combined-cycle natural gas-fired 560 MW Brighton Beach GS in Ontario. The acquisition is subject to receipt of standard regulatory approvals, with closing expected in the third quarter of 2019.
Acquisition of Cube Hydro
In June 2019, OPG entered into purchase and sale agreements to acquire 100 per cent of the equity in Cube Hydro Partners, LLC and affiliate Helix Partners, LLC (collectively, Cube Hydro) for US$1.12 billion, inclusive of assumed debt and subject to customary working capital and other adjustments. Cube Hydro is a hydropower platform with 385 MW of in-service generating capacity spread across 19 hydroelectric facilities throughout the northeastern and southeastern United States. The acquisition provides additional scale to OPG’s existing US hydroelectric platform, following the acquisition of Eagle Creek in November 2018. Cube Hydro’s facilities are located in New York, Pennsylvania, Virginia, West Virginia and North Carolina, and operate in three regional power markets in the US. The acquisition is subject to receipt of regulatory approvals, with closing expected to occur prior to the end of 2019.
Generation and operating performance
Electricity generated during the three months ended June 30, 2019 was 20.2 terawatt hours (TWh), compared to 17.2 TWh for the same quarter in 2018. Total electricity generated during the six months ended June 30, 2019 increased to 39.3 TWh from 36.0 TWh for the same period in 2018.
Regulated – Nuclear Generation Segment
Higher nuclear electricity generation of 2.7 TWh and 2.1 TWh during the three and six month periods ended June 30, 2019, respectively, compared to the same periods in 2018, was primarily due to a lower number of planned outage days at both the Darlington GS and Pickering GS.
For the three months ended June 30, 2019, the unit capability factor for the operating units at the Darlington GS was 95.7 per cent, compared to 67.4 per cent for the same quarter in 2018. For the six months ended June 30, 2019, the unit capability factor for the operating units at the Darlington GS was 84.2 per cent, compared to 81.9 per cent for the same period in 2018. The increase during both periods was primarily due to fewer planned outages, in line with the station’s cyclical maintenance schedule. For the three months ended June 30, 2019, planned outage days for the three units decreased to 11 days from 89 days for the same period in 2018. For the six months ended June 30, 2019, planned outage days decreased to 85 days from 94 days for the same period in 2018.
At the Pickering GS, the unit capability factor increased to 86.4 per cent and 86.5 per cent for the three and six month periods ended June 30, 2019, respectively, compared to 71.3 per cent and 72.9 per cent for the same periods in 2018. The increase during both periods was primarily due to fewer planned outages in the station’s cyclical maintenance schedule. For the three months ended June 30, 2019, planned outage days for the six units decreased to 59 days from 132 days for the same period in 2018. For the six months ended June 30, 2019, planned outage days decreased to 123 days from 248 days for the same period in 2018.
Regulated – Hydroelectric Segment
Higher electricity generation from the regulated hydroelectric stations of 0.5 TWh and 1.0 TWh during the three and six month periods ended June 30, 2019, respectively, compared to the same periods in 2018, was primarily due to higher water flows across most of the province.
The availability of 91.4 per cent at these stations in the second quarter of 2019 was higher than 88.6 per cent for the same quarter in 2018. For the six months ended June 30, 2019, the availability of the stations increased to 90.7 per cent, from 87.9 per cent for the same period in 2018. The increase in the availability was primarily due to fewer planned outage days at the eastern Ontario region’s regulated hydroelectric stations.
Contracted and Other Generation Segment
Lower electricity generation from the Contracted and Other Generation segment of 0.2 TWh during the three months ended June 30, 2019 compared to the same period in 2018, was primarily due to less demand for generation from contracted facilities in Ontario, and partially offset by electricity generation from the Eagle Creek facilities acquired in the fourth quarter of 2018.
Higher generation from the Contracted and Other Generation segment of 0.2 TWh during the six months ended June 30, 2019 compared to the same period in 2018, was primarily due to electricity generation from the Eagle Creek facilities, partially offset by lower demand for generation from contracted facilities in Ontario.
The availability of the Ontario-based hydroelectric stations of the Contracted and Other Generation segment for the three months ended June 30, 2019 was 78.3 per cent, compared to 86.5 per cent for the same period in 2018. The stations’ availability for the six months ended June 30, 2019 was 82.4 per cent, compared to 83.3 per cent for the same period in 2018. The decrease was primarily due to a higher number of unplanned outage days at the contracted hydroelectric stations in the northeastern Ontario region.
Total Generating Cost
The Enterprise Total Generating Cost per megawatt-hour (MWh) for the three months ended June 30, 2019 was $44.78, compared to $55.78 for the same period in 2018. The Enterprise Total Generating Cost per MWh for the six months ended June 30, 2019 was $48.18, compared to $52.71 for the same period in 2018. The decrease was primarily due to higher electricity generation across the fleet and lower outage-related OM&A expenses at the nuclear facilities, partially offset by higher sustaining capital expenditures.
OPG is undertaking a number of generation development and life extension projects in support of Ontario’s electricity planning initiatives. Significant developments during the second quarter of 2019 included the following:
The Darlington Refurbishment project is expected to extend the operating life of the four-unit Darlington GS by at least 30 years. During the quarter, OPG completed the installation of the Fuel Channel Assemblies and the Upper and Middle Feeders. The Lower Feeder installation series is in progress and is expected to be completed in the fourth quarter of 2019. Taking account of challenges identified in achieving planned installation rates for the Lower Feeder installation series, the new date expected for Unit 2’s return to service is now in the second quarter of 2020 following safe completion of commissioning activities. The Darlington Refurbishment project, the execution of which began in 2016, continues to track on schedule overall and to the $12.8 billion budget.
In addition to the execution of refurbishment activities on Unit 2, OPG continues to progress with the planning and prerequisite activities for the refurbishment of Unit 3, incorporating the experience learned to date on Unit 2’s execution. The Unit 3 refurbishment is targeted to commence in the first quarter of 2020. As of June 30, 2019, $369 million has been invested in planning and prerequisite activities related to the refurbishment of Unit 3.
Total life-to-date expenditures on the project were approximately $6.1 billion as at June 30, 2019.
Ranney Falls Hydroelectric GS
OPG continues construction work for a 10 MW single-unit powerhouse on the existing Ranney Falls GS site. The new unit will replace an existing unit that reached its end of life in 2014. During the quarter, spillway gate hydraulic systems were commissioned, automated and placed in-service. Testing and commissioning of the turbine and generator of the new unit is in progress. The project’s expected in-service date is in the fourth quarter of 2019, with a budget of $77 million. The project is tracking on schedule and on budget. The Ranney Falls GS is included in the Regulated – Hydroelectric segment.
Changes to the Board of Directors
After five years, Bernard Lord decided to step down as Chair of the Board of Directors. Effective June 27, 2019, Wendy Kei was appointed as the new Chair of the Board, having joined the Board in March 2017 and most recently serving as the Chair of OPG’s Compensation, Leadership and Governance Committee.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
Three Months Ended
Six Months Ended
(millions of dollars – except where noted)
Operations, maintenance and administration
Depreciation and amortization
Other net expenses (gains) (1)
Income before interest and income taxes
Net interest expense
Income tax expense
Net income attributable to the Shareholder
Net income attributable to non-controlling interest (2)
Income before interest and income taxes
Electricity generating business segments
Regulated – Nuclear Waste Management
Total income before interest and income taxes
Cash flow provided by operating activities
Electricity generation (TWh)
Regulated – Nuclear Generation
Regulated – Hydroelectric
Contracted and Other Generation (3)
Total electricity generation
Nuclear unit capability factor (per cent) (4)
Darlington Nuclear GS
Pickering Nuclear GS
Availability (per cent)
Regulated – Hydroelectric
Contracted and Other Generation – hydroelectric stations (5)
Equivalent forced outage rate (6)
Contracted and Other Generation – thermal stations
Enterprise Total Generating Cost (TGC) per MWh for the three and six months ended June 30, 2019 and June 30, 2018 ($/MWh) 7
Return on Equity Excluding Accumulated Other Comprehensive Income (ROE Excluding AOCI) for the twelve months ended June 30, 2019 and December 31, 2018 (%) (7)
(1) For the six months ended June 30, 2018, includes the pre-tax gain on the sale of the former Lakeview GS site.
(2) 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 Lower Mattagami Limited Partnership, the 33 per cent interest of Coral Rapids Power Corporation, a corporation wholly owned by the Taykwa Tagamou Nation, in PSS Generating Station Limited Partnership, and the 15 per cent and 5 per cent interest of corporations wholly owned by the Six Nations of Grand River Development Corporation and by the Mississaugas of the Credit First Nation, respectively, in Nanticoke Solar LP.
(3) Includes OPG’s share of generation from its 50 per cent ownership interests in the Portlands Energy Centre and Brighton Beach GS. For the three and six months ended June 30, 2019, also includes generation from Eagle Creek facilities, including Eagle Creek’s proportionate share of generation from co-owned and minority shareholdings in hydroelectric and solar facilities.
(4) 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.
(5) Reflects the availability of contracted hydroelectric generating stations in Ontario.
(6) For the three and six month periods ended June 30, 2018, includes unplanned outage days at the Thunder Bay GS prior to cessation of operations in July 2018.
(7) Enterprise TGC per MWh and ROE Excluding AOCI 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 six month periods ended June 30, 2019, in the sections Highlights – Return on Equity Excluding Accumulated Other Comprehensive Income, Highlights – Enterprise Total Generating Cost per MWh, and 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 six month periods ended June 30, 2019 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.