Ontario Power Generation, OPG, sees earnings more than double in third quarter

Canadian Press - October 28, 2002
by Steve Erwin

Ontario Power Generation saw its profits more than double in the July-September period - a time of unseasonably hot weather that drove up air conditioning demand and consumer power bills. However, overall revenues at Ontario's biggest electricity producer were flat as the company made more from the electricity it generated but sold less power overall in a market that opened to competition on May 1.

Profits were driven higher by a cut in expenses. In particular, the power generator saved more than $300 million with reduced purchases of outside power to supply Ontario consumers and businesses in the competitive market.

In the past, the company was forced to buy expensive power from outside Ontario because as a monopoly it was required by law to meet the market's needs. In the deregulated market, it no longer has to do so and privately owned power companies are filling the gap.

The giant publicly owned utility - a spinoff of the former Ontario Hydro - said it earned $215 million, or 84 cents a share, in the three months ended Sept. 30, a period of droughts and very hot weather that raised power demand in the province. That's up from profits of $81 million, or 32 cents a share, in the 2001 third quarter.

Revenue fell slightly to $1.5 billion from $1.55 billion last year, with higher power rates offsetting lower electricity sales volumes from OPG.

Rates soared as Ontario's peak demand reached record levels during the quarter, with a new peak of 25,414 megawatts set Aug. 13.

"OPG's third-quarter earnings reflect open market prices for the summer period and the impact of warmer than normal weather," the power producer said in a release.

Despite the flat revenues, improved operating efficiency made the company less dependent on expensive power imports and helped drive down overall expenses, OPG said.

"Our plants operated better this summer and we actually had greater output for just ourselves, in terms of our plants," said OPG spokesman John Earl.

"We had higher output from the stations and the earnings per kilowatt hour was greater this quarter than the previous quarters, based on the price of the market."

Part of the reason for the lower expenses involved getting leaner - including layoffs. OPG announced in January it would lay off 2,000 employees over the next two years in a drive for better efficiency.

Its workforce currently totals about 11,000.

Earl said OPG produced more power at its plants. But since the May 1 market opening, the utility is no longer required by the province to buy enough electricity to meet Ontario market demand.

In 2001's third quarter, OPG spent $374 million for power purchased from Quebec, Manitoba and the U.S. northeast and midwest states to meet customer demand. But in the third quarter of this year, OPG spent only $36 million on higher-cost, outside power.

Also, as of May 1, OPG was no longer obligated to buy power from Bruce Power, the British Energy-controlled business that negotiated a $3.2-billion, 18-year lease to operate two of OPG's nuclear generating stations near Kincardine, Ont.

One of Bruce's reactors - its nuclear station on Lake Huron - was out of service for the entire summer, forcing the province to import more expensive electricity from neighbouring provinces to meet demand.

OPG also cited a "favourable generation mix" of higher nuclear and hydroelectric generation for its strong earnings.

The government-owned utility stressed in a statement that under its government-driven mandate, it is ordered to provide consumers with rebates if the average price of power tops 3.8 cents a kilowatt hour over a year.

OPG is also mandated to reduce its share of generating capacity to 35 per cent from almost 70 per cent within 10 years. Critics have said the utility should make such divestitures sooner.

The utility posted a gain from the sale of four hydroelectric stations on the Mississagi River, east of Sault Ste. Marie. The buyer was an income fund 50 per cent owned by Brascan Power Corp. (TSX:BNN.A), one of Canada's biggest private power producers.

Four provincial properties for sale are the coal-fired Lakeview station in Mississauga; the Lennox station near Kingston; the Atikokan generating plant in northwestern Ontario; and a Thunder Bay operation.

OPG said it also had increased expenditures related to Pickering A, its nuclear power plant east of Toronto that was taken out of service in 1997 because of reliability problems and safety concerns.

It was due back online this year at a cost of about $800 million but reports suggest it may not reopen before 2006 at a total cost of more than $3 billion.

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