OPG: generating less power, but earning more

Lots more. A record, in fact.

K2 Wind: first-to-the-grid rights for wind and solar, and lucrative 20-year contracts added to costs

Ontario Power Generation (OPG) released its 3rd Quarter report in mid-November, and it was impressive!

Revenue was up $156 million to $1,373 million (+12.8%) and after-tax income was 113% higher, increasing from $131 million to $279 million. For the first nine months of 2018, OPG reports RoE (return on equity) of 10.8% and will easily generate record after-tax profits for the full year of well over $1 billion. Nine-month profits sit at $948 million, up 84% or $433 million—that’s a record.

Revenue is also poised to crack the $5 billion-dollar level (nine-month revenue is $4,062 million) as it has many times in the past; however, after-tax profits have never been this high since the creation of OPG in 1999 when Ontario Hydro was broken up into several different entities.

What’s interesting about those record profits? OPG is record profits despite a substantial decline in generation.

Look at year-end December 31 2000: OPG generated and sold (into the grid) 139.8 TWh (terawatt hours) and earned revenue of $5,978 million for an after-tax profit of $605 million.   What that means is, back in 2000, OPG’s approximate cost to generate 1 TWh was $42.7 million (4.3 cents/kWh). In 2018 (so far) the cost has jumped to $74.8 million (7.5 cents/kWh) for the 54.3 TWh delivered in the first 9 months.

The 54.3 TWh delivered so far in 2018 is down from the comparable 2017 period by 1.7 TWh or 3% and from 2000 (9 months) by 49.4 TWh* or 46%!   Comparing the first nine months of 2018 to 2000, net income is up $405 million or 74.6%

With such significant drops in generation one would expect net income to drop so what happened?

Some five years ago (December 4, 2013) an article I wrote for Energy Probe was headed up: “OPG-whipping boy for the Ministry of Energy” and it outlined how the GEA (Green Energy Act) had a detrimental effect on OPG’s electricity generation and its revenue, which resulted in declining profits.

I noted how their many “unregulated hydro” assets received only the HOEP (hourly Ontario energy prices) which produced revenue of just over 2 cents/kWh, and how they had been instructed to build “Big Becky” (cost of $1.5 billion) and the Mattagami run-of-river project (cost of $2.6 billion).  Falling out of the GEA also was the rise in prices caused by wind and solar generation with first-to-the-grid rights and had resulted in declines in consumption. That meant much of OPG’s power generation was called on less and less.

OPG were also instructed by the Liberal Minister of Energy to convert power plants such as Atikokan and Thunder Bay from coal to biomass and to close the remaining coal-fired plants, one of which required a multi-million dollar write-down for prior expenditures on “scrubbers” to eliminate emissions.

As all this was happening, over the subsequent years, OPG applied for rate increases such as being paid “regulated prices” for all of their hydro assets and for revenue when they were forced to spill hydro. Those were eventually approved along with other increases to cover pension contribution shortfalls, increases in operational management and administrative costs (OMA), and for refurbishment of some nuclear plants.

OPG’s capacity has fallen from 25,800 MW in 2000** to 16,218 MW today, yet in 2000 they generated electricity at a capacity level of almost 62%. So far in 2018, they are operating at a capacity level of just under 51%.

OPG power could have eliminated excessive costs for wind and solar

If OPG were granted the rights to operate at the 62% level of capacity as they did in 2000, they could have generated 65.8 TWh easily, replacing all the generation produced by industrial wind turbines and solar panels. That generation would have resulted in a cost of electricity of less than 7.5 cents/kWh and eliminated the excessive costs for wind and solar under those 20-year contracts!

Today, OPG seems to no longer look like the “whipping boy” but still produces power at prices well below the costs of contracted generation under the GEA and should earn over $1 billion for 2018!

PARKER GALLANT

*Enough to power all of Ontario’s 4.9 million households for a full year with over 5 TWh left over.         **Staffing levels have dropped from 12,250 (including 650 under contract) in 2000 to 7,700 in 2018 meaning the ratio of employees to capacity has remained static at 2.1 employees per MW.

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Author: parkergallantenergyperspectivesblog

Retired international banker.

6 thoughts on “OPG: generating less power, but earning more”

  1. Hi Parker,
    Be careful with comparisons to the year 2000, as then Bruce NGSB and NGSA (although it was shut down then) were part of OPG, while they are operated by Bruce Power with all 8 units in operation, and generating some 30% of Ontario’s electricity.

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      1. Yes, but those 5,100 laid up nuclear in 2000 were Bruce A at 3100 MW and Pickering A at 2000 MW. The remaining 8,800 were Darlington, (3600MW), Bruce B (3200MW), and Pickering B (2000 MW). Today OPG has Darlington 3 units operating = 2700 MW, 2 units at Pickering A = 1000 MW, and 4 units at Pickering B = 2000 MW for a grand total of 5700 MW, even though it is unusual to have all 6 Pickering Units on line. Meanwhile, Bruce Power has currently 4 Units at Bruce B (3200 MW) and 4 Units at Bruce A (3100 MW) for a total of 6300 MW. (Less units in short term outages, until Bruce starts more refurbishment in 2020, when an average of one unit will be out of service for about 8 years). Hence, today Bruce Power has more nuclear power on line than OPG on most days, and together OPG and Bruce Power have some 12,000 MW total, compared to the 8,800 MW in year 2000. OPG is down, but in total the province is up in nuclear … at least until Pickering starts to shut down from 2020 to 2024. By the end of refurbishment (about 2030) OPG will have 3600 MW at Darlington, and Bruce Power will have 6300 MW. Sadly, in the long term and during the period uuntil 2030 with Bruce and Darlington units still in refurbishment, we are going to have a lot more gas fired generation in service, at say 110$ per MWh, compared to the roughly $65 per MWh for nuclear. Get ready for the next round of price increases to your “hydro bills”.

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  2. Bill, I understand what your are saying, but don’t forget: OPG spilled 5.9 TWh of hydro in 2017 (which we paid for) and a considerable amount of their other generation simply did almost nothing. Bruce also steamed off another TWh! Lennox with 2100 MW is much cheaper than other gas plant generation (fully paid for) and the OMA costs of operation are already included in the costs passed to us ratepayers. They are good for another 20 years of operation but produce almost no power. We are paying all of the other contracted gas plants to simply idle at very high rates and if they actually deliver power we will pay fuel costs plus a small mark-up. The Trans Canada, Napanee, 900 MW plant will be available soon too as well, adding to our surpluses that we will also be paying for. It should come on line as some of the nuclear refurbs commence. In 2017 gas plants operated at 6.5% of capacity to back up wind which itself curtailed 3.3 TWh and we paid for it. Maybe what we need is more flexibility to offset the intermittent generation from wind. OPG also has Big Becky that we are paying for but which is not being utilized. From my perspective I can’t see our rates climbing unless gas prices shoot way up.

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  3. This might be why Professor Ian Lee from the Sprott School of Business at Carleton is speaking out so strongly…using terms like ‘morally unconscionable’.
    Why has this government not cancelled all contracts?

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