John Spears
Toronto Star
April 1, 2003

Despite soaring electricity prices, Ontario Power Generation Inc.’s net profit in 2002 dropped by more than two-thirds and operating income was down 42 per cent, the company’s year-end financial results show.

Chief executive Ron Osborne received a zero bonus last year, down from $752,853 a year earlier, year-end filings released yesterday show.

A company spokesperson said Osborne asked not to receive a bonus because OPG has not met targets for restarting the Pickering A nuclear station and because of its safety record. OPG, which generates 70 per cent of the province’s power, is owned by the Ontario government.

Osborne’s salary for 2002 was $850,000, and he received $100,767 in benefits and other compensation.

OPG’s former chief nuclear officer, Eugene Preston, who was in over-all charge of the problem-plagued Pickering project until he retired suddenly in October, was paid $2.5 million, including a $1.4 million retirement benefit.

The company’s statements show it had operating income last year of $245 million before restructuring charges, compared with $424 million the previous year.

Revenue declined to $5.75 billion from $6.24 billion because of OPG’s decision in mid-2001 to lease the Bruce nuclear generating station to a private consortium. The 2002 results include no revenue from Bruce, while the 2001 results include a partial year’s revenue from Bruce.

Bruce contributed about 7 per cent of OPG’s total production in 2001 prior to being leased.

While OPG’s production fell, the price it realized on its power sales rose by 10 per cent to 4.4 cents a kilowatt hour from 4 cents the previous year. The higher prices resulted from the government’s decision to open the Ontario power market to competition last May.

Net profit for OPG declined by 69 per cent to $47 million on the year, down from $152 million in 2001. A statement from OPG blamed the lower profits on the Bruce lease and higher coal prices.

The net profit could have been a loss had it not been boosted by "other income" of $171 million, largely stemming from asset sales.

That included $99 million for the sale of four hydro generating stations on the Mississagi River and $54 million in unspecified gains on the sale of long-term assets.

OPG is under pressure to return the Pickering A nuclear station to service. The province suffered power shortages last summer and had to import electricity to avoid blackouts.

The financial statements reiterate that the first unit of Pickering A is due to return to service by June 30.

But it notes "there remain risks that could impact the cost and schedule of the return to service of the first unit. This includes the risk of additional construction and other discovery work that may be identified through the testing and commissioning process, additional challenges that may result from the first-time commissioning of the laid-up units and various regulatory risks."

The second of the four Pickering A units is supposed to return to service within a year of the first unit. But the report doesn’t guarantee when it will be back. It notes the "cost and schedule to return this unit to service are under review."

OPG vice-president Chuck Pautler said Osborne had cited Pickering A as a place where performance must improve. He had also flagged safety, following an accident in which two swimmers drowned below an OPG dam when the gates were suddenly opened to generate power.

Consequently, he said, Osborne asked not to take a bonus.

All other senior officers received bonuses, but most were much lower than in 2001.

The results left some critics shocked.

Tom Adams, executive director of Energy Probe, said he was "taken aback" by the dwindling profits during a period of high prices.

And he noted OPG’s debt appears to be climbing at the same time according to the statements, which showed long-term debt up to $3.352 billion from $3.015 billion in 2001.

Liberal energy critic Sean Conway also said the poor profits are hard to understand during a period of high energy prices. OPG is required to rebate a portion of its revenue to customers because of its market power, but Conway said that doesn’t explain the decline.

"The Pickering project is hemorrhaging. It’s costing vastly more money that it was supposed to," Conway said.