(September 1, 2011) Ontario Power Generation recently released its 2^nd Quarter results.  On the surface all seems well with OPG — it announced an after tax (Payments in Lieu of taxes) profit for the quarter of $114 million for the 6 months ended June 30, 2011 versus $40 million for the comparable quarter in 2010.

The press resulting from the release indicated that increased profit was “helped by the nuclear division.”  Based on that, one would assume that OPG received higher prices for nuclear generation or produced more, but the price received for nuclear production was the same and production increased by only 1.8 terawatts (TWh) which should have increased revenue by almost $100 million.

Look closer, however, and you soon discover that revenue was only up by $16 million, since cheap coal generation was down by 5.8 TWh, which shaved $168 million from OPG’s revenue (calculated at a price of only 2.9 cents per kWh versus 3.9 cents per kWh in the comparable 2010 period).  In addition Operations, Maintenance and Administration show a drop of $95 million (see below for where $51 million of this decrease came from) and fuel costs decreased by $27 million so it appears that the increase of $74 million in after PIL profits came mainly from those swings.

Where the profits actually came from however was earnings on the “Nuclear Fixed Asset removal and nuclear waste management fund,” which produced a profit of $164 million or an annualized return of 5.7%.  Had the fund not gained due to the appreciation of the stock market in the prior 3 months of the current year, OPG would have experienced a loss of $50 million.  It should be pointed out that the TSX has experienced a drop of 5.8% since June 30, 2011 so the gains in evidence and as reported by OPG on June 30^th would today be gone!

On top of the foregoing, OPGs 2^nd quarter statements show the same creative accounting that Hydro One’s did.  With a $51 million allocation to the employees “pension” plans, OPG creatively added this to “Regulatory assets,” a category of long-term assets that are recovered from ratepayers once the “project” they are referenced to is complete.  Note 5 to the financial statements classifies this as; “Pension and OPEB Cost Variance Account” but it is merely a means to pass on the “current” pension allocations to shorter term ratepayer increases.

So for the first time the accounting treatment for both OPG and Hydro One is to create this allocation when you wish to show a reduction in OMA expenses. Allocate future pension commitments to fixed assets so that the ratepayers pick up the costs and your pension deficiencies don’t show up.  The big question is, will their accountants and the Ontario Energy Board buy into this shell game?

That both OPG and Hydro One must do what they can to show a profit was highlighted by Scott Luft in a recent posting on his blog that shows the cheap electricity produced by OPG over the past eight years generated revenues of $8.5 billion when it was resold.  This generated revenue for contracted private sector players including Bruce Power, new gas plants (backing up wind and solar) and a myriad of big and small industrial wind and solar developers. Lots of winners in the electricity business. Too bad consumers aren’t among them.

Parker Gallant is a retired banker and a director of Energy Probe.