Nalcor Energy Releases 2018 Second Quarter Financial Results

August 22nd, 2018

Nalcor Energy releases second quarter financial results


August 22, 2018, St. John’s, NL – Nalcor Energy today reported its financial results for the second quarter of 2018.

“In the second quarter of 2018, we achieved a significant milestone – the first flow of electricity from the Churchill Falls Generating Plant over the Labrador-Island Link. This is the first phase of the energization of the province’s new transmission assets. Testing will continue over the coming months, with power expected to be delivered to homes and businesses on the island this winter. While we are making progress on the project, we still have much work to do and remain focused on a safe and strong finish for the Muskrat Falls Project.”

Stan Marshall, President and CEO

Second Quarter Financial Highlights

  • Net profit of $135 million for the first six months of 2017 included profit of $34 million related to the Bull Arm fabrication facility and a one-time favourable adjustment of $9 million related to the resolution of regulatory issues related to Hydro’s 2013 General Rate Application (GRA), which are nonrecurring. Excluding these two items, the net profit in 2017 from the remainder of the business was $92 million compared to a net profit for 2018 of $113 million showing a year-over-year increase of $21 million. This increase is primarily a result of higher oil prices, oil production and electricity prices in export markets in 2018.
  • Funds from operations (FFO) year-to-date are $207 million, compared to $221 million, a decrease of $14 million compared to the same period in 2017. Earnings before interest, taxes, depreciation, depletion, amortization and accretion (EBITDA) year-to-date are $245 million, compared to $253 million, a decrease of $8 million compared to the same period in 2017. The year-over-year decrease in these metrics is due primarily to the drivers noted in the profit statement above.
  • The year-to-date capital expenditures, excluding the Maritime Link, are $694 million, compared to $1,343 million for the same period in 2017, a decrease of $649 million. The decrease is due primarily to reduced capital incurred as a result of construction progress made on the Muskrat Falls Project transmission line, at the Muskrat Falls generation site, the completion of Hydro’s third line from Bay d’Espoir to the Western Avalon, and the Hebron project.
  • Total assets are $18.1 billion compared to $18.0 billion on December 31, 2017.
  • Debt to capital for the quarter of 66 per cent is comparable to December 31, 2017.

 Other Recent Developments

During the second quarter of 2018, construction of the Muskrat Falls Project generation facility continued to progress. The concrete and steel liners that form the foundations and water passages for the turbines have been put in place. In addition, concrete work re-started in April on the North Dam. Concrete placement for the North Dam was almost 70 per cent complete at the end of June.

The transmission component of the Muskrat Falls Project continued its success in the second quarter of 2018, with start of the energization phase of the province’s new transmission assets. Stretching almost 1,100 kilometres across rugged terrain and along the sea floor, the Labrador-Island Link is the most complex and robust transmission project in Newfoundland and Labrador’s history.

Hydro continued to work on the electricity system to strengthen reliability, including completion of an upgrade of the transmission line from Hardwood’s to Soldiers Pond.

During the quarter, Hydro implemented new rates reflecting the Rate Stabilization Plan (RSP). This is an annual adjustment which occurs each July 1 to ensure customer’s rates reflect the ‘actual’ versus ‘projected’ cost of electricity generation from year to year. The adjustment is based on the price of oil used to generate electricity at the Holyrood Thermal Generating Station (Holyrood), the amount of electricity used by customers, and the annual amount of water for hydroelectric generation. This July, rates were implemented for the annual RSP adjustment (4.2%) as well as interim rates arising from Hydro’s General Rate Application (GRA) (2.6%). This resulted in a 6.8% increase for most residential customers.

Public hearings for the GRA began in April and resumed again in July. Negotiations were ongoing from July to August between Hydro, the Consumer Advocate, Newfoundland Power, and other intervening parties.

When Hydro originally filed its GRA in 2017, it proposed that it would charge customers based on supplying electricity from Holyrood. However, through the use of the newly completed Maritime Link and Labrador Island Link transmission lines, Hydro is now able to access cheaper sources of energy e.g. recall power from Churchill Falls or via imports from other provinces. Hydro proposed that it would continue to charge customers based on using Holyrood; however, any savings it realized from using cheaper sources of electricity would be set aside in an account, with interest and under the jurisdiction of the Board of Commissioners of Public Utilities (PUB), to be used at a later date to offset the increased costs of Muskrat Falls in 2020.

Through the course of the GRA, it became clear that the intervenors did not support this position and argued that the realized savings should be used to reduce rates today rather than using them to offset Muskrat Falls later. Hydro therefore adjusted it application in response.

With respect to the transition of Nalcor’s Oil and Gas business to a stand-alone Crown corporation, work continued during the second quarter and is anticipated to continue to the end of the year. As part of the transition plan, Bull Arm Fabrication is also expected to transition to the new entity.

Bull Arm Fabrication continued its lease negotiations with two potential proponents for the site. These negotiations are nearing completion and will result in the conclusion of the Request for Proposal process.

A copy of the quarterly report and a recording of the webcast will be available at www.nalcorenergy.com.

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Media Contact:

Deanne Fisher

General Manager, Corporate Affairs and Corporate Planning

t: 709.733.5299     c: 709.697.3418     e: deannefisher@nalcorenergy.com