Ontario Continues To Reduce Residual Stranded Debt
McGuinty Government Improves Transparency and Reporting Requirements
Ontario ratepayers are closer to eliminating the residual stranded debt associated with the Debt Retirement Charge (DRC) that appears on monthly electricity bills.
The residual stranded debt is $5.8 billion as at March 31, 2011, $6.1 billion lower than on March 31, 2004 -- when it reached an estimated peak of $11.9 billion.
Today the government filed a regulation under the Electricity Act, 1998, to provide transparency and meet reporting requirements on the outstanding amount of residual stranded debt. The new regulation is in response to a recommendation by the Auditor General in his 2011 Annual Report.
Residual stranded debt is calculated by subtracting estimated future payments-in-lieu of taxes (PILs) and other prescribed amounts from the stranded debt. The residual stranded debt was set out in 1999, when the former government restructured the electricity industry.
As projected in the 2012 Ontario Budget, residual stranded debt is estimated to be $4.5 billion at the end of the 2011-12 fiscal year, and is estimated to further decline to $3.6 billion by March 31, 2013.
- The Ontario Electricity Financial Corporation (OEFC) is one of five entities established by the Electricity Act, as part of the restructuring of the former Ontario Hydro. OEFC's mandate includes servicing and retiring the debt and other liabilities of the former Ontario Hydro.
- OEFC inherited $38.1 billion in total debt and other liabilities from the former Ontario Hydro when the Ontario electricity sector was restructured on April 1, 1999. A portion of the $38.1 billion was supported by the value of the assets of Ontario Hydro successor companies, leaving $20.9 billion of stranded debt not supported by those assets.
- As of April 1, 1999, the present value of future PILs and electricity sector dedicated income was estimated at $13.1 billion. Subtracting the $13.1 billion from stranded debt of $20.9 billion resulted in a difference of $7.8 billion, the initial estimated residual stranded debt.
- The residual stranded debt determination as at March 31, 2011, is based on a stranded debt amount of $13.4 billion (equal to the OEFC's unfunded liability), reduced by the estimated present value of future dedicated revenues (such as PILs) to OEFC of $7.6 billion. This results in the calculated $5.8 billion of residual stranded debt as at March 31, 2011.
- Between April 1, 1999, and March 31, 2004, the estimated residual stranded debt increased to a peak of $11.9 billion, due to the electricity price freeze and a reduction in the estimated present value of future dedicated revenues to OEFC, mainly reflecting the revised lower projected financial performance of Ontario Power Generation (OPG) and lower tax rates.
- In accordance with the Electricity Act, 1998 and the regulation made under the Act, residual stranded debt is the stranded debt minus the present value of projected future PILs, Gross Revenue Charge (GRC) and electricity sector dedicated income to be paid to OEFC.
- The government dedicates revenues it receives from the electricity sector to OEFC. All OEFC revenues, including the DRC, are used by OEFC towards its mandate, which includes servicing and retiring OEFC's debt and other liabilities.
- The Auditor General audits OEFC's annual financial statements and has provided a clean opinion every year since it was established in 1999-2000.
“The DRC on their hydro bills is something Ontarians want to know more about. We are continuing to update them as we work together to reduce this debt.”