The Corporation 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. This amount included $30.5 billion in total debt.
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. The initial unfunded liability of $19.4 billion was the stranded debt adjusted for $1.5 billion of additional assets.
As at March 31, 2012, total debt and liabilities were $28.9 billion, with total debt of $26.9 billion. These figures compare to total debt and liabilities of $29.3 billion, with total debt of $27.1 billion, as at March 31, 2011.
The unfunded liability was $12.3 billion as at March 31, 2012, a decrease of $1.1 billion from March 31, 2011. This is the eighth consecutive annual decline in the unfunded liability, $7.1 billion below the $19.4 billion level as at April 1, 1999.
The Electricity Act, 1998, provides for the Debt Retirement Charge (DRC) to be paid by consumers until the residual stranded debt is retired.
The residual stranded debt is the stranded debt less the estimated present value of certain dedicated revenues to OEFC, such as future payments-in-lieu of taxes and the gross revenue charge to be paid.
As at April 1, 1999, the present value of future payments-in-lieu of taxes and electricity sector dedicated income was estimated at $13.1 billion. Subtracting the $13.1 billion from the initial stranded debt of $20.9 billion resulted in a difference of $7.8 billion; the initial estimated residual stranded debt.
On May 15, 2012, 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. For further details on the regulation, please visit the Government of Ontario website.
In accordance with Ontario regulation 89/12, the Minister of Finance determined the residual stranded debt to be $5.8 billion as at March 31, 2011. This is a decrease of about $6.1 billion from an estimated peak of residual stranded debt of $11.9 billion as at March 31, 2004, based on estimates of residual stranded debt for prior years provided by the Ministry of Finance. Under the regulation, the Minister of Finance is to provide a determination of residual stranded debt as of the March 31 end of each fiscal year, following the submission of OEFC’s Annual Report.
Retirement of residual stranded debt is projected to occur when the stranded debt is fully offset by the present value of projected future PIL of taxes, Gross Revenue Charge (GRC) and electricity sector dedicated income to be paid to OEFC.
OEFC services and retires the debt and other liabilities of the former Ontario Hydro from the following revenue and cash flow sources in the electricity sector:
OEFC’s risk management policies and procedures are designed to manage risk exposures associated with the Corporation’s debt, derivatives and related capital market transactions.
Foreign exchange and net interest rate resetting exposures remained within policy limits in 2011–12.
The table below represents the framework and policy limits employed to ensure market, credit and liquidity risks are managed in a sound and cost-effective manner.
|Foreign Exchange Exposure||OEFC's exposure to unhedged foreign currencies is limited to 5 per cent of outstanding debt.||Foreign exchange rate exposure was 0.00 per cent of outstanding debt as of March 31, 2012.|
|Net Interest Rate Exposure||The exposure of OEFC to changes in interest rates is 35 per cent of outstanding debt (net of liquid reserves).||Net interest rate resetting exposure was 13.2 per cent of outstanding debt as of March 31, 2012.|
|Credit Risk||The minimum credit rating of a counterparty for a new swap transaction is AA- and R1-mid for money market investments.||Exclusive of contracts with the Province, OEFC had no positive net exposure with any of its counterparties at March 31, 2012.|