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, 2016, total debt and liabilities were $25.1 billion, with total debt of $24.3 billion. These figures compare to total debt and liabilities of $26.3 billion, with total debt of $25.3 billion, as at March 31, 2015.
The unfunded liability was $4.4 billion as at March 31, 2016, a decrease of $3.7 billion from March 31, 2015. This is the twelfth consecutive annual decline in the unfunded liability and $15 billion below the $19.4 billion level as at April 1, 1999.
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:
As originally enacted, the Electricity Act, 1998, allowed for the DRC to be paid by consumers until the retirement of the residual stranded debt.
The estimated retirement of residual stranded debt was subject to uncertainty in forecasting future OEFC results and dedicated revenues to OEFC, which depended on the financial performance of OPG, Hydro One, and municipal electric utilities, as well as other factors such as interest rates and electricity consumption.
As included in the 2014 Budget, the government has removed the DRC cost from residential electricity users’ electricity bills as of January 1, 2016. The residential rate class accounts for about a third of electricity load subject to the DRC. The Budget Measures Act, 2015, passed on December 10, 2015, legislates a fixed end-date for the DRC of April 1, 2018, for commercial, industrial and all other users.
With a fixed legislative end-date to the DRC, the Electricity Act, 1998 was also amended by the Budget Measures Act, 2015, to repeal all reference to the “stranded debt” and “residual stranded debt.” This included the removal of the requirement to determine the residual stranded debt from time-to-time and the regulation-making authority for O. Reg. 89/12 – rendering the regulation obsolete. On February 11, 2016, the government filed Ontario Regulation 20/16 revoking Ontario Regulation 89/12.
Following the end of the DRC, OEFC will continue to receive other dedicated revenues, such as PILs, the amount equal to Hydro One Inc.’s provincial corporate income taxes, and the gross revenue charge paid to the OEFC to help service and pay down its unfunded liability.
In November 2015, the Province moved forward with the Hydro One Initial Public Offering (IPO), as well as certain other share sales. This initiative had a number of significant impacts on OEFC’s financial results for the year ended March 31, 2016, such as the following:
A summary of the Corporation’s Income Statements and Balance Sheets, beginning in 1999-2000 to 2015-2016 is available here.
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 2015–16.
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 remained at 0.00 per cent of outstanding debt as at March 31, 2016.|
|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 7.6 per cent of outstanding debt as at March 31, 2016.|