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, 2014, total debt and liabilities were $27.4 billion, with total debt of $26.1 billion. These figures compare to total debt and liabilities of $29.2 billion, with total debt of $27.3 billion, as at March 31, 2013.
The unfunded liability was $9.8 billion as at March 31, 2014, a decrease of $1.5 billion from March 31, 2013. This is the tenth consecutive annual decline in the unfunded liability and $9.6 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:
The Electricity Act, 1998, provides for the DRC to be paid by consumers until the residual stranded debt is retired.
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.
In accordance with Ontario regulation 89/12, and as published in the 2014 Ontario Economic Outlook and Fiscal Review, the Minister of Finance determined the residual stranded debt to be $2.6 billion as at March 31, 2014. This is a decrease of about $9.3 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, and publish a notice of the determination in the Ontario Gazette, after the OEFC has submitted its annual report, including the audited financial statements, to the Minister, and before the next fiscal year end.
The government is moving forward with removing the DRC cost from residential users’ electricity bills after December 31, 2015, once the Ontario Clean Energy Benefit ends. This will save a typical residential user about $70 per year. The DRC is to remain on all other electricity users’ bills until the residual stranded debt is retired — it is estimated this will occur by the end of 2018, consistent with the estimate published in the 2014 Ontario Economic Outlook and Fiscal Review.
The estimated retirement of residual stranded debt is subject to uncertainty in forecasting future OEFC results and dedicated revenues to OEFC, which depend on the financial performance of OPG, Hydro One, and municipal electricity utilities, as well as other factors such as interest rates and electricity consumption.
A summary of the Corporation’s Income Statements and Balance Sheets, beginning in 1999-2000 to 2013-2014 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 2012–13.
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, 2013.|
|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 28.0 per cent of outstanding debt as of March 31, 2013.|