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, 2015, total debt and liabilities were $26.3 billion, with total debt of $25.3 billion. These figures compare to total debt and liabilities of $27.4 billion, with total debt of $26.1 billion, as at March 31, 2014.
The unfunded liability was $8.2 billion as at March 31, 2015, a decrease of $1.6 billion from March 31, 2014. This is the eleventh consecutive annual decline in the unfunded liability and $11.2 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, allows for the DRC to be paid by consumers until the residual stranded debt is retired.
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 was a decrease of $1.3 billion from residual stranded debt of $3.9 billion as at March 31, 2013, as determined by the Minister of Finance, and a decrease of $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, following submission of OEFC’s Annual Report, including the audited financial statements, to the Minister, and by March 31 of the following fiscal year.
As included in the 2014 Budget, the government is moving forward with removing the DRC cost from residential electricity users’ electricity bills, after December 31, 2015. The charge will remain on all other electricity users’ bills until the residual stranded debt is retired. As published in the 2014 Ontario Economic Outlook and Fiscal Review, the government has provided an estimate that this will occur by the end of 2018.
On April 16, 2015, the Province announced that it had accepted the recommendations of the Premier’s Advisory Council on Government Assets and that it intends to proceed with an IPO of 15 per cent of Hydro One in fiscal year 2015–16. The government passed the Budget 2015 bill, Building Ontario Up Act, 2015. The legislation included an amendment to the Electricity Act, 1998 to clarify and ensure that the net benefits of selling shares in Hydro One are recognized by OEFC, which would contribute to the continuing reduction of its unfunded liability. Doing so would also help to offset impacts on residual stranded debt from a reduction in the projected present value of future dedicated revenues to OEFC related to Hydro One.
Following the completion of any share sales, the Minister of Finance would assess associated impacts as part of the annual determination of residual stranded debt and the estimated timing of its retirement.
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 2014–15.
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, 2015.|
|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 20.4 per cent of outstanding debt as at March 31, 2015.|