Debt Management

Debt and Liabilities

The Corporation inherited about $38.1 billion in total debt and other liabilities from the former Ontario Hydro when the 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, resulting in $20.9 billion of stranded debt that was 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, 2009, total debt and liabilities were $30.5 billion, with total debt at $27.6 billion. These figures compare to total debt and liabilities of $31.6 billion, with total debt of $28.2 billion, as at March 31, 2008.

The unfunded liability was $16.2 billion as at March 31, 2009, a decrease of $1.0 billion from March 31, 2008. This is the fifth consecutive annual decline in the unfunded liability, $3.2 billion below the $19.4 billion level as at April 1, 1999.

Residual Stranded Debt

As at April 1, 1999, the present value of payments-in-lieu of taxes 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, known as residual stranded debt.

The Electricity Act, 1998, provided for the debt retirement charge to be paid by consumers until the residual stranded debt is retired. The debt repayment plan supports estimates that residual stranded debt will likely be retired between 2014–2018.

Debt Repayment Plan

As the legal continuation of the former Ontario Hydro, the OEFC services and retires the debt and other liabilities through revenues and cash flows from these sources within the electricity sector:

• Outstanding notes receivable from the Province, OPG and IESO
  
• Payments-in-lieu of corporate income, capital and property taxes, made by OPG, Hydro One and municipal electric utilities
  
• Debt retirement charge paid by electricity consumers
  
• Electricity sector dedicated income — the Province’s combined cumulative net income from OPG and Hydro One in excess of the Province’s interest cost of its investment in these subsidiaries.

Risk Management

The OEFC’s risk management policies and procedures provide for the management of risk exposures associated with the Corporation’s debt, derivatives and related capital markets transactions.

Foreign exchange and net interest rate resetting exposures remained within policy limits in 2008–09.

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.