Debt Management
Debt and Liabilities
The Corporation inherited $38.1 billion in total debt and other liabilities from the former Ontario Hydro when the Ontario electricity sector was restructured in 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, 2018, total debt and liabilities were $19.6 billion, with total debt of $19.1 billion. These figures compare to total debt and liabilities of $21.1 billion, with total debt of $20.4 billion, as at March 31, 2017.
The unfunded liability was $1.3 billion as at March 31, 2018, a decrease of $1.9 billion from March 31, 2017. This is the fourteenth consecutive annual decline in the unfunded liability and $18.1 billion below the $19.4 billion level as at April 1, 1999.
Debt Repayment Plan
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:
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Outstanding notes receivable from the Province, Ontario Power Generation (OPG) and the Independent Electricity System Operator (IESO)
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Payments-in-lieu (PILs) of corporate income and property taxes, and Gross Revenue Charges made by OPG, Hydro One and municipal electric
utilities
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Subsequent to the Hydro One IPO in November 2015, Hydro One no longer pays PIL of corporate income tax to OEFC. Under the
Electricity Act, 1998, provincial corporate taxes payable by Hydro One Inc. are due and payable by the Province to OEFC
- 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, which may be allocated to OEFC by the Province at its discretion.
The Debt Retirement Charge, Stranded Debt and Residual Stranded Debt
As originally enacted, the Electricity Act, 1998, allowed for the DRC to be paid by consumers until the retirement of the residual stranded debt.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.
The DRC cost was removed from residential electricity users’ electricity bills as of January 1, 2016 and for all other consumers as of April 1, 2018. The residential rate class accounted for about a third of electricity load subject to the DRC.
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, as well as, at the Province’s discretion, any Electricity Sector Dedicated Income, to help service and pay down its unfunded liability.
Impact on OEFC of Hydro One Share Sales in 2017
In May 2017, the Province completed a public offering of Hydro One shares, selling 120 million common shares at $23.25 per share.
- As per section 50.3 of the Electricity Act, 1998, OEFC recognized in its Statement of Operations a financial benefit from the Province of
$531 million in connection with the disposition of Hydro One common shares in May 2017, as well as the disposition of Hydro One Brampton Networks Inc.
(Hydro One Brampton) common shares in February 2017.
- OEFC has received $1,943 million from the Province related to the book value of Hydro One common shares sold in May 2017, of which the Province
applied $1,082 million to reduce its payable related to cumulative electricity dedicated earnings (due from the Province of Ontario) and $861 million
to reduce the principal amount of notes payable to OEFC, as reflected in OEFC’s Statement of Financial Position.
The Province’s reduced ownership interest in Hydro One results in a reduced share of Hydro One net income, which is reflected in the Province’s discretionary allocation of electricity sector dedicated income to OEFC.
OEFC Historical Financials
A summary of the Corporation’s Income Statements and Balance Sheets, beginning in 1999-2000 to 2015-2016 is available here.
Risk Management
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 2017–18.
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.
| Risk | Status | |
|---|---|---|
| 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 0.1 per cent of outstanding debt as at March 31, 2018. |
| 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 (17.0) per cent of outstanding debt as at March 31, 2018. |
