Wednesday, May 16, 2012

Ontario Paused Residual Stranded Debt Payments for 2 years

The Ontario Government has finally provided an accounting of the stranded debt, but they've titled the release obnoxiously wrong.  The figures in the release show the residual stranded debt as rising from $5.6 billion in 2009 to $5.8 billion in 2011 -- meaning that even as the Liberals were campaigning on the premise that Debt Retirement Charges (DRC) were paying down the residual stranded debt, DRC charges were being made at a rate of roughly $1 billion a year, and the RSD wasn't going down.

Ontario Continues To Reduce Residual Stranded Debt:
"Today the government filed a regulation under the Electricity Act, 1998, to provide transparency and meet reporting requirements on the outstanding amount of residual stranded debt. The new regulation is in response to a recommendation by the Auditor General in his 2011 Annual Report.
Residual stranded debt is calculated by subtracting estimated future payments-in-lieu of taxes (PILs) and other prescribed amounts from the stranded debt. [emphasis added] The residual stranded debt was set out in 1999, when the former government restructured the electricity industry."

Another notable features of this graph:  the residual stranded debt jumps $4.4 billion when the Liberals are first elected.  Remarkably the unfunded liability barely moved - only more of it was suddenly 'stranded.'

An additional $4.4 billion suddenly appears on the RSD, $2 billion in payments disappear, and the figure is now reported at $5.8 billion.

I wrote on this a couple of times last year - and consider myself fully vindicated in my claims:


  1. In the McGuinty press release yesterday they made this claim:
    “Between April 1, 1999, and March 31, 2004, the estimated residual stranded debt increased to a peak of $11.9 billion, due to the electricity price freeze and a reduction in the estimated present value of future dedicated revenues to OEFC, mainly reflecting the revised lower projected financial performance of Ontario Power Generation (OPG) and lower tax rates. “

    The lower projected performance of OPG was a partial reflection of the Mitigation Agreement which the Liberals left in place after being elected. They then restricted OPGs ability to compete by granting fixed priced contracts, created the Global Adjustment Mechanism instead of allowing the wholesale market to actually become a true market by continuing the restriction on OPG to sell at market rates.

  2. Parker, between April 1, 2003 and March 31, 2004 it increased more than it did from the 1999 date. Retroactive accounting can say a lot more about the accountant than the subject.

    I just quickly reviewed a couple of OPG's annual report figures and IESO annual totals for commodity charges (no the GA plus the HOEP).
    In 2006 the HOEP averaged $48.75 and the GA was $4.26.
    So the market averaged about $53, and OPG got about $46 (coincidentally the difference being the amount of the debt retirement charge).
    By 2011 OPG's price had risen $7/MWh, while the market was up about $24.15, to $71.95/MWh

    Retroactively this government reduced OPG's "projected financial performance" while increasingly setting RPP rates well above the rates it was setting for OPG's output.
    On the tax side we are to believe the residual stranded debt was increased due to lower taxation, while we went from being tax exempt to paying the 8% PST when harmonization occurred. I'd also note the Liberal government cancelled the Eves planned corporate tax cuts and instead raised the rates - which one would think would have reversed some of the impacts they account for prior to April Fools Day 2004.