Thursday, August 18, 2011

Government Machine Rewrites History To Protect McGuinty on Debt Retirement Charge

The OEFC's 2011Annual report for the next OEFC fiscal year, ended March 31st, 2011, was being posted to their website as I was posting my article, Retire the Debt Retirement Charge .

Remarkably the 2010 report wasn't posted until October 2010 – who knew the next would follow 10, and not 12, months later.

I would note the phrasing on page 5 has been changed, specific to the residual stranded debt, has been changed to “Subtracting the $13.1 billion from stranded debt of $20.9 billion resulted in a difference of $7.8 billion, the initial estimated residual stranded debt.” [my emphasis]

The OEFC's 2010 report read “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 OEFC's 2000 annual report read, “...and estimated $7.8 billion of residual stranded debt. The Electricity Act, 1998 also provides for a Debt Retirement Charge (DRC) to be paid to the OEFC to retire residual stranded debt.”

The big addition in 2011 is:
The Debt Retirement Charge and Defeasance of Stranded Debt
The Electricity Act, 1998, provides for the DRC to be paid by consumers until the stranded debt is defeased.
Defeasance of stranded debt is projected to occur when the value of OEFC’s remaining debt and other liabilities is fully offset by the value of its assets such as notes receivable from the Province, OPG, IESO and NUGs; electricity sector dedicated income; and the estimated present value of future payments-in-lieu of taxes.

The debt repayment plan estimates stranded debt will likely be defeased between 2015 and 2018, the same range that was reported in last year’s Annual Report, and the DRC is expected to end after defeasance and will no longer be charged on consumers’ bills. The estimated defeasance of the stranded debt and the end of the DRC is provided as a range to reflect the uncertainty in forecasting future dedicated revenues to OEFC, which depend on the financial performance of OPG, Hydro One and municipal electrical utilities, as well as other factors such as future tax rates and interest rates. For example, PIL of taxes to OEFC have varied from as low as $321 million in 2010–11 to as high as $949 million in 2005–06, while the electricity sector dedicated income, which depends on the net incomes of OPG and Hydro One, has been zero in five of the years since 1999–2000, and as high as $771 million in 2010–11

This is nonsensical obfuscation. The debt retirement charge is for the 'residual stranded debt', which is being deliberately confused with the 'stranded debt' for a purely political reason. 
What is the current calculation of the residual stranded debt and when did it change?

My understanding is that the only requirement, under the Electricity Act, 1999, is for the Minister of Finance to say the 'residual stranded debt' is being recalculated – apparently as the entire debt.

Mr. Duncan, what is your calculation of the residual stranded debt?
All of the unfunded liability?

If Mr. Duncan provides a figure, we will know the value the government currently places on the assets of the province, which the malfeasant defeseance section notes as including, “OPG, Hydro One and municipal electrical utilities.”  

The need to focus on the value propositions, and performance, of these businesses/bureaucracies is precisely the reason why the DRC crutch should be removed.

1 comment:

  1. Thanks for analyzing this. This post and your previous post are invaluable for understanding the DRC and the machinations behind it.