In the beginning, there was the unfunded liability…
Stay with me – I promise I’ll try to keep it short.
If you follow me at all you probably have some familiarity that I’ve written on Ontario’s alleged electricity sector debt, as have an auditor general and others.
Myself, and others, have usually looked at the debt issue as if there are multiple tools to specifically pay down the debt, but after looking at just a couple of things, that’s not been true
When Ontario Hydro was broken up it was claimed a $20.9 billion “unfunded liability” existed because $38.1 billion of liabilities was backed by only the $17.2 billion “Value of New generation and service companies.”
October 12 supplement
The $17.2 billion is described in the 1999-200 Annual Report of the Province of Ontario as:
Notes receivable from the Province of $8.9 billion, OPG of $3.4 billion, HOI of $4.8 billion and IMO of $0.1 billion for a total of $17.2 billion…
The “notes receivable from the Province” reflect the provinces equity:
In order for OPG and HOI to have capital structures competitive with those of other industry participants, the two companies entered into a debt-for-equity swap with the Province. In exchange for $3.8 billion in equity ($3.4 billion common, $323 million cumulative preferred) in HOI and $5.1 billion of common equity in OPG, the Province assumed $8.9 billion of the debt issued by the two corporations to the OEFC.
Included in the $38.1 billion of liabilities was
$5.2 billion $4.286 billion from power purchase agreements (PPA). These functionally ceased to be a negative with the introduction of the global adjustment. The $5.2 billion liability was largely comprised of NUG (non-utility generator) contacts made primarily by the anti-nuclear government of Bob Rae. Put bluntly, that portion of the liability was not due to Ontario Hydro and public power but to a government attempting to find a better value than the one provided by public power.
October 12 supplement
The “nuclear risk” liability was eliminated during the 2005-06 financial year. Since that time the province (not the OEFC) has booked $3.5 billion of reductions to provincial debt due reflecting gains in the “fair value” in the related nuclear (“OFNA”) funds. 
Lessons weren’t learned very well from the NUG debacle; just the portion of a “Samsung” deal contracted by the end of 2014 would have added $9 billion to electricity sector debt were it similarly accounted for. 
During the first year of the breakup some other value was found and the initial “unfunded liability” was reduced $1.7 billion to $19.2 billion.
The Residual Stranded Debt charge, introduced allegedly to address a subset of the “unfunded liability” had collected $12.7 billion by March 31, 2015.
Subtracting from the $20.9 planned “unfunded liability” the first year adjustments, the liability for the NUG contracts, and debt retirement charge payments
leaves only $1.3 billion and the discharges nuclear risk funding liability, $200 million too much has been reduced. That as of 6 months ago with the unfunded liability recently dropping $1.6 billion a year. Accounting for both the $479 million of irrational liability remaining for the Power Purchase Agreement and the $3.5 billon of the provincial deficit reduced by the treatment of nuclear funds, $3.2 billion more than the stranded debt has been collected by the limited set of tools examined above.
The stranded debt should be
nearly done, but it’s not showing like that.
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