Sousa Debt and the DRC

Ontario’s finance minister, Charles Sousa, delivered a budget yesterday, and within that document described the current electricity sector debt situation:

Ontario Electricity Financial Corporation (OEFC) estimated results for 2015–16 show an estimated excess of revenue over expense of more than $3 billion, which would reduce OEFC’s unfunded liability (or “stranded debt of the electricity sector”) from $8.2 billion as of March 31, 2015, to below $5 billion as of March 31, 2016. This would be the twelfth consecutive year of stranded debt reduction.

For those that haven’t been following the Wynne government’s raid of electricity assets, a quick refresher is in order.

Ancient history: Ontario broke up it’s “power at cost” utility in 1998, revaluing assets and creating a “stranded debt” along with a corporation to oversee them with tools developed specifically to address the RSD. These tools included payments in lieu of taxes (PIL) from the electricity sector, the profits of the successor companies, and prospective revenues from the sale of those companies. All of those tools were not expected to address the stranded debt – the portion they could not address was called the residual stranded debt (RSD), and it was to be paid off with a debt retirement charge of 0.7 cents/kilowatt-hour on all Ontario bills. (see Stranded Debt – Abandoned Responsibility)

Recent History:

  1. Wynne listens to Bay Street advisors on selling off the public utility, without regard to the law’s stipulation, “All proceeds… in respect of the disposition of any securities or debt obligations of, or any other interest in, Hydro One Inc… shall be paid to the Financial Corporation [OEFC]
  2. The government decides to proceed with that asset sale, promising in last year’s budget, “to sell off a 60 per cent stake in Hydro One to raise $4 billion, which will then be spent on building public transit.”
  3. The government rewrites the electricity act and Finance Minister Sousa layers nonsense upon nonsense to hide the obvious – that he is raiding hydro (summarized in Wynne deserves no credit for dumbly selling Hydro One)
  4. The province’s new financial accountability officer shows the province could be worse off for disposing of shares in Hydro one – I write that if the officer had used the most recent figures, he’d not show a remaining “residual stranded debt”
  5. The government’s bill 144 eliminates the concept of a “Residual Stranded Debt” to allow it to continue to charge business 0.7 cents per kilowatt-hour, and the Minister of Finance is freed of the bothersome need to justify the charge (described here)
  6. The government’s fall financial statement advises the government will renege on amounts due to the OEFC (sector profits since 2005) – while claiming proceeds from the disposition of the public utility are used to pay down sector debt, it is deceitfully removing sector assets

Returning to yesterday’s budget with this perspective, we are left with an unfunded liability now below $5 billion and a promise to extract over $4 billion from the sector. That leaves a small difference, but the budget documents indicate revenue of only $330 million from electricity sector assets, down from $1,789 and $1,605 the two previous years, which likely reflects the province reneging on funds owed the OEFC.

There is no Stranded Debt.

There is Sousa Debt.

There is no intent to address this faked net debt either The budget includes:

Projected 2016–17 OEFC results are an excess of revenue over expense of about
$0.6 billion.

That would be the worst performance since fiscal 2004-05, and it also indicates essentially no profits from the electricity sector will be used to pay down electricity sector debt.

The budget shows the revenues from the debt retirement charge continuing until April 2018: $625 million is expected for 216-17 (equal to the amount of debt the government expects to pay), and presumably the same again the following year.

This DRC isn’t related to the Debt Retirement Charge of the past. By the rules in place when I wrote Ontario’s Outlaw Premier Plots to plunder Hydro One less than one year ago, there is no unfunded liability.

This DRC is a Deceitful Recurring Charge

This DRC is attached only to Sousa Debt.




2 thoughts on “Sousa Debt and the DRC

  1. Reblogged this on Patti Kellar and commented:
    Excellent Short Commentary by Scott Luft outlining Ontario current electricity sector debt situation. “DRC = Deceitful Recurring Charge.
    There is no Stranded Debt, there is only Sousa Debt.”


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