From Ottawa energy economist Robert Lyman:

THE $6.2 BILLION SLEIGHT-OF-HAND

 Parker Gallant is a retired banker who has done tremendous service to the people of Ontario by reporting publicly on the Ontario government’s mismanagement of the province’s electrical energy system. In an analysis he posted on April 11, 2014, Mr. Gallant applied his knowledge of financial management and accounting to reveal the damaging and possibly illegal actions of the Liberal government with respect to the Debt Retirement Charge included in the monthly electricity bills of Ontario residents. The analysis can be found online here:

http://ep.probeinternational.org/2014/04/11/parker-gallant-the-debt-retirement-charge-premier-wynnes-6-2-billion-revenue-tool-5/#more-12245

This note offers my explanation, in layperson’s terms, of what Mr. Gallant revealed.

Background

In 1998 the Ontario government launched a major restructuring of the province’s publicly-owned electricity industry. One aspect of this restructuring was the breakup of Ontario Hydro into five successor companies on April 1, 1999.

The Ontario Ministry of Finance determined that, on April 1, 1999, Ontario Hydro’s total debt and other liabilities stood at $38.1 billion, which greatly exceeded the estimated $17.2 billion market value of the assets being transferred to the new entities. The resulting shortfall of $20.9 billion was determined to be “stranded debt”, representing the total debt and other liabilities of Ontario Hydro that the Ministry judged could not be serviced in “a competitive electricity environment”. This total was subsequently reduced to $19.4 billion when it was adjusted for $1.5 billion of additional assets transferred to OEFC. Responsibility for servicing and managing the “legacy” debt of Ontario Hydro, which includes the stranded debt, was given to the Ontario Electricity Financial Corporation (OEFC), whose opening balance sheet reflected a stranded debt, or unfunded liability, of $19.4 billion. This was the difference between the $18.7 billion value of assets assumed by the OEFC and the $38.1 billion of Ontario Hydro legacy debt.

To retire the debt, the government established a long-term plan wherein the burden of debt repayment would be borne partly through dedicated revenues from the electricity sector companies – Ontario Power Generation (OPG), Hydro One, and Municipal Electrical Utilities – and partly by electricity consumers directly. (Bear in mind that all the revenues from the electricity sector companies come from electricity consumers, so electricity consumers pay all the costs, one way or the other.). The electricity companies would make “payments in lieu of taxes” to the OEFC (this is, in theory, the equivalent of corporate income taxes). It was projected that future revenues from OPG and Hydro One and municipal electricity distributors would generate $11.6 billion over the next eight to nine years.

To read the full article click here.THE $6.2 Billion Sleight-of-Hand

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