As Ontario renews its ability to generate and transmit electricity, the fiction, the misinformation and the disinformation will plumb new depths this year. A reality check is always helpful. Click the link for the Ministry of Energy web site.

Exactly what is the “debt retirement charge” all about on your bill?

The “debt retirement charge” is a line item on your electricity bill. People sometimes wonder how and
when it came to appear on your bill, and what it is. The debt retirement charge is the legacy of the Conservative government in Ontario between 1995 and 2003. Prior to 1995, electricity was generated, transmitted and distributed by the former Ontario Hydro, an entity that no longer exists. The Conservative government of that era decided that the U.S. model of private power was the way to go for Ontario, and began a process of taking apart Ontario Hydro.

First, power generation was split off, and called  Ontario Power Generation. This entity owns the assets and equipment that generate electricity. Then power transmission was split off, and called
Hydro One
. This entity owns the wires that transmit electricity from the generating station to the substation in your city or neighbourhood. Finally, the distribution of electricity was privatized. In Mississauga, our distributor is Enersource Hydro Mississauga.

Of course, the assets were attractive to buyers, but the debts were not. The old Ontario Hydro, like other provincial utilities such as Manitoba Hydro, Hydro Quebec and B.C. Hydro, was a large and integrated organization, and could issue its own bonds rather than going to a bank. In this way, financing directly to the investment market could be a bit less expensive to a large public utility like the old Ontario Hydro. But none of the buyers of the generation assets or the transmission assets or the distribution assets wanted the debt that came with them. So the Conservative government of that era stuck it to you and to me.

But by the time the Conservative government wanted to sell the generation and transmission assets, the worldwide experience in private energy was that many private sector investors took the money and ran, leaving behind debt-laden disasters like Enron in the USA. So the Conservatives lost their nerve, and did not privatize either Ontario Power Generation or Hydro One, though the distribution of electricity was fully privatized. But they also did not apportion the old Ontario Hydro debt to either, or both, of Ontario Power Generation or Hydro One either. They dropped that $19.5 billion debt charge onto taxpayers.

The Conservative tinkering with electricity did not stop at privatization. On the Conservative watch, they failed to build electricity generation capacity, leaving only dirty coal and expensive U.S. power imports to supply Ontario at a time when our province, traditionally a power exporter, was paying just about any price to keep the lights on in Ontario. Then they froze rates at 4.3 cents per kilowatt-hour even as they spent in excess of $1.00 per kilowatt-hour to buy imported power. How did the Conservatives pay for it? They just tacked it onto your “stranded debt.” In fact, the Conservative government tacked on about $1 billion onto the stranded debt paid by Mr. and Mrs. Ontario.

And that is how the “stranded debt” came to be. From 1999 through 2003, the Conservative government of the day actually added to the debt, not paid it. By the time the Conservatives lost the 2003 election, the stranded debt stood at $20.5 billion. On your bill, it is called the debt retirement charge.

Let’s recap. By October of 2003, electricity was in a precarious mess.

  • Ontario was losing, not gaining, the ability to generate electricity;
  • Ontarians were relying on expensive U.S. power imports, instead of electricity generated in this province;
  • The transmission grid was old and fragile, finally showing how brittle it was when it failed to keep the summer 2003 blackout from rolling through eastern Ontario;
  • Ontario’s electricity, by 2003, was composed of aging generation plants and dirty coal, causing smog alerts and bad air;
  • The Conservative attempt to privatize the generation and transmission of electricity between 1995 and 2003 was an expensive failure, sticking Ontario families with a $20.5 billion debt charge to pay down.

Ontario progress since 2003

Through strong fiscal management since 2003, Ontario has steadily reduced the stranded debt – by about $1 billion in each of the last six years. The stranded debt is currently $5.7 billion lower than it was in 2003. This decrease means that the annual interest costs on the debt retirement charge
have been reduced by $408 million each year. The Ontario Electricity Financial Corporation (OEFC) is projecting stranded debt to be paid down by another $1billion in 2010-11 To date, $7.8 billion has been collected under the Debt Retirement Charge, and $5.7 billion has been used to pay down the principal.
The balance, $2.1 billion, has gone towards a number of other costs, including interest on debt, and the unnecessary cost of the former Conservative government’s rate freeze, more than $1-billion. See above.

Ontario’s electricity supply situation is now stronger than it has been for years. The Province’s energy system is rapidly moving away from dirty coal and towards clean, renewable power. Because of the investments Ontario has made after the years of neglect, our families, households and businesses are in the best supply situation in a decade due to new generation and transmission facilities added during the past five years.

Ontario is making good progress towards removing coal from the fuel mix. In 2010, Ontario was once again a net exporter of power, receiving a net benefit of $300 million (exported $500 million minus imported $200 million). This accounts for times where Ontario had excess supply, because our supply situation is much better today than it was just a few years ago. The Province no longer relies on electricity imports to meet demand. In the last year of the Conservative government, we were a net importer of power, paying $400 million to others. Indeed, in that last desperate summer of 2003, when Ontario power consumers were buying high, paying low, adding the difference to their stranded debt, and relying on electricity imports to keep the lights on, the Conservative government even haphazardly placed diesel generators in some major cities (including Toronto) as a stopgap in case the whole power system collapsed.

Ontario’s partnership with neighbouring jurisdictions allows all of us to benefit by each being able to reliably manage our systems – It would be three times more expensive to power down our base-load power generation stations if we only generated what we needed when we needed it. Ontarians are
getting through lean times with a rebate of ten percent off their electricity bills for the next
five years
. This is a savings of approximately $150 per household each year. That’s on top of as much as $900 families are eligible for, and up to $1,025 seniors are eligible for, under the Energy and Property Tax Credit.

Where to go for information:

Don’t believe the tall tales or the breathless rhetoric. Get the facts at their source: