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Thursday, January 19, 2017

Hey Ontario listen up

***Debt retirement your Conservative legacy***

What was the “debt retirement charge” all about?

The debt retirement charge was a line item on your electricity bill. People sometimes wonder how and when it came to appear on your bill, and what it was. The debt retirement charge was 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 old Ontario Hydro 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.

The Conservative government of the Harris-Eves era stuck the hydro ‘stranded debt’ to Ontario taxpayers.

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 full amount of 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. That’s right. That is you and me.

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. By the end of 2015, the remaining principal was fully paid. Your Liberal government has a different view of debt than the Conservatives ever did. We pay it down, and pay it off.

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. ***McGuinty & Wynne have screwed this file up further, but it's worth remembering how it all got started.***

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