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A Submission

from Donna Dillman

These facts gleaned from the following government site.
http://www.energy.gov.on.ca/index.cfm?fuseaction=electricity.faqs#question_17

What is the Debt Retirement Charge (DRC) and why do I have to pay it?

The Debt Retirement Charge (DRC) is intended to help pay down the legacy debt of the former Ontario Hydro. Although the debt was acquired in the past, the facilities that were financed by the debt are still in use and continue to supply electricity to customers today. For this reason, today's customers contribute to paying down the debt through the DRC. Since those who use more electricity benefit more from these facilities, it is appropriate that they pay a higher portion of the debt retirement cost than those who use less electricity.

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How much is the debt and how long must we continue to pay the debt retirement charge (DRC)?

In the years prior to restructuring in 1999, Ontario Hydro had borrowed money to build new generation plants and expand transmission and distribution networks. The interest and principal on this debt was to be paid by the revenues earned from the sale of electricity. The total amount of the debt left by the former Ontario Hydro, including other liabilities, was $38.1 billion. Of that total, $17.2 billion was assigned to Ontario Hydro's successor companies - Hydro One and Ontario Power Generation (OPG). The remaining $20.9 billion was defined as 'stranded' debt. This amount was later reduced by $1.5 billion through the transfer of other assets.

Responsibility for managing the stranded debt was assigned to the Ontario Electricity Financial Corporation (OEFC). Part of the net income of OPG and Hydro One goes toward paying the debt, as do payments in lieu of taxes by OPG, Hydro One and local distribution companies. On April 1, 1999, the stranded debt amounted to just over $19.4 billion. According to the OEFC's report for the year ended March 31, 2004, the debt increased to almost $20.6 billion. This increase was largely a result of the almost $1 billion cost of the 4.3 cents per kilowatt hour fixed price for electricity introduced by the previous government. The new pricing structure, which better reflects the true cost of electricity, provides OPG with a regulated price for its nuclear and baseload hydro generation. This will provide customers with more stable prices and improve the financial viability of OPG.

The debt retirement charge (DRC), which produces approximately $1 billion annually in revenue, is intended to contribute to paying off the debt that was not assumed by Hydro One and OPG. This 'residual' stranded debt was estimated to be $7.8 billion. The DRC will end when the residual stranded debt is paid off, which the OEFC estimates will occur between 2012 and 2020. DRC revenue is included each year in the OEFC's annual report. If you would like to know more about the status of the debt, you may wish to visit the OEFC website at www.oefc.on.ca to read its latest annual report.