Hydro Québec

1945-1959: beginnings and development

In Quebec, advocates for the creation of a public hydroelectric utility protested against high costs, poor rural electrification, and the lack of French speakers in management positions in hydroelectricity companies. In 1944, Montreal Light, Heat & Power company was nationalised, along with its subsidiary, Beauharnois Power, and Hydro-Québec was created to manage the companies.

Quebec Premier Adélard Godbout adopted a policy of investing 10 million dollars per year in rural electrification. However, in 1944 the government changed, and the new premier Maurice Duplessis was opposed to any form of government intervention in the economy. Local cooperatives were created to bring power to rural areas. Duplessis remained in power until 1960, and during that time there were no further nationalisations of companies, and Hydro-Québec mostly served the Montreal area.

Major projects included:

Between 1944 and 1962, Hydro-Québec's installed capacity increased from 616 to 3,661 MW while lowering residential power rates by half in the Montreal area.

1960-1979: the second nationalisation

Duplessis' conservative reign, now known as the Grande Noirceur, ended when he died in office in 1959. The subsequent election of the Quebec Liberal Party, led by Jean Lesage, marked the beginning of the Quiet Revolution, a period of reform and modernisation. The new government gave Hydro-Québec an exclusive mandate to develop new sites. In 1963 the government authorized it to acquire private electricity distributors, including the Gatineau Power Company and the Shawinigan Water & Power Company Hydro-Québec achieved province-wide scope. All of the 46 rural coops accepted Hydro-Québec’s 1963 buyout offer, except Saint-Jean-Baptiste-de-Rouville which still exists. Major projects during this period included:

1980-1996: restructuring

Because of the economic climate, demand for electricity dropped significantly in the early 1980s, which led to structural changes at Hydro-Québec. It became a joint stock company whose sole shareholder is Québec government, to which it pays an annual dividend. It was also given the mandate to export power and to work in any energy-related field.

In 1986 the Quebec – New England Transmission began bringing power from the James Bay Project 1,100 kilometers south to the Boston area.

Phase II of the James Bay Project started in 1987 and took nine years to complete. Construction of the Denis-Perron Dam began in 1994.

1997-present: renewed growth

In the late '90s the wholesale electricity market opened up across North America, and Hydro-Québec opened its transmission system and wholesale electricity market to competition both inside and outside its tranditional service area. The U.S. Federal Energy Regulatory Commission granted Hydro-Québec a licence to sell wholesale electricity at market prices, enabling Hydro-Québec to expand its market. Hydro-Québec acquired a substantial share of Noverco, controller of natural gas distributor Gaz Métro, to participate in that market in northeastern North America.

In 2002 the Agreement Respecting a New Relationship Between the Cree Nation and the Government of Quebec between the Grand Council of the Crees and the Quebec government made possible the development of the Eastmain Reservoir. The 5,000 million CAD Eastmain-1-A and Sarcelle powerhouses and Rupert River diversion project. This will provide water power to new turbines at Eastmain-1 or Eastmain-1-A and Sarcelle powerhouses and will provide increased flow at the existing La Grande-1 generating station as well as Robert-Bourassa or La Grande-2-A. Output will be 918 MW.

Other stations commissioned since 1997 are:

Major outages

In 1988, all of Quebec and parts of New England and New Brunswick lost power because of an equipment failure at a substation on the North Shore. The March 1989 geomagnetic storm tripped circuit breakers on the transmission network causing a nine-hour Quebec-wide blackout.

In the North American ice storm of 1998, five days of freezing rain collapsed 600 kilometres (370 mi) of high voltage power lines and over 3,000 kilometres (1,900 mi) of medium and low voltage distribution lines in southern Quebec. Up to 1.4 million customers were without power for up to five weeks.

Corporate structure

Like its counterparts in the North American utility industry, Hydro-Québec was reorganized in the late 1990s to comply with electricity deregulation in the United States. While still a vertically integrated company, Hydro-Québec has created separate business units dealing with the generation, transmission and distribution aspects of the business.

The transmission division, TransÉnergie, was the first to be spun off in 1997, in response to the U.S. Federal Energy Regulatory Commission's publication of Order 888. The restructuring was completed in the year 2000 with the adoption of Bill 116, which amended the Act respecting the Régie de l'énergie, to enact the functional separation of Hydro-Québec's various business units.

This functional separation and the creation of a so-called "heritage pool" (French: volume patrimonial) of electricity echoed a recommendation of a Merrill Lynch study commissioned by the Lucien Bouchard government. The January 2000 report was aimed at finding a way to deregulate the electricity market in a way that was consistent with continental trends while maintaining the "Quebec social pact"; namely low, uniform and stable rates across the province, "particularly in the residential sector".

Legislation passed in 2000 commits the generation division, Hydro-Québec Production, to provide the distribution division, Hydro-Québec Distribution, a yearly heritage pool of up to 165 TWh of energy plus ancillary services—including an extra 13.9 TWh for losses and a guaranteed peak capacity of 34,342 MW—at a set price of 2.79¢ per kWh. Order in council 1277-2001 specifies quantities to be delivered for each of the 8,760 hourly intervals, which vary from 11,420 to 34,342 MW.

Hydro-Québec Distribution has to buy the remainder of the power and energy it needs—approximately 8.2 TWh in 2007 — by calling for tenders for long-term contracts open to all suppliers, including Hydro-Québec Production, or targeted towards suppliers of a particular energy source, like wind, gas power, biomass or small hydro. For instance, Hydro-Québec Distribution launched calls for tenders in 2003 and 2005, for 1,000 and 2,000 MW of wind power respectively. Early deliveries started in 2006 and the 23 wind farms under contract should be completely on-line by December 2015.

The TransÉnergie and distribution divisions remain regulated by the Régie de l'énergie du Québec (Quebec Energy Board), an administrative tribunal established to set retail rates for electricity and natural gas for residential, commercial and industrial service in the province based on a cost-of-service approach. The Régie also has extended powers, including approval authority over every transmission and distribution-related capital expenditure project exceeding C$10 million; approval of the terms of service and of long-term supply contracts; dealing with customer complaints; and the setting and enforcement of safety and reliability standards for the electric grid.

The Generation division, Hydro-Québec Production is not subject to regulation by the Régie. However, it must still submit every new construction project to a full environmental impact process, including the release of extensive environmental studies. The release of the studies are followed by a public hearing process conducted by the Bureau d'audiences publiques sur l'environnement.

Hydro-Québec employed 23,659 people in 2009, including 2,060 engineers, making the company the largest employer of engineers in Quebec.

Financial results

For the year ending on December 31, 2011, Hydro-Québec posted net earnings of C$2.611 billion, up 3.8% from 2010 despite lower electricity prices on export markets and the high value of the Canadian dollar. Revenue were down 3.8% in 2011 at C$12.392 billion, while expenditures amounted to C$7.284 billion, down by C$159 million from 2010, mainly due to lower short-term electricity and fuel purchases and the repeal of Quebec's capital tax.

The company has assets of C$69.637 billion, C$56.901 billion of which are tangible assets. Its long-term debt stood at C$42.05 billion, and the company reported a capitalization rate of 31.0% in 2011. Bonds issued by Hydro-Québec are backed by the Quebec government. On December 31, 2011, long-term securities of Hydro-Québec were rated Aa2 stable by Moody's, AA- positive by Fitch Ratings and A+ by Standard & Poor's.

In 2011, Hydro-Québec paid a C$1.958 billion dividend to its sole shareholder, the Government of Quebec. Between 2007 and 2011, the company paid a total of C$10.358 billion in dividends. It took on $8b in debt during the same period.

Privatization debate

In 1981, the Parti Québécois government redefined Hydro-Québec's mission by modifying the terms of the social pact of 1944. The government issued itself 43,741,090 shares worth C$100 each, and the amended statute stated that Hydro-Québec would now pay up to 75% of its net earnings in dividends. This amendment to the Hydro-Québec Act started an episodic debate on whether Hydro-Québec should be fully or partially privatized. In recent years, economist Marcel Boyer and businessman Claude Garcia—both associated with the conservative think tank The Montreal Economic Institute—have often raised the issue, claiming that the company could be better managed by the private sector and that the proceeds from a sale would lower public debt.

Without going as far as Boyer and Garcia, Mario Dumont, the head of the Action démocratique du Québec, briefly discussed the possibility of selling a minority stake of Hydro-Québec during the 2008 election campaign. A Léger Marketing poll conducted in November 2008 found that a majority of Quebec respondents (53%) were opposed to his proposal to sell 7.5% of the company's equity to Quebec citizens and businesses, while 38% were in favor.

Commenting on the issue on Guy A. Lepage's talk show, former PQ Premier Jacques Parizeau estimated that such an idea would be quite unpopular in public opinion, adding that Hydro-Québec is often seen by Quebecers as a national success story and a source of pride. This could explain why various privatization proposals in the past have received little public attention. The liberal government has repeatedly stated that Hydro-Québec is not for sale.

Like many other economists, Yvan Allaire, from Montreal's Hautes études commerciales business school, advocate increased electricity rates as a way to increase the government's annual dividend without resorting to privatization. Others, like columnist Bertrand Tremblay of Saguenay's Le Quotidien, claim that privatization would signal a drift to the days when Quebec's natural resources were sold in bulk to foreigners at ridiculously low prices. "For too long, Tremblay writes, Quebec was somewhat of a banana republic, almost giving away its forestry and water resources. In turn, those foreign interests were exporting our jobs associated with the development of our natural resources with the complicity of local vultures".

Left-wing academics, such as UQAM's Léo-Paul Lauzon and Gabriel Sainte-Marie, have claimed that privatization would be done at the expense of residential customers, who would pay much higher rates. They say that privatization would also be a betrayal of the social pact between the people and its government, and that the province would be short-selling itself by divesting of a choice asset for a minimal short term gain.

Power generation

On December 31, 2013, Hydro-Québec Production owned and operated 61 hydro plants—including 12 of over a 1,000 MW capacity— 26 major reservoirs. These facilities are located in 13 of Quebec's 430 watersheds, including the Saint Lawrence, Betsiamites, La Grande, Manicouagan, Ottawa, Outardes, and Saint-Maurice rivers. These plants provide the bulk of electricity generated and sold by the company.

Non-hydro plants included the baseload 675-MW gross Gentilly nuclear generating station, a CANDU-design reactor which was permanently shut down on December 28, 2012 the 660-MW Tracy Thermal Generating Station, a heavy fuel oil-fired plant shutdown in March 2011 and two gas turbine peaker plants, for a total installed capacity of 36,971 MW in 2011. Hydro-Québec's average generation cost was 2.11 cents per kWh in 2011.

The company also purchases the bulk of the output of the 5,428-MW Churchill Falls generating station in Labrador, under a long term contract expiring in 2041. In 2009, Hydro-Québec bought the 60% stake owned by AbitibiBowater in the McCormick plant (335 MW), located at the mouth of the Manicouagan River near Baie-Comeau, for C$616 million.

In 2013, the energy sold by Hydro-Québec to its grid-connected customers in Quebec and exported to neighboring markets came almost exclusively from renewable sources. Hydro (96.78%) is by far the largest source, followed by wind (2.16%) and biomass, biogas and waste (0.75%). The remainder came from nuclear (0.19%) and thermal (0.12%) generation. Emissions of carbon dioxide (1,130 tonnes/TWh), sulfur dioxide (4 tonnes/TWh) and nitrogen oxides (10 tonnes/TWh) were between 49 and 238 times lower than the industry average in northeastern North America. Imported electricity bought on the markets account for most of these emissions.

Transmission system

Hydro-Québec's expertise at building and operating a very high voltage electrical grid spreading over long distances has long been recognized in the electrical industry. TransÉnergie, Hydro-Québec's transmission division, operates the largest electricity transmission network in North America. It acts as the independent system operator and reliability coordinator for the Québec interconnection of the North American Electric Reliability Corporation system, and is part of the Northeast Power Coordinating Council (NPCC). TransÉnergie manages the flow of energy on the Quebec network and ensures non-discriminatory access to all participants involved in the wholesale market. The non-discriminatory access policy allows a company such as Nalcor to sell some of its share of power from Churchill Falls on the open market in the State of New York using TransÉnergie's network, upon payment of a transmission fee.

In recent years, TransÉnergie's Contrôle des mouvements d'énergie (CMÉ) unit has been acting as the reliability coordinator of the bulk electricity network for Quebec as a whole, under a bilateral agreement between the Régie de l'énergie du Québec and the Federal Energy Regulatory Commission of the United States.

TransÉnergie's high voltage network stretches over 33,630 km (20,900 mi), including 11,422 km (7,097 mi) of 765 and 735 kV lines, and a network of 514 substations. It is connected to neighbouring Canadian provinces and the United States by 17 ties, with a maximum reception capacity of 10,850 MW and a maximum transmission capacity of 7,994 MW.

Interconnections

The TransÉnergie's network operates asynchronously from that of its neighbours on the Eastern Interconnection. Although Quebec uses the same 60 hertz frequency as the rest of North America, its grid does not use the same phase as surrounding networks. TransÉnergie mainly relies on back to back HVDC converters to export or import electricity from other jurisdictions.

This feature of the Quebec network allowed Hydro-Québec to remain unscathed during the Northeast Blackout of August 14, 2003, with the exception of 5 hydro plants on the Ottawa River radially connected to the Ontario grid at the time. A new 1250-MW back to back HVDC tie has been commissioned at the Outaouais substation, in L'Ange-Gardien, near the Ontario border. The new interconnection has been online since 2009 and the 315 kV line is fully operational since 2010.

One drawback of the TransÉnergie network involves the long distances separating the generation sites and the main consumer markets. For instance, the Radisson substation links the James Bay project plants to the Nicolet station near Sainte-Eulalie, south of the Saint Lawrence, over 1,200 kilometres (750 mi) away.

Investments

In 2011, TransÉnergie invested C$1.3 billion in capital expenditures, including C$460 million to expand its network.

In addition to the new tie with Ontario, the company plans to build a new 1200-MW direct current link between the Des Cantons substation at Windsor, Quebec in Quebec's Eastern Townships and Deerfield, New Hampshire, with an HVDC converter terminal built at Franklin, New Hampshire. The US segment of the US$1.1 billion line, would be built by Northern Pass Transmission LLC, a partnership between Northeast Utilities (75%) and NSTAR (25%). In order to go ahead, the project must receive regulatory approval in Quebec and the United States. The proposed transmission line could be in operation in 2015. According to Jim Robb, a senior executive from Northeast Utilities, New England could meet one third of its Regional Greenhouse Gas Initiative commitments with the hydropower coming through this new power line alone.

Distribution

Hydro-Québec Distribution is in charge of retail sales to most customers in Quebec. It operates a network of 112,089 kilometres (69,649 mi) of medium and low voltage lines. The division is the sole electric distributor across the province, with the exception of 9 municipal distribution networks — in Alma, Amos, Baie-Comeau, Coaticook, Joliette, Magog, Saguenay, Sherbrooke and Westmount—and the electric cooperative of Saint-Jean-Baptiste de Rouville.

Hydro-Québec Distribution buys most of its power from the 165-TWh heritage pool provided by Hydro-Québec Production at 2.79¢/kWh. The division usually purchases additional power by entering into long-term contracts after a public call for tenders. For shorter term needs, it also buys power from the neighboring systems at market prices. As a last resort, Hydro-Québec Production can also provide short-term relief. Supply contracts above and beyond the heritage pool must be approved by the Régie de l'énergie du Québec and their costs are passed on to customers.

The division signed one natural gas cogeneration agreement for 507 MW in 2003, three forest biomass deals (47.5 MW) in 2004 and 2005, and ten contracts for wind power (2,994 MW) in 2005 and 2008, all with private sector producers. It also signed two flexible contracts with Hydro-Québec Production (600 MW) in 2002.

Hydro-Québec Distribution is also responsible for the production of power in remote communities not connected to the main power grid. The division operates an off-grid hydroelectric dam serving communities on the Lower North Shore and 23 small diesel power plants in the Magdalen Islands, in Haute-Mauricie and in Nunavik.

Research and development

Hydro-Québec has made significant investments in research and development over the past 40 years. In addition to funding university research, the company is the only electric utility in North America to operate its own large-scale research institute, L'Institut de recherche d'Hydro-Québec (IREQ). Established by Lionel Boulet in 1967, the research centre is located in Varennes, a suburb on the South Shore of Montreal. IREQ operates on an annual research budget of approximately C$100 million and specializes in the areas of high voltage, mechanics and thermomechanics, network simulations and calibration.

Research conducted by scientists and engineers at IREQ has helped to extend the life of dams, improve water turbine performance, automate network management and increase the transmission capacity of high voltage power lines.

Another research centre, the Laboratoire des technologies de l'énergie (LTE) in Shawinigan, was opened in 1988 to adapt and develop new products while helping industrial customers improve their energy efficiency.

In the last 20 years, the institute has also conducted research and development work towards the electrification of ground transportation. Current projects include battery materials, including innovative work on lithium iron phosphate and nano-titanate, improved electric drive trains and the effects of the large-scale deployment of electric vehicles on the power grid. Projects focus on technologies to increase range, improve performance in cold weather and reduce charging time.

Hydro-Québec has been criticized for not having taken advantage of some of its innovations. An electric wheel motor concept that struck a chord with Quebecers, first prototyped in 1994 by Pierre Couture, an engineer and physicist working at IREQ, is one of these. The heir to the Couture wheel motor is now marketed by TM4 Electrodynamic Systems, a spin-off established in 1998 that has made deals with France's Dassault and Heuliez to develop an electric car, the Cleanova, of which prototypes were built in 2006. Hydro-Québec announced in early 2009 at the Montreal International Auto Show that its engine had been chosen by Tata Motors to equip a demonstration version of its Indica model, which will be road tested in Norway.

Construction

The Hydro-Québec Équipement division acts as the company's main contractor on major construction sites, with the exception of work conducted on the territory covered by the James Bay and Northern Quebec Agreement, which are assigned to the Société d'énergie de la Baie James subsidiary.

The construction of a complex of four hydroelectric generating stations on the Romaine River (1,550 MW) began on May 13, 2009. The plants are scheduled to be built and commissioned between 2014 and 2020.

In his March 2009 inaugural speech, Quebec Premier Jean Charest announced that his government intends to further develop the province's hydroelectric potential. The call for further development of hydroelectric and other renewable generating capacity has been implemented in the company's 2009-2013 strategic plan, released on July 30, 2009. Hydro-Québec plans capacity upgrades at the Jean-Lesage (120 MW) and René-Lévesque (210 MW) stations and a third unit at the SM-3 plant (440 MW). The company will also conduct technical and environmental studies and undertake consultations with local communities to build new facilities on the Petit-Mécatina (1,200 MW) and Magpie (850 MW) rivers on the North Shore, and revive the Tabaret project (132 MW) in the Abitibi-Témiscamingue region, in western Quebec.

International ventures

Hydro-Québec first forays outside its borders began in 1978. A new subsidiary, Hydro-Québec International, was created to market the company's know-how abroad in the fields of distribution, generation and transmission of electricity. The new venture leveraged the existing pool of expertise in the parent company.

During the next 25 years, Hydro-Québec was particularly active abroad with investments in electricity transmission networks and generation: Transelec in Chile, the Cross Sound Cable in the United States, the Consorcio Transmantaro in Peru, Hidroelectrica Rio Lajas in Costa Rica, Murraylink in Australia and the Fortuna generating station in Panama.

It briefly held a 17% share in SENELEC, Senegal's electric utility, when the Senegalese government decided to sell part of the company to a consortium led by the French company Elyo, a subsidiary of Group Suez Lyonnaise des Eaux, in 1999. The transaction was canceled in 2000 following the election of president Abdoulaye Wade.

Also in 1999, Hydro-Québec International acquired a 20% stake in the Meiya Power Company in China for C$83 million. The company held this participation until July 2004. The company's expertise was sought by several hydroelectric developers throughout the world, including the Three Gorges Dam, where Hydro's employees trained Chinese engineers in the fields of management, finance and dams.

Hydro-Québec gradually withdrew from the international business between 2003 and 2006, and sold off all of its foreign investments for a profit. Proceeds from these sales were paid to the government's Generations Fund, a trust fund set up by the province to alleviate the effect of public debt on future generations.

Environment

The construction and operation of electric generation, transmission and distribution facilities has environmental effects and Hydro-Québec's activities are no exception. Hydroelectric development affects the natural environment where facilities are built and on the people living in the area. For instance, the development of new reservoirs increases the level of mercury in lakes and rivers, which works up the food chain. It temporarily increases the emission of greenhouse gases from reservoirs and contributes to shoreline erosion.

In addition, hydroelectric facilities transform the human environment. They create new obstacles to navigation, flood traditional hunting and trapping grounds, force people to change their eating habits due to the elevated mercury content of some species of fish, destroy invaluable artifacts that would help trace the human presence on the territory, and disrupt the society and culture of Aboriginal people living near the facilities.

Since the early 1970s, Hydro-Québec has been aware of the environmental externalities of its operations. The adoption of a Quebec statute on environmental quality in 1972, the cancellation of Champigny Project, a planned pumped storage plant in the Jacques-Cartier River valley in 1973, and the James Bay negotiations leading to the James Bay and Northern Quebec Agreement in 1975, forced the company to reconsider its practices.

To address environmental concerns, Hydro-Québec established an environmental protection committee in 1970 and an Environmental Management unit in September 1973. Its mandate is to study and measure the environmental effects of the company, prepare impact assessment, and develop mitigation strategies for new and existing facilities, while conducting research projects in these areas, in cooperation with the scientific community.

Effects on the natural environment

In the late 1970s, the company set up a network of 27 monitoring stations to measure the effects of the James Bay Project which provide a wealth of data on northern environments. The first 30 years of studies in the James Bay area have confirmed that mercury levels in fish increase by 3 to 6 times over the first 5 to 10 years after the flooding of a reservoir, but then gradually revert to their initial values after 20 to 30 years. These results confirm similar studies conducted elsewhere in Canada, the United States and Finland. Research also found that it is possible to reduce human exposure to mercury even when fish constitutes a significant part of a population's diet. Exposure risks can be mitigated without overly reducing the consumption of fish, simply by avoiding certain species and fishing spots.

Despite the fact that the transformation of a terrestrial environment into an aquatic environment constitutes a major change and that flooding leads to the displacement or death of nonmigratory animals, the riparian environments lost through flooding are partially replaced by new ones on the exposed banks of reduced-flow rivers. The biological diversity of reservoir islands is comparable to other islands in the area and the reservoir drawdown zone is used by a variety of wildlife. The population of migratory species of interest such as the caribou have even increased to the point where the hunt has been expanded.

Emissions of greenhouse gases (GHG) rise significantly for a few years after reservoir impoundment, and then stabilize after 10 years to a level similar to that of surrounding lakes. Gross GHG emissions of reservoirs in the James Bay area fluctuate around 30,000 tonnes of CO₂ equivalent per TWh of generated power. Hydro-Québec claims its hydroelectric plants release 35 times less GHG than comparable gas-fired plants and 70 times less than coal-fired ones and that they constitute the "option with the best performance" overall.

Social effects and sustainable development

Another major environmental concern relates to the population of areas affected by hydroelectric development, specifically the Innu of the North Shore and the Cree and Inuit in Northern Quebec. The hydroelectric developments of the last quarter of the 20th century have accelerated the settling process among Aboriginal populations that started in the 1950s. Among the reasons cited for the increased adoption of a sedentary lifestyle among these peoples are the establishment of Aboriginal businesses, the introduction of paid labor, and the flooding of traditional trapping and fishing lands by the new reservoirs, along with the operation of social and education services run by the communities themselves under the James Bay and Northern Quebec Agreement.

Some native communities, particularly the Crees, have come to a point "where they increasingly resemble the industrialized society of the South", notes an Hydro-Québec report summarizing the research conducted in the area between 1970 and 2000. The report adds that a similar phenomenon was observed after the construction of roads and hydroelectric plants near isolated communities in northern Canada and Scandinavia. However, growing social problems and rising unemployment have followed the end of the large construction projects in the 1990s. The report concludes that future economic and social development in the area "will largely depend on the desire for cooperation among the various players".

After the strong rejection of the Suroît project and its subsequent cancellation in November 2004, Hydro-Québec, under the leadership of its new CEO Thierry Vandal, reaffirmed Hydro-Québec's commitment towards energy efficiency, hydropower and development of alternative energy. Since then, Hydro-Québec regularly stresses three criteria for any new hydroelectric development undertaken by the company: projects must be cost effective, environmentally acceptable and well received by the communities. Hydro-Québec has also taken part in a series of sustainable development initiatives since the late 1980s. Its approach is based on three principles: economic development, social development and environmental protection. Since 2007 the company adheres to the Global Reporting Initiative, which governs the collection and publication of sustainability performance information. The company employs 250 professionals and managers in the environmental field and has implemented an ISO 14001-certified environmental management system.

Quebec market

At the end of 2010, Hydro-Québec served 4,060,195 customers grouped into three broad categories: residential and farm (D Rate), commercial and institutional (G Rate) and industrial (M and L rates). The Other category includes public lighting systems and municipal distribution systems.

About a dozen distribution rates are set annually by the Régie de l'énergie after public hearings. Pricing is based on the cost of delivery, which includes the cost of supply and transmission, depreciation on fixed assets and provisions for the maintenance of facilities, customer growth and a profit margin.

Rates are uniform throughout Quebec and are based on consumer type and volume of consumption. All rates vary in block to mitigate any cross-subsidization effect between residential, commercial and industrial customers.

Hydro-Québec retail rates are among the lowest in North America. After a five-year rate freeze, between May 1, 1998 and January 1, 2004, the Régie granted rate increases on 8 occasions between 2004 and 2010 for a total of 18.4%. More recently, the regulator ordered two successive rate rollbacks in 2011 (0.4%) and 2012 (0.5%). However, rates are expected to go up by 3.7% a year from 2014 to 2018 to reflect a gradual increase of heritage pool electricity announced in the 2010 Quebec budget.

Residential customers

The average consumption of residential and agricultural customers is relatively high, at 16,857 kWh per year in 2011, because of the widespread use of electricity as the main source of space (77%) and water heating (90%). Hydro-Québec estimates that heating accounts for more than one half of the electricity demand in the residential sector.

This preference for electric heating makes electricity demand more unpredictable, but offers some environmental benefits. Despite Quebec's very cold climate in winter, greenhouse gases emissions in the residential sector accounted for only 5.5% (4.65 Mt CO
2 eq.) of all emissions in Quebec in 2006. Emissions from the residential sector in Quebec fell by 30% between 1990 and 2006.

Residential use of electricity fluctuates from one year to another, and is strongly correlated with the weather. Contrary to the trend in neighboring networks, Hydro-Québec's system is winter-peaking. A new all-time consumption record was set on January 23, 2013 with a load of 38,910 MW. Previous records were established on January 24, 2011 with 37,717 MW, on January 16, 2009, with a load of 37,230 MW, and on January 15, 2004 when peak reached 36,268 MW.

The price of electricity for residences and farms includes a 40.64¢ daily subscription fee, and two price levels depending on consumption. The rates are all-included: power, transmission and distribution costs, but are subject to the Goods and Services Tax (GST) and the Quebec Sales Tax (QST). As of April 1, 2012, customers pay 5.32¢/kWh for the first 30 daily kWh, while the remainder is sold at 7.51¢/kWh. The average monthly bill for a residential customer was approximately C$100 in 2008.

Electric meter readings are usually conducted every two months and bills are bimonthly. However, the company offers an optional Equalized Payment Plan allowing residential customers to pay their annual electricity costs in 12 monthly installments, based on past consumption patterns of the current customer address and the average temperature in that location.

In 2007, Hydro-Québec pulled out of a Canadian government initiative to install smart meters across the province, stating that it would be "too costly to deliver real savings". Since then, Hydro-Québec organized a 2-year pilot project, involving 2,000 customers in 4 cities, with time of use metering. A report, filed with the Régie de l'énergie, in the summer of 2010 concluded that the effect of marginal cost pricing with three levels of pricing in the winter would lead to minimal load and energy savings. The company intends to gradually phase-in Advanced Metering Infrastructure (AMI) between 2011 and 2017. Early efforts will focus on meter data transfer, connect-disconnect, outage detection and theft reduction.

Industrial customers

For more than a century, industrial development in Quebec has been stimulated by the abundance of hydroelectric resources. Energy represents a significant expenditure in the pulp and paper and aluminum sectors. two industries with long-standing traditions in Quebec. In 2010, industrial customers purchased 68.4 TWh from Hydro-Québec, representing 40.4% of all electricity sold by the company on the domestic market.

The Quebec government uses low electricity rates to attract new business and consolidate existing jobs. Despite its statutory obligation to sell electric power to every person who so requests, the province has reserved the right to grant large load allocations to companies on a case by case basis since 1974. The threshold was set at 175 MW from 1987 to 2006 and was reduced to 50 MW in the government's 2006–2015 energy strategy.

Large industrial users pay a lower rate than the domestic and commercial customers, because of lower distribution costs. In 2010, the largest industrial users, the Rate L customers, were paying an average of 4.66¢/kWh whereas companies with special contracts paid 3.07¢/kWh.

In 1987, Hydro-Québec and the Quebec government agreed to a series of controversial deals with aluminum giants Alcan and Alcoa. These risk sharing contracts set the price of electricity based on a series of factors, including aluminum world prices and the value of the Canadian dollar Those agreements are gradually being replaced by one based on published rates.

On May 10, 2007, the Quebec government signed an agreement with Alcan. The agreement, which is still in force despite the company's merger with Rio Tinto Group, renews the water rights concession on the Saguenay and Peribonka rivers. In exchange, Alcan has agreed to invest in its Quebec facilities and to maintain jobs and its corporate headquarters in Montreal.

On December 19, 2008, Hydro-Québec and Alcoa signed a similar agreement. This agreement, which expires in 2040, maintains the provision of electricity to Alcoa's three aluminum smelters in the province, located in Baie-Comeau, Bécancour and Deschambault-Grondines. In addition, the deal will allow Alcoa to modernize the Baie-Comeau plant which will increase its production capacity by 110,000 tonnes a year, to a total of 548,000 tonnes.

Several economists, including Université Laval's Jean-Thomas Bernard and Gérard Bélanger, have challenged the government's strategy and argue that sales to large industrial customers are very costly to the Quebec economy. In an article published in 2008, the researchers estimate that, under the current regime, a job in a new aluminum smelter or an expansion project costs the province between C$255,357 and C$729,653 a year, when taking into consideration the money that could be made by selling the excess electricity on the New York market.

This argument is disputed by large industrial customers, who point out that data from 2000 to 2006 indicate that electricity exports prices get lower when quantities increase, and vice versa. "We find that the more we export, the less lucrative it gets", said Luc Boulanger, the head of the association representing Quebec's large industrial customers. In his opinion, the high volatility of electricity markets and the transmission infrastructure physical limitations reduce the quantities of electricity that can be exported when prices are higher.

Export markets

Hydro-Québec sells part of its surplus electricity to neighbouring systems in Canada and the United States under long term contracts and transactions on the New England, New York and Ontario bulk energy markets. Two subsidiaries, HQ Energy Marketing and HQ Energy Services (U.S.) are engaged in the electricity trade on behalf of the company. In 2010, export sales of electricity brought in $1,513 million for a transaction volume of 23.3 TWh, despite "exceptionally low runoff", according to the company. Net exports accounted for a net income of $1,034 million and a net reservoir drawdown of 12.5 TWh.

Although most export sales are now short-term transactions, Hydro-Québec has entered into long-term export contracts in the past. In 1990, the company signed a 328-MW deal with a group of 13 electric distributors in Vermont. Exports from Hydro-Québec account for 28% of all power used in the state. On March 11, 2010, Vermont's two largest utilities, Green Mountain Power and Central Vermont Public Service, entered into a tentative 26-year deal with Hydro-Québec to purchase up to 225 MW of hydro power from 2012 to 2038. The memorandum of understanding provides for a price smoothing mechanism shielding Vermont customers from market price spikes. The deal is contingent upon the enactment designating large hydro as "renewable energy".

The renewable energy law, H.781, was adopted by both houses of the legislature and signed into law by governor Jim Douglas on June 4, 2010.

A second contract has been signed with Cornwall Electric, a subsidiary of Fortis Inc., a utility serving 23,000 customers in the Cornwall, Ontario area. The contract was renewed in 2008 and will be in force until 2019.

The company has several advantages in its dealings in export markets. First, its costs are not affected by the fluctuations of fossil fuel prices, since hydropower requires no fuel. Also, Hydro-Québec has a lot of flexibility in matching supply and demand, so it can sell electricity at higher prices during the day and replenish its reservoirs at night, when wholesale prices are lower. Third, the Quebec power grid peaks in winter because of heating, unlike most neighboring systems, where peak demand occur on very warm days in the summer, due to the air conditioning needs of homes and offices.

The election of Barack Obama—a supporter of renewable energy, greenhouse gas emissions trading and the development of electric cars—as president of the United States in 2008 was seen as a positive development for the company's outlook. Despite the success of the previous policy of short-term sales on neighboring energy markets, the Quebec government asked Hydro-Québec management to write a new strategic plan, focusing on long-term sale agreements with US distributors, as was the case after the commissioning of the James Bay Project. The new plan was released in July 2009.

Hydro-Québec crews were also loaned to the New York Metropolitan Area following Hurricane Sandy in October/November 2012.

Presidents

From 1944 to 1978, management of Hydro-Québec consisted of five commissioners, one of them acting as president.