Hydro-Québec received $2.7 billion in revenue in 2022 from its 194 large industrial customers, or 4.87¢ for each of the 55.4 TWh supplied to them by the state corporation. Did Hydro-Quebec make a good deal by selling this block of electricity?
To find out, let’s find the cost price of each kilowatt-hour sold in 2022 and determine whether Hydro-Québec has obtained an adequate return on the capital invested to meet the demand of these large industrial customers.
Cost price
Our state-owned company, which sold 216.2 TWh in 2022, would have disbursed 4.69 billion for all its production, not counting disbursements of 2.83 billion by purchasing electricity from private producers and markets outside the Quebec, for a total of 7.52 billion, or 3.48¢/kWh. To this production cost must be added the cost of transmission between the power plant and the territory where the electricity was consumed. These disbursements are estimated at 2.94 billion in 2022, or 1.36¢/kWh.
If we add the cost of production and the cost of transmission, the cost price of electricity sold to the 194 large industrial customers is 4.84¢/kWh. This results in a surplus of 0.03¢/kWh since these customers have paid 4.87¢/kWh, which translates into a slight profit of 17 million in 2022.
capital employed
Hydro-Québec had equity of $27 billion as of December 31, 2022 for the purpose of producing, transmitting over long distances and distributing electricity to 4.5 million customers. This capital generated a profit of 4.56 billion for a return of 18% on equity.
Large industrial customers consumed 25.6% of the electricity sold by Hydro-Québec in 2022. A company subject to market discipline would have required them to provide it with 25.6% of its profit from year, or 1.167 billion rather than just 17 million.
It was the other customers of the government corporation that made up for this shortfall of $1.15 billion by collectively paying a subsidy of the same order to these large industrial customers.
Source of profit
Given this observation, it is legitimate to wonder where Hydro-Québec’s profit comes from. Let’s say first of all that exports had a positive impact on the results since they generated a profit of 1.2 billion, that is to say 18.0% of the profit while monopolizing 16.5% of the sales. 2022 was an exceptional year, however, as the war in Ukraine pushed the average export selling price from 5.30¢/kWh in 2021 to 8.17¢/kWh in 2022.
Hydro-Québec’s other Quebec customers provide the rest of the annual profit. About 2.3 billion comes from the “Commercial, institutional and small industrial” group, while residential customers, which are slightly subsidized, contribute 1.3 billion.
Conclusion
The time has come to review our pricing policy inherited from the days when we had surplus electricity. The increase in demand due to the energy transition considerably increases the value of our hydroelectric assets. Quebec has the best offer available on the planet to meet the requirements of the energy transition, at the lowest cost.
When you have the best supply on the market and demand increases faster than supply, the right thing to do is to end subsidies and sell electricity at market price to all companies, without exception.
2023-07-03 20:00:22
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