Business

Hydro-Québec reports net income of $2.7 billion in the first half of 2023

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Hydro-Québec reports net income of $2.7 billion in the first half of 2023
(photo courtesy Hydro-Quebec)

Canadian provincial utility Hydro-Québec reported net income of $2,687 million for the first half of 2023, which is down $55 million from the historic high of $2,742 million recorded for the same period in 2022.

Implementation of a risk management strategy enabled the company to take advantage of the high futures prices in effect in 2022, which led to a significant increase in sales revenue outside Quebec in 2023, according to a release. However, this increase was offset by the combined effect of three main factors: a decrease in electricity sales in Quebec due to a mild winter, an increase in operating expenses and an increase in amortization expense.

“Overall, it’s been a very good first half,” commented Jean-Hugues Lafleur, executive vice president and chief financial officer of Hydro-Québec. “Nevertheless, the second quarter of the year was marked by unfavorable weather conditions in our export markets. Even though our risk management strategy continued to mitigate the impact of falling prices on the energy markets, our quarterly net income is down due in particular to the decrease in volume sold outside Quebec. Looking ahead, we expect the price pullback we’ve seen since the start of 2023 to continue to have a noticeable impact on results.”

Electricity sales in markets outside Québec amounted to $1,626 million, up $390 million compared to the $1,236 million recorded for the same period in 2022. On the one hand, the favorable impact of the risk management strategy more than compensated for the drop in prices on the energy markets. The company was able to take advantage of the high futures prices that prevailed in 2022 due to the global geopolitical situation, which had a positive impact on this year’s products. On the other hand, in a context marked by unfavorable weather conditions, the volume of sales outside Quebec decreased by 2.2 TWh compared to the comparative period.

As for sales in Quebec, they brought in $114 million less than the $7,200 million recorded a year ago, mainly due to the temperatures, which led to a decrease of $335 million. This decrease was, however, mitigated by the indexation of rates on April 1, 2022 and 2023, which resulted in additional revenue of $212 million.

Operating expenses increased by $121 million, partly due to the growth of the company’s activities aimed at improving the quality and reliability of service, in particular by increasing maintenance and maintenance costs and increased spending on digital services to meet Hydro-Québec’s growing business needs and support its technological development, according to a release. The impact of this increase was mitigated by a decrease in the cost of services rendered for the purposes of employee future benefit plans linked to the increase, at the end of 2022, of long-term interest rates term on the financial markets, to which the discount rates correspond.

Lastly, the recognition of the other components of the cost of employee future benefits resulted in an unfavorable variance of $166 million, which is essentially due to the rise in interest on bonds in a context of rising long-term interest rates. Amortization expense increased by $81 million primarily due to higher amortization of property, plant and equipment and intangible assets.

Hydro-Québec devoted $2,028 million to its capital investments during the first six months of 2023, which is comparable to the $2,005 million invested a year earlier. More than two-thirds of the amount invested in 2023 was allocated to large-scale works aimed at sustaining production, transmission and distribution assets.

Hydro-Québec generates, transmits and distributes electricity. It is Canada’s largest electricity producer and one of the largest hydroelectric producers in the world, sourcing most of its electricity supply from hydroelectric generating stations. Its sole shareholder is the Quebec government.