Spotlight on Hydro-Québec’s invisible debt

Let’s say you have an ambitious project to extend your house. But in the existing part, the roof is leaking, the foundations are cracking and the electricity needs to be redone.

As a savvy homeowner, the first question you’ll ask yourself is: How much will it cost me to renovate my current home?

As taxpayers and as customers of Hydro-Québec, we are asking the Crown corporation exactly the same question. How many billions of dollars will it take to restore the network? For now, the answer is not written anywhere, even though Hydro wants to double its production capacity within 25 years, to decarbonize Quebec.

This is a great project for the future. Except that today, customers can no longer stand the repeated outages — 37 outages in seven months for one Outaouais resident! The problem is widespread: the average duration of service interruptions has increased by 485% over 10 years (although an improvement is expected in 2024), according to our colleague Ariane Lacoursière’s excellent survey.

And during this time, new customers have waited up to 18 months for a connection to the Hydro-Québec network, all in the midst of a housing crisis.

This is not acceptable.

Fortunately, the 2035 action plan presented by Hydro-Québec places improving the reliability of its service at the top of its priorities.

The company plans to double its maintenance spending, to $50 billion by 2035. It is banking on reducing breakdowns by 35%. But in the past, it has badly missed its targets.

However, this plan, which provides for total investments of 185 billion, is seriously lacking in details, despite the colossal sums at stake.

Yes, $50 billion to improve grid reliability is a lot of money. But is it enough? After this spending, what will be the health of Hydro-Québec’s assets? Which assets are in the worst condition? In which regions?

Mystery…

For its part, the government presents its Quebec Infrastructure Plan (PQI) each year, which reviews the state’s assets: roads, schools, hospitals, etc. It shows that almost half (44%) of provincial infrastructure is in poor condition. Horrible! Fixing it all up with the snap of a finger would cost $37 billion. This is what is called the asset maintenance deficit (AMD), a form of hidden debt that continues to grow and that we are passing on to future generations.

For its part, Hydro-Québec does not have a document measuring the deficit in maintaining its assets. A serious shortcoming. In fact, Hydro-Québec lacks reliable and structured data on its infrastructure, the Auditor General deplored in 2022.

Imagine: to know the age of an overhead transformer, Hydro-Québec employees sometimes have to go on site and consult the label affixed to the equipment.

This does not make asset management any easier.

And it doesn’t help with transparency towards the public, a fundamental ingredient for building trust that will be essential to the deployment of Hydro-Québec’s mega-expansion projects. Without social acceptability, we won’t get there.

Hydro-Québec is aware of this. In response to requests from The Pressshe provided some figures to try to understand the issue. Let’s see…

In total, Hydro calculates that the discounted cost of its assets¹ amounts to $260 billion, both for energy production and transmission (which represent the largest share of assets) and for distribution (which is generally the cause of outages, because Hydro has not done enough).

If we wanted to take no risks, we would have to invest 40 billion with a wave of a magic wand starting today. But Hydro refuses to talk about a maintenance deficit, arguing that its risk management approach is the result of measured decisions and not of neglect of maintenance.

In fact, Hydro-Québec’s strategy is to let its asset base age and “intervene at the appropriate time,” according to its MGA Global Report. As a result, 78% of assets were in their second half of life in 2021, a significant increase compared to 65% in 2008.

It is understandable that Hydro-Québec wants to optimize its assets and use its equipment to the limit. But there comes a point where the quality of service is no longer up to par. And the older the equipment gets, the more unpleasant surprises that cost money.

Turning things around will not be easy. Pressure will come from everywhere.

Extreme weather events will put even more stress on the faults in Hydro-Québec’s network, as seen across North America.

Decarbonization will require significant amounts of money, but also a large number of workers to do the work. But the construction industry is in short supply. Increased demand will drive up prices and delays.

And from a political point of view, the government does not want to increase residential rates beyond 3% per year or deprive itself of Hydro-Québec’s profits and dividends in a context where it must clean up its public finances.

And what about the reliability of the network in all this? If Hydro-Québec wants to prove that this is its priority, the state-owned company should start by shedding light on the lack of maintenance of its equipment.

1. This number is based on the construction value at the time, to which is added the inflation of the construction sector. It excludes assets that are practically good for eternity, such as the embankment dams of the La Grande complex or the 735 kV pylons.