Hydro-Québec announced on May 9, 2014 that it has posted a net result of $2.94 billion in 2013. Apparently, this increase in profitability is attributable to, among other things, growth in its export revenues and cost reductions. (Its 2013 annual report can be found here.)

Here is what is surprising about these excellent results.

According to the company, this is the best year-end financial result that it has ever recorded. As Mr. Thierry Vandal, the president and chief executive officer of Hydro-Québec, states in the company’s annual report: “We are very proud of this increase in our profitability, which is attributable to growth in our export revenues as well as cost reductions at every level of the organization.”

Regarding the increase in export revenues, Mr. Vandal notes that: “Our exports benefited from slightly higher prices in 2013, especially at the end of the year, when very cold weather swept across the continent”. According to Hydro-Québec’s annual report, electricity export sales in 2013 totaled 32.2 TWh, compared to 31.8 TWh in 2012.

This increase in export sales is surprising. Many industry observers considered that the U.S. shale gas revolution would adversely impact U.S. demand for Québec electricity and that this decrease in export demand would cause Hydro-Québec to incur significant electricity surpluses. This possibility was described in the February 2014 report of the Commission sur les enjeux énergétiques, tasked with preparing recommendations for Québec’s new energy strategy, which Québec is expected to adopt in 2015. A link to our blog post on this matter can also be found here.

While the U.S. shale gas revolution has had an effect on demand for Hydro-Québec’s exportation of electricity, the volume of available and inexpensive natural gas has been insufficient to significantly affect this demand, contrary to industry expectations. For the moment, it appears that the current pipeline capacity in the northeastern United States lacks the capacity to satisfy the ever-growing energy needs of major U.S. markets such as New York and Boston. In this context, the demand and price for the export of Hydro-Québec’s electricity have actually increased and were an important factor in Hydro-Québec’s improved results, along with Hydro-Québec’s ongoing efforts at cost reduction.

It remains to be seen whether this trend will continue into the future as new pipeline capacity comes into service over the following years, which may increase the supply of natural gas to major northeastern U.S. power-utility markets and thereby reduce the demand for Hydro-Québec’s electricity exports.