Quebec's Catastrophic Electricity Meltdown

'perfect storm'

noun

a detrimental or calamitous situation or event arising from the powerful combined effect of a unique set of circumstances.

 

The current economic disaster that is Quebec's electricity industry can be best attributed to decades of poor management by Hydro-Quebec(Quebec's state owned electricity monopoly,) unforeseen deteriorating market conditions and changing technology, but worst of all, crippling political interference.

Before going on, it would be useful to describe the ongoing fiasco in the simplest of terms, without a barrage of facts and figures to complicate the issue (that will come later.)

Hydro-Quebec is facing what can only be described as a 'Perfect Storm', a unique set of negative circumstances that is adversely affecting its ability to maintain its money-generating capacity.
The jewel of Quebec's home-grown industry, the unqualified symbol of the province's emancipation has hit the financial shoals and as the media awakens to the problem of the ongoing and developing disaster, the government is gearing up to face the problem as governments are apt to do, that is by hiding, and shifting the blame or responsibility elsewhere.

What went wrong in a nutshell;

Poor Management
The chickens, as they say, have finally come home to roost, as decades of inept, lackadaisical and wildly inefficient management practices, covered up by the massive amounts of profit, (mostly generated from Newfoundland electricity,) has finally exacted its toll. As circumstances change, the utility can no longer generate the profits it had in the past. Let us remember that Hydro-Quebec has almost twice the amount of employees (as dictated by the industry average) and that the cost of building new hydroelectric installations was and remains almost double what is spent elsewhere.

Here's an employee quote from one of the job-seeking sites that describes working conditions at the utility.

"The environment is very laid back, the hours are pretty flexible and the people were very nice. There are good benefits and since it is a large company it is possible to move to a different team via internal recruiting." Link

With salaries that tower over the North American industry average, and double the workforce, it isn't difficult to understand that Hydro-Quebec's problems are more than just related to external forces.
A Montreal newspaper ran a story detailing how one Hydro-Quebec lineman made over $200,000 with overtime in 2011! Link{fr}
A regular lineman makes over $90,000.
In other words, Hydro-Quebec has been run like crap, salaries out of control with bosses more concerned with issues other than maximizing return.

This can best be typified by the arrogance of ex-Hydro boss Thierry Vandal who made a $250,000 donation to his alma-mater, just because he was president of the board of directors of the school. Link

The mistaken idea that Hydro-Quebec is a corporation like any other (instead of a government monopoly) and like a good corporate citizen, should be making charitable donations and funding arts is outrageous.
Let us remember, that when Hydro-Quebec makes a charitable donation or underwrites a festival or public activity, it is taking the money that would otherwise flow to the government, who by rights has the ultimate and exclusive right to spend public money as it and not as Hydro sees fit.
How about the expensive art that hangs on the walls in the executive offices and corridors of the Hydro-Quebec head office...Is it really a necessity? 
It remained for many years a personal source of irritation to me, to see the two Zambonis at the Bell Centre in Montreal emblazoned with Hydro-Quebec's livery, for absolutely no good reason. It isn't that they needed to convince consumers to use their product, there isn't any alternative!
It isn't exactly a case of Coke versus Pepsi.
Does it make any economic sense to rent a box at the Bell Centre at a cost of over a million dollars, when the enterprise is a monopoly and where entertaining clients or employees makes absolutely no business sense whatsoever? Link{fr}

Worst of all, management was not brave enough to face down the disastrous political interference that imposed those financially ruinous policies and programs, that any responsible board of directors would have, or should have rejected out of hand as insane folly.

Deteriorating Demand
Since its inception, it has been a holy tenet of Hydro-Quebec that electricity demand would spiral up each year and that the utility's competitive advantage would assure burgeoning demand both at home and in the export market.
And so Hydro-Quebec has always had expansion on its agenda, moving from one great project to another and even today with the present and foreseeable demand and price for electricity collapsing, the utility has another mega project on the books, the Romaine power development project.

But the results of years of advertising has sensitized consumers to conserve electricity and the program's success has slowly but surely reduced the increased demand for electricity.
Coupled with the collapse of Quebec's pulp and paper industry, an industry that uses massive amounts of electricity in production, has resulted in an unforeseen slowdown in demand.

New Technology
Perhaps the greatest blow to demand for Hydro-Quebec's electricity, is the shrinking export market, where the new kid on the block, electricity generated by newly produced American shale gas, has not only reduced demand in the USA, but depressed prices as well.

With massive amounts of cheap American shale gas coming to market, it is hard to see Hydro-Quebec ever regaining its position and its status as an international energy powerhouse.
The fact that American utilities have invested massively in gas-fired electricity plants augers poorly for the utility as Hydro-Quebec's competitive price advantage collapses.
Demand has slowed down so much that the utility has actually mothballed plants, taking them out of production because there is no where to sell the electricity.

The confluence of these negative factors has resulted in Quebec swimming in surplus electricity;

"The massive, state-of-the-art Bécancour cogeneration electricity plant is capable of powering 550,000 homes. At the moment, however, the only action its gas turbines are getting comes from the dehumidifiers that prevent them from rusting out. 
Apart from providing steam for an industrial park neighbour, the plant, 150 kilometres northeast of Montreal, sits largely idle, victim of policies and planning in a province overrun with electricity. 
Such is the extraordinary electricity surplus in Quebec that several hundred million dollars are being spent and lost each year dealing with the problem, and consumers are footing the bill." 
Read: As Quebec bathes in electricity, money goes down the drain

Government Interference
The most egregious and saddest aspect to Quebec's electricity debacle is the fact that successive governments have used the cash-cow to further political goals.
Successive governments have saddled the utility with policies that no private company would dare embark upon due to their inherent stupidity and money-losing potential.
And so the government has used the utility to create jobs, investing in money-losing ventures, all in an effort to advance political considerations and curry favour with voters.

In a province blessed with unlimited hydroelectric generating capacity, foolish governments have forced Hydro to embark on a program of horrifically expensive wind farms and small generating stations operated in conjunction with local authorities, all in an effort  to create jobs while using the excuse of 'green energy'

The programs are nothing more than political pork, meant to shovel money and jobs to the economically depressed regions, particularly the money pit that is the Gaspe peninsula.
And so while Hydro-Quebec has mothballed a giant plant that produces electricity at about 5¢ per kilowatt, (paying the company that built the plant a $250 million penalty a year,) the PQ government is demanding that the utility add more wind power capacity that costs a minimum of 14¢ to produce, while the retail price for electricity remains at about 5¢ to 7¢.

Although I said I wasn't going to get into specific dollar details here, (I will do that in the next post) this alternate energy folly is calculated to cost Quebec rate payers almost one billion dollars a year, enough to pay for the entire free higher education program that students demanded last year and then some.

 The Parti Quebecois' energy platform presented before the last election was actually a  fantastical narrative of surreality and nonsense that played to its base of granolas and dreamers.
The PQ promised to;

"Roll out an energy strategy based on integrated resource planning, including setting production targets for renewable energy sectors (hydro, wind, biomass, geothermal, solar, hydrogen).

This in a province blessed with limitless reserves of relatively cheap and clean water power.
Utter insanity!

Cognizant of the electricity surplus and the falling prices, Martine Ouellet, the PQ's most dangerous and stupid Minister of Energy of Incompetence actually put forward a call for tenders to add more wind power!  

It seems that climbing down from a long standing policy that has been a hallmark of the PQ's political platform won't be easy. The shrieks from its environmental base as well as the howls from the entitled beneficiaries, may be too much pressure to stand up to and perhaps the PQ just may grin and bear the cost of an out of control, failed policy."

All this while the PQ is loudly setting up a committee to study the effects of the doubling up of services and costs by virtue of the federal and Quebec governments inefficiently doing the same providing the same services.

To the PQ money wasted by Ottawa is a target to be exposed, while money wasted by itself...well, something necessary for social peace and justice.

That is unfortunately, exactly what separatist governance is about. 

We'll get into more detail next post and I've a special treat, a translated piece from a francophone blogger that lays bare the PQ and in particular Pauline and her husband's role in another PQ mess, back when she was minister of finance.

And as Stan said to Ollie.
"This is another fine mess you've gotten us into!"