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Annual Report 2010

Message from the President and Chief Executive Officer

Photo PDG A solid performance
Hydro-Québec was able to maintain a high level of profitability in 2010, despite difficult business conditions marked by well-below-average precipitation that affected our entire hydroelectric generating fleet. Net income totaled $2,515 million, exceeding the projections in the Strategic Plan 2009-2013. The dividend paid to our shareholder, the Québec government, will reach nearly $1.9 billion.

Low natural inflows into our reservoirs prompted us to cut back our net electricity exports considerably, especially in the latter half of the year, as part of our ongoing careful management of reservoir storage. Three factors helped compensate for the decline in the volume of net exports. First of all, tight control over our energy market transactions and risks meant that every kilowatthour exported was highly profitable. As well, revenue from domestic sales rose more than anticipated as a result of increased industrial consumption. Finally, we achieved sizable efficiency gains in the area of overall operating expenses, fully offsetting the 2010 increase in costs related to indexation, inflation and natural growth in operations. I must stress that this strong performance would not have been possible without the contribution and commitment of all our employees.

HYDROPOWER DEVELOPMENT

Hydro-Québec is actively pursuing the development of Québec's hydroelectric potential, as the Romaine and Eastmain-1-A/Sarcelle/Rupert jobsites demonstrate. These two construction projects–the largest in Canada–have a twofold objective: to secure the province's energy future and to meet the growing demand for clean, renewable energy as part of the effort to stem global warming. Capital investment in generation projects totaled $1.9 billion in 2010. Work at Eastmain-1-A/Sarcelle/Rupert made steady progress and should be completed, as scheduled, by the end of 2012, while construction got under way on the permanent structures for the Romaine-2 development.

MAJOR INVESTMENTS IN TRANSMISSION

In 2010, we also invested $1.2 billion in the expansion, reliability and long-term operability of our transmission system, which is the most extensive in North America. Our projects include integrating new hydropower and wind farm output, upgrading the main transmission grid and refurbishing lines and substations.

In addition, we kept up our innovation efforts with a view to optimizing transmission system operation. For example, Hydro-Québec devised a technology–the LineScout robot–for inspecting live transmission lines. This innovation, which we fine-tuned in collaboration with the British Columbia Transmission Corporation, garnered the 2010 Edison Award, the highest honor bestowed by the power industry.

CONTINUING OUR ENERGY EFFICIENCY INITIATIVES

In line with Hydro-Québec's major strategic objectives, energy efficiency remains a central focus. Our $216-million investment in energy efficiency programs in 2010 yielded new savings of 989 GWh. We have achieved recurring annual savings of 5.3 billion kilowatthours since the Energy Efficiency Plan was launched in 2003, and are targeting 11 billion kilowatthours by 2015.

PURCHASES OF COMPLEMENTARY RENEWABLE ENERGIES

We selected 13 projects in 2010 under a program for the purchase of 150 MW reserved for small hydro. Ten of these projects will be carried out entirely by Aboriginal or other local communities, and three will be built in partnership with the private sector. As well, the Régie de l'énergie approved six contracts (52.9 MW) signed subsequent to tendering in 2009 for the supply of Québec-generated electricity produced by new biomass cogeneration facilities. Lastly, Hydro-Québec announced that it had accepted 12 bids for the purchase of two 250-MW blocks of wind power generated in Québec: one earmarked for Aboriginal projects and the other for community projects. These purchases are part of a complementary renewables purchasing policy that we developed at the Québec government's request.

INNOVATION AND GROUND TRANSPORTATION ELECTRIFICATION

Innovation plays an extremely important role in all aspects of our business, from optimizing system performance, operation and maintenance to extending the service life of our facilities.

In 2010, Hydro-Québec stepped up its activities in the electrification of ground transportation. Among other initiatives, our research institute set up an energy storage laboratory where researchers are working on battery materials and assembly for electric vehicles. The company is also involved in several electric-car pilot projects (road tests, rollout of charging infrastructure) in collaboration with major automakers and various Québec partners.

AN ENERGY INDUSTRY BENCHMARK

In September, Hydro-Québec hosted the 21st World Energy Congress. Held every three years by the World Energy Council, this leading event in the energy industry brought together a record number of participants and laid the groundwork for action aimed at sustainable growth.

It should also be noted that Hydro-Québec was named Utility of the Year by the prestigious magazine Electric Light & Power. According to editor-in-chief Teresa Hansen, "Hydro-Québec topped [all North American electric utilities] when we factored in environmental responsibility, happy customers, transmission technology, low rates and profits."

EXCEPTIONAL COMMITMENT

I must once again emphasize that our solid performance in 2010 is attributable to the commitment of our employees. I therefore salute these energetic women and men who work, throughout the province, to provide Quebecers with reliable, high-quality electricity. We owe our success to them.

In closing, I would also like to thank the members of the Board of Directors for their invaluable contribution to Hydro-Québec's performance.

Thierry Vandal
President and Chief Executive Officer