“We have the most interesting power supply in North America, even on the planet. Nobody has as much renewable electricity to sell as we do. Why should we sell this at a loss or no money?” thunders businessman Claude Garcia, who once proposed the privatization of Hydro-Québec.
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The transition of the world economy to renewable energy is the biggest revolution since the industrial revolution, he says. The business opportunities are “incredible”. In this context, there is no point in shirking revenue, as Hydro-Québec is doing with its policy of low tariffs for large industrialists (the famous Tariff L).
Claude Garcia Photo courtesy of Claude Garcia
This week the government lured an energy-guzzling Duravit factory to Matane by giving the German ceramics giant cheap electricity rates and a partially “forgivable” interest-free loan.
“We need to move to a policy where we charge major manufacturers the same price as other customers. It won’t happen overnight because we have signed contracts. But there are many requirements at the moment and Minister Fitzgibbon has decisions to make. If we sell our electricity cheaper, we simply make less money.”
$1.15 billion is still on the table
How did Claude Garcia come up with this sum? Without getting into the accounting details, it’s worth noting that large industrial customers consumed 25.6% of the electricity sold by Hydro-Québec in 2022, but gave it only a $17 million profit. A company subject to market discipline would have required it to give it 25.6% of its annual earnings, or $1.15 billion, instead of just $17 million.
“It’s Crown Corporation’s other customers who made up that $1.15 billion shortfall by jointly paying these large industrial customers a grant of the same magnitude,” he explains.
Naturally, Hydro’s private customers are also encouraged. “The only ones who really contribute to the profit are Quebec SMEs and large companies that are not eligible for Tariff L, such as Quebec hospitals, schools and universities. They’re the ones who generate most of Hydro-Quebec’s profits, aside from exports.
No reason to lose money
“In the current environment where energy is in high demand, there is no reason to lose money with some of your customers,” emphasizes Claude Garcia.
“Let’s say you’re an entrepreneur and you want a 15% return on investment. If you have different products, aim for a 15% return on all your products. Hydro Quebec is the same. They sell electricity. They should achieve the same return, the same profit, with all of their products, i.e. with all of their customers. Why should we make products at a loss?” he explains.
The demand for clean electricity in Quebec is huge. Companies like Microsoft or Amazon want to go carbon neutral, and Quebec is in a great position to provide them with energy at prices that benefit all Quebecers.
“We made concessions to the big industrialists at a very different time, cheap electricity. We had huge surpluses at the time and didn’t know what to do with them. Today everything is completely different.”
Prime rates for Hydro Quebec customers
residential – 7.59¢/kWh
commercial business – 9¢/kWh
Large general customers (LG tariff) – 5.8¢/kWh
Large industrial customers (Tariff L) – 5¢/kWh