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Friday 18 November, 2011

Hydro-Quebec.

3rd Quarter Results

RNS Number : 4086S
Hydro-Quebec
18 November 2011
 



Regulatory Announcement

 

Hydro-Québec

18 November 2011

 

Re:    Hydro-Québec's Quarterly Report for the Third Quarter ended September 30, 2011 

A copy of the Quarterly Report of Hydro-Québec for the Third Quarter ended September 30, 2011 has been submitted to the National Storage Mechanism and will be available for viewing shortly.

To view this document in PDF format, please paste the following URLs into the address bar of your browser.

http://www.rns-pdf.londonstockexchange.com/rns/4086S_-2011-11-18.pdf

This document is also available as follows:

            for viewing on Hydro-Québec's website, www.hydroquebec.com; and or/

by writing to the Company's Documentation Office - Structured Finance Group; 75 René-Lévesque Boulevard West, 6th Floor, Montréal, Québec, Canada H2Z 1A4.

For further information, please contact:

Stéphane S. Pépin

Directeur & Trésorier adjoint

Direction Financement Structuré et Documentation Financière

Hydro-Québec

Tél: (514) 289-2210

Fax: (514) 289-5414

Email: Pepin.Stephane@hydro.qc.ca


Hydro-Québec

Third Quarter 2011

Message from the Chairman of the Board
and the President and Chief Executive Officer

Summary  of operations for the

first three quarters

 

For the nine months ended September 30, 2011, net income totaled $2,238 million, a $196‑million increase compared to the same period last year. This rise is due to a $70‑million decrease in operating expenses as well as an $82‑million increase in electricity sales in Québec as a result of higher demand, mainly from residential customers.

Third quarter


In third quarter 2011, net income amounted to $384 million, compared to $227 million in 2010. This $157‑million increase stems from growth in net electricity exports, among other things. It should be noted that in third quarter 2010, Hydro-Québec had to limit its net exports because of well-below-average precipitation levels across its entire hydroelectric generating fleet.

 

The granting of sublicences for the manufacture of rechargeable battery materials generated $22 million in third quarter 2011. As for operating expenses, they were down $25 million.

Consolidated operations for the

first three quarters

 

Revenue totaled $9,377 million, compared to $9,213 million in 2010. In Québec, revenue from electricity sales amounted to $7,990 million, or $323 million more than in 2010, essentially because of a 3.6‑TWh volume increase resulting from the fact that temperatures were close to normal in 2011, whereas they had been exceptionally mild in 2010. A 0.8‑TWh increase in demand was also a factor. On markets outside Québec, revenue from electricity sales was $1,101 million, a $192‑million decrease due mainly to the impact of the appreciation of the Canadian dollar.

 

Other revenue totaled $286 million, compared to $253 million in 2010. This $33‑million increase was due, among other things, to the revenue generated by the granting of sublicences for the manufacture of rechargeable battery materials.

 

Total expenditure amounted to $5,293 million, which is comparable to the 2010 level. The $70‑million decrease in operating expenses as well as the reduction in electricity purchases and capital tax were offset by the impact of regulatory deferrals which, in 2010, included a $105-million asset for revenue variances related to climate conditions.

 

Segmented operations for the first three quarters


Generation

Hydro-Québec Production posted net income of $1,459 million, compared to $1,407 million in 2010. The increase in net electricity exports was offset by the impact of the appreciation of the Canadian dollar. On the other hand, revenue from electricity sales to Hydro-Québec Distribution increased by $169 million.

Transmission

Hydro-Québec TransÉnergie's net income amounted to $424 million, a $28‑million increase over 2010. The decline in revenue from native load transmission service following a decision by the Régie de l'énergie in May 2011 was more than offset by the reduction in financial expenses.

Distribution

Hydro-Québec Distribution recorded net income of $266 million, an increase of $28 million over last year. Revenue from electricity sales increased due to colder temperatures in 2011 and to higher demand, mainly from residential customers. This increase was partly offset by higher electricity purchases, net of transmission costs, and by the recognition, in 2010, of a regulatory asset for revenue variances related to climate conditions.

Construction

The Construction segment includes activities related to the projects carried out by Hydro‑Québec Équipement et services partagés and Société d'énergie de la Baie James (SEBJ).

 

Work handled by Hydro-Québec Équipement et services partagés totaled $1,245 million in the first nine months of 2011, compared to $1,352 million in 2010. Large-scale projects under way for Hydro-Québec Production include Romaine‑2, while work in progress for Hydro‑Québec TransÉnergie revolves around connecting new generating facilities and continued investment in asset sustainment projects, among other things.

 

As for SEBJ, its volume of activity amounted to $244 million, compared to $549 million last year. In June 2011, the Eastmain‑1‑A/Sarcelle/Rupert project reached an important milestone with the commissioning of the first generating unit at Eastmain‑1‑A powerhouse.

Investment


As at September 30, 2011, investments in property, plant and equipment, intangible assets and the Energy Efficiency Plan totaled $2,619 million, compared to $2,953 million in 2010. As expected, a large portion of this amount was devoted to the major capital projects of Hydro‑Québec Production, especially the Eastmain-1-A/Sarcelle/Rupert and Romaine‑2 hydroelectric developments.

 

Hydro-Québec TransÉnergie continued investing in its transmission system to integrate new hydroelectric and wind capacity in Québec. It also carried on with its investments in maintenance and improvement to ensure the reliability and long-term operability of its transmission assets and enhance service quality.

 

Hydro-Québec Distribution kept up investments to handle the growth of its Québec customer base and ensure the quality of its facilities, especially those related to distribution automation. It also continued implementation of the Energy Efficiency Plan.  

Financing


In September 2011, bonds maturing in February 2050 were issued on the Canadian market, at the rate of 3.89%. This financing raised $0.6 billion, adding to the $3.5 billion raised in the first half of the year. The funds are being used to refinance maturing debt and to support the investment program.

 

/s/ Michael L. Turcotte

/s/ Thierry Vandal



Michael L. Turcotte

Thierry Vandal



Chairman of the Board

President and Chief Executive Officer

 

November 18, 2011

 


CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

In millions of Canadian dollars

(unaudited)


Three months ended September 30

Nine months ended September 30


Notes

2011

2010

2011

2010







Revenue


2,679

2,701

9,377

9,213







Expenditure






Operations


569

594

1,787

1,857

Electricity and fuel purchases


282

370

918

958

Depreciation and amortization

4

609

656

1,858

1,902

Taxes


202

201

657

689

Regulatory deferrals


24

(4)

73

(117)



1,686

1,817

5,293

5,289







Operating income


993

884

4,084

3,924

Financial expenses

5

609

657

1,846

1,882







Net income


384

227

2,238

2,042

 

 

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

In millions of Canadian dollars

(unaudited)


Three months ended September 30

Nine months ended September 30



2011

2010

2011

2010







Balance, beginning of period


15,819

15,151

13,965

13,336

Net income


384

227

2,238

2,042







Balance, end of period


16,203

15,378

16,203

15,378

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.



CONSOLIDATED BALANCE SHEETS

In millions of Canadian dollars

(unaudited)


As at September 30, 2011

As at December 31, 2010





ASSETS




Current assets




Cash and cash equivalents


1,683

80

Short-term investments


432

1,230

Accounts receivable and other receivables


1,641

1,813

Derivative instruments


910

889

Regulatory assets


38

43

Materials, fuel and supplies


260

321



4,964

4,376





Property, plant and equipment


56,289

55,512

Goodwill and intangible assets


1,228

1,235

Investments


124

114

Derivative instruments


1,456

952

Regulatory assets


1,134

1,144

Other assets


2,926

2,565







68,121

65,898




LIABILITIES




Current liabilities




Borrowings


23

18

Accounts payable and accrued liabilities


1,649

2,017

Dividend payable


-

1,886

Accrued interest


498

909

Derivative instruments


604

308

Regulatory liabilities


98

58

Current portion of long-term debt


890

1,933



3,762

7,129





Long-term debt


40,324

36,439

Asset retirement obligations


517

504

Derivative instruments


1,669

2,114

Regulatory liabilities


-

1

Other long-term liabilities


857

857

Perpetual debt


287

288



47,416

47,332





EQUITY




Share capital


4,374

4,374




Retained earnings


16,203

13,965

Accumulated other comprehensive income


128

227



16,331

14,192






20,705

18,566







68,121

65,898





The accompanying notes are an integral part of the consolidated financial statements.




 

On behalf of the Board of Directors,


/s/ Jacques Leblanc

/s/Michael L. Turcotte

Jacques Leblanc

Chair of the Audit Committee

Michael L. Turcotte

Chairman of the Board



CONSOLIDATED STATEMENTS OF CASH FLOWS

In millions of Canadian dollars

(unaudited)


Three months ended September 30

Nine months ended September 30


Notes

2011

2010

2011

2010







Operating activities






Net income


384

227

2,238

2,042

Adjustments to determine net cash flows from
operating activities






Depreciation and amortization

4

609

656

1,858

1,902

Amortization of premiums, discounts and issue expenses related to debt securities

5

29

29

80

91

Regulatory deferrals


24

(4)

73

(117)

Other


12

77

197

5

Change in non-cash working capital items

6

175

111

(550)

(180)

Net change in accrued benefit assets and liabilities


(151)

(139)

(390)

(430)



1,082

957

3,506

3,313







Investing activities






Additions to property, plant and equipment


(865)

(996)

(2,429)

(2,767)

Additions to intangible assets


(15)

(21)

(63)

(56)

Cash receipts from the government reimbursement
for the 1998 ice storm


2

2

5

8

Disposal of investments


-

-

-

11

Costs related to Energy Efficiency Plan


(48)

(50)

(127)

(130)

Net (acquisition) disposal of short-term investments


(141)

(303)

797

1,330

Other


9

2

16

7



(1,058)

(1,366)

(1,801)

(1,597)







Financing activities






Issuance of long-term debt


593

494

4,090

1,028

Repayment of long-term debt


(609)

(186)

(2,625)

(642)

Cash receipts arising from credit risk management


1,188

667

2,982

1,597

Cash payments arising from credit risk management


(720)

(635)

(2,671)

(1,370)

Net change in short-term borrowings


(70)

(260)

3

174

Dividend paid


-

-

(1,886)

(2,168)

Other


(1)

(2)

(1)

(2)



381

78

(108)

(1,383)







Foreign currency effect on cash and cash equivalents


8

(4)

6

(2)







Net change in cash and cash equivalents


413

(335)

1,603

331







Cash and cash equivalents, beginning of period


1,270

1,138

80

472







Cash and cash equivalents, end of period


1,683

803

1,683

803







Supplementary cash flow information

6











The accompanying notes are an integral part of the consolidated financial statements.



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In millions of Canadian dollars

(unaudited)


Three months ended September 30

Nine months ended September 30



2011

2010

2011

2010







Net income


384

227

2,238

2,042







Other comprehensive income






Change in deferred gains (losses) on items designated as
cash flow hedges


104

(256)

104

308

Reclassification to operations of deferred gains on items designated as cash flow hedges


(76)

(134)

(203)

(389)



28

(390)

(99)

(81)







Comprehensive income


412

(163)

2,139

1,961

The accompanying notes are an integral part of the consolidated financial statements.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

For the three- and nine-month periods ended September 30, 2011 and 2010

Amounts shown in tables are in millions of Canadian dollars.

Note 1     Basis of Presentation

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles as set forth in Part V of the Canadian Institute of Chartered Accountants (CICA) Handbook, "Pre-changeover Accounting Standards," and reflect the decisions of the Régie de l'énergie (the "Régie"). These decisions affect the timing of the recognition of certain transactions in the consolidated operations, resulting in the recognition of regulatory assets and liabilities, which Hydro- Québec considers it is likely to recover or settle subsequently through the rate-setting process. The quarterly consolidated financial statements, including the present notes, do not contain all the required information regarding the audited annual consolidated financial statements and should therefore be read in conjunction with the consolidated financial statements and accompanying notes in Hydro-Québec's Annual Report 2010.

The accounting policies used to prepare the quarterly consolidated financial statements are consistent with those presented in Hydro-Québec's Annual Report 2010.

Hydro-Québec's quarterly results are not necessarily indicative of results for the year on account of seasonal temperature fluctuations. Because of higher electricity demand during winter months, revenue from electricity sales in Québec is higher during the first and fourth quarters.

Note 2     Change in Accounting Policy

Future Change

In February 2008, the Canadian Accounting Standards Board (AcSB) confirmed that publicly accountable enterprises would be required to apply International Financial Reporting Standards (IFRS) in their interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. In September 2010, the AcSB authorized rate-regulated entities to defer the adoption of IFRS to January 1, 2012. Since Hydro-Québec is entitled to exercise this deferral right, it has opted to present its 2011 financial statements in accordance with Part V of the CICA Handbook, "Pre-changeover Accounting Standards."

Note 3     Effects of Rate Regulation on the Consolidated Financial Statements

Transmission

In decision D-2011-061 of May 5, 2011, the Régie set Hydro-Québec's power transmission rates for 2011. The new rates take into account a 7.21% return on the rate base, assuming a capitalization with 30% equity.

Distribution

In decision D-2011-036 of March 31, 2011, the Régie imposed an across-the-board reduction of 0.41% in Hydro-Québec's electricity rates, effective April 1, 2011. This reduction takes into account a 7.26% return on the rate base, assuming a capitalization with 35% equity.

In decision D-2011-028 of March 9, 2011, the Régie authorized the amortization of an amount of $33 million in 2011 for the 2010 revenue variances related to climate conditions, stipulating that the balance of these variances must be amortized over five years as of 2012, in compliance with decision D-2009-016. The impact of decision D-2011-028 on the amortization expense for the three- and nine-month periods ended September 30, 2011, totaled $8 million and $25 million, respectively.

In decisions D-2011-039 of April 6, 2011 and D-2011-028, the Régie asked the Transmission Provider and the Distributor to recognize in a separate account the variances between the recognized pension cost and the cost authorized in the rate decisions. The amortization terms and conditions for this account have not yet been determined. As at September 30, 2011, an amount of $39 million had been recognized as a regulatory liability.

In decision D-2011-058 of May 3, 2011, the Régie allowed the Distributor to create an account for deferred expenses bearing interest at the authorized rate on the rate base, in order to recognize certain costs related to the customer systems optimization project. This account will be amortized in 2012. As at September 30, 2011, costs of $8 million had been recognized as a regulatory asset.



Note 4     Depreciation and Amortization



Three months ended September 30

Nine months ended September 30


2011

2010

2011

2010






Property, plant and equipment

543

570

1,654

1,658

Intangible assets

28

24

81

72

Regulatory assets and liabilities

38

55

121

165

Write-offs

-

7

2

7


609

656

1,858

1,902

Note 5     Financial Expenses



Three months ended September 30

Nine months ended September 30


2011

2010

2011

2010






Interest





Interest on debt securities

630

651

1,873

1,862

Amortization of premiums, discounts and issue expenses
related to debt securities

29

29

80

91


659

680

1,953

1,953






Net exchange (gain) loss

(21)

7

(12)

3

Guarantee fees related to debt securities

47

46

141

137


26

53

129

140

Less





Capitalized financial expenses

72

73

226

205

Net investment income

4

3

10

6


76

76

236

211







609

657

1,846

1,882

Note 6     Supplementary Cash Flow Information







Three months ended September 30

Nine months ended September 30


2011

2010

2011

2010






Change in non-cash working capital items





Accounts receivable and other receivables

488

413

174

440

Materials, fuel and supplies

31

(1)

60

7

Accounts payable and accrued liabilities

36

66

(352)

(230)

Accrued interest

(380)

(367)

(432)

(397)


175

111

(550)

(180)






Investing activities not affecting cash





Increase in property, plant and equipment

24

8

49

71






Interest paid

920

891

2,039

1,988

 



Note 7     Employee Future Benefits








Three months ended September 30


Pension Plan

Other plans


2011

2010

2011

2010






Accrued benefit cost

31

6

22

28






 




Nine months ended September 30


Pension Plan

Other plans


2011

2010

2011

2010






Accrued benefit cost

91

16

84

85






Note 8     Segmented Information

The following tables contain information related to operations and assets by segment:

 


Three months ended
September 30, 2011


Generation

Transmission

Distribution

Construction

Corporate and Other Activities

Intersegment eliminations and adjustments

Total

Revenue








External customers

403

17

2,225

-

34

-

2,679

Intersegment

1,029

750

17

543

346

(2,685)

-

Net income (loss)

315

157

(165)

-

77

-

384

Total assets as at September 30, 2011

31,239

 18,321

 12,642

 446

 5,727

 (254)

 68,121

 


Three months ended
September 30, 2010


Generation

Transmission

Distribution

Construction

Corporate and Other Activities

Intersegment eliminations and adjustments

Total

Revenue








External customers

431

17

2,241

-

5

7a

2,701

Intersegment

1,031

764

15

671

331

(2,812)

-

Net income (loss)

242

127

(136)

-

(9)

3

227

Total assets as at September 30, 2010

 30,370

 17,935

 12,173

 467

 4,362

 (327)

 64,980

a) Resales of excess supply by Hydro-Québec Distribution on outside markets are presented as offsets of electricity purchases rather than in Revenue.



Note 8     Segmented Information (continued)




Nine months ended
September 30, 2011


Generation

Transmission

Distribution

Construction

Corporate and Other Activities

Intersegment eliminations and adjustments

Total

Revenue








External customers

1,224

51

8,053

-

49

-

9,377

Intersegment

3,674

2,242

55

1,489

1,023

(8,483)

-

Net income

1,459

424

266

-

86

3

2,238

Total assets as at September 30, 2011

 31,239

 18,321

 12,642

 446

 5,727

 (254)

 68,121

 


Nine months ended
September 30, 2010


Generation

Transmission

Distribution

Construction

Corporate and Other Activities

Intersegment eliminations and adjustments

Total

Revenue








External customers

1,445

49

7,680

-

25

14a

9,213

Intersegment

3,521

2,287

51

1,901

994

(8,754)

-

Net income (loss)

1,407

396

238

-

(8)

9

2,042

Total assets as at September 30, 2010

 30,370

 17,935

 12,173

 467

 4,362

 (327)

 64,980

a) Resales of excess supply by Hydro-Québec Distribution on outside markets are presented as offsets of electricity purchases rather than in Revenue.

Note 9     Comparative Information

Some corresponding period data of the previous year have been reclassified to conform to the presentation adopted in the current period, or restated in accordance with the changes to accounting policies described in Note 2 to the consolidated financial statements published in Hydro-Québec's Annual Report 2010.



CONSOLIDATED FINANCIAL HIGHLIGHTS

(UNAUDITED)

Amounts shown in tables are in millions of Canadian dollars.

 









Three months ended
September 30

Nine months ended
September 30

Summary of Operations

2011

2010

Change (%)

2011

2010

Change (%)










Revenue

2,679

2,701

0.8

Ü

9,377

9,213

1.8

Û

Expenditure

1,686

1,817

7.2

Ü

5,293

5,289

0.1

Û

Financial expenses

609

657

7.3

Ü

1,846

1,882

1.9

Ü

Net income

384

227

69.2

Û

2,238

2,042

9.6

Û











2011





2010





Q1

Q2

Q3

Q4


Q1

Q2

Q3

Q4











Net Income

1,402

452

384



1,439

376

227

473











Revenue

3,853

2,845

2,679



3,821

2,691

2,701

3,125











Revenue from Electricity Sales in Québec

3,358

2,432

2,200



3,165

2,271

2,231

2,839











Revenue from Electricity Sales Outside Québec

414

323

364



565

341

387

220











 


Quarter Highlights

Transmission


Application to amend the Open Access Transmission Tariff

In August, Hydro-Québec TransÉnergie filed its 2012 rate application with the Régie de l'énergie. The application essentially seeks the approval of revenue requirements and changes to transmission service rates, effective January 1, 2012. Revenue requirements amount to $3,080.6 million, which is $71.2 million more than the revenue approved by the Régie for 2011.

Distribution


Régie de l'énergie decision

In July, the Régie de l'énergie authorized Hydro-Québec Distribution to build a new thermal generating station in Akulivik, an Inuit village in Nunavik, to replace the existing one. The new facility will be equipped with three generating units, for a total capacity of 2,028 kW. Project costs will run to $49.4 million.

Rate adjustment application

In August, Hydro-Québec Distribution filed an application with the Régie de l'énergie for a rate adjustment of 1.7%, effective April 1, 2012.

Technological innovation


Granting of lithium metal phosphate sublicences

In July, Hydro-Québec, Université de Montréal and the Centre national de la recherche scientifique [France's national centre for scientific research], co-owners of the rights to key patents on lithium metal phosphate (LMP), including lithium iron phosphate (LFP), announced that they had broadened the base for the international marketing of these battery materials, in conjunction with Munich-based Süd-Chemie AG. The co-owners can now grant sublicences to LMP manufacturers capable of meeting market demand with quality products. Contracts have already been signed with Japanese entities Sumitomo Osaka Cement Co., Ltd. and Mitsui Engineering & Shipbuilding Co., Ltd. as well as with Taiwanese companies Tatung Fine Chemicals Co., Ltd. and Advanced Lithium Electrochemistry Co., Ltd. The latter has undertaken to build a plant in Québec. Süd-Chemie is already building a plant in Candiac through its subsidiary Phostech Lithium Inc.

Transportation electrification


Request for proposals to supply charging stations

In August, Hydro-Québec launched a request for proposals for the purchase of 120 charging stations for electric vehicles on behalf of the partners of "The Electric Circuit," namely RONA, Les Rôtisseries St-Hubert, METRO, the Agence métropolitaine de transport (AMT) and Hydro-Québec. The winning bidder will be announced by the end of 2011. The charging stations will supply clean, renewable energy to the public beginning in winter 2012. They will be installed at business locations designated by Hydro-Québec's partners and at several AMT park-and-ride facilities.

First all-electric vehicles available for carsharing in Québec

In August, Communauto, Hydro-Québec and Nissan Canada announced that Communauto's customers now have access to 15 Nissan LEAFs-nine in Montréal and six in the city of Québec. By early 2012, the number of cars available will reach 50. This represents the largest fleet of all-electric vehicles to be part of a carsharing service in North America.

 

 

 

Hydro-Québec, 75, boul. René-Lévesque Ouest, Montréal (Québec)  H2Z 1A4

Ce document est également publié en français.
www.hydroquebec.com
ISSN 0848-5836


 


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