Powering Our Future Annual Annual Report 2008

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Powering Our Future Annual Annual Report 2008 Hydro-Québec Powering Our Future Annual ReportAnnual 2008 Annual Report 2008 Powering Our Future Powering Hydro-Québec Hydro-Québec generates, transmits and dis- Hydro-Québec Production generates power for the tributes electricity. Its sole shareholder is the Québec Québec market and sells its surpluses on wholesale government. It uses mainly renewable generating markets. It is also active in arbitraging and purchase/ options, in particular hydropower, and supports the resale transactions. development of wind energy through purchases Hydro-Québec TransÉnergie operates the most from independent power producers. It also conducts extensive transmission system in North America for research in energy-related fields such as energy the benefit of customers inside and outside Québec. efficiency. The company has four divisions: Hydro-Québec Distribution provides Quebecers with a reliable supply of electricity. To meet needs beyond the annual heritage pool which Hydro-Québec Production is obligated to supply at a fixed price, it mainly uses a tendering process. It also encourages its customers to make efficient use of electricity. Hydro-Québec Équipement and Société d’énergie de la Baie James (SEBJ), a subsidiary of Hydro-Québec, design, build and refurbish generation and trans- mission facilities, mainly for Hydro-Québec Production and Hydro-Québec TransÉnergie. CONTENTS 2 Hydro-Québec at a Glance 4 Message from the Chairman of the Board 6 Message from the President and Financial Review Chief Executive Officer 52 Management’s Discussion and Analysis Review of Operations 74 Consolidated Financial Statements 8 Hydro-Québec Production – 103 Five-Year Review Hydropower: The Driving Force 106 Consolidated Results by Quarter Behind Our Development 14 Hydro-Québec TransÉnergie – Corporate Administration An Evolving System 107 Corporate Management 20 Hydro-Québec Distribution – 108 Board of Directors Reliable, Efficient Service On the cover: 112 Activity Report of the Board of Excavating the 28 Hydro-Québec Équipement and SEBJ – Directors and Board Committees powerhouse (Baietailrace-James). for Eastmain-1-A Water will Expertise and Innovation: 116 Corporate Governance enter the tailrace after flowing through A Winning Combination the turbines. 120 Code of Ethics and Rules of Professional 34 Preparing for the Future with Innovation Conduct for Directors, Executives and Opposite: 38 Powering a Better Future Controllers of Hydro-Québec Kevin Drouin and Jean Gagné, of the Québec joint venture Neilson-EBC, 42 Powering the Québec Economy 124 Generating and Transmission Facilities excavating the intake, which will channel 48 Investing in Culture and Society 125 Major Facilities (map) the water into the powerhouse. At Hydro-Québec, we use primarily renewable energy—mainly hydropower, complemented by wind power—to meet the Powering a present and future needs of our customers. Our hydropower Clean and projects and wind power supply contracts are informed by Sustainable our concern for environmental protection, social acceptability Future and regional economic development. Our commitment to sustainability is further expressed through our energy efficiency programs and the importance we attach to technological innovation as a means of improving our performance and inventing solutions for the future. 2008 2007 Hydro-Québec Operations and Dividends ($M) at a Glance Revenue 12,717 12,330 Operating income 5,457 5,394 Income from continuing operations 3,012 2,882 Income from discontinued operations 129 25 Net income 3,141 2,907 Dividends declared 2,252 2,095 Balance Sheets ($M) Total assets 66,774 64,866 Long-term debt, including current portion and perpetual debt 36,415 34,534 Equity 22,062 20,892 Cash Flows ($M) Operating activities 5,015 5,159 Investing activities (4,210) (3,406) Financing activities (507) (1,744) Cash and cash equivalents 370 54 Ratios Interest coverage 2.12 2.13 Return on equity (%) 15.4 15.0 Profit margin from continuing operations (%) 23.7 23.4 Capitalization (%) 37.7 37.5 Self-financing (%) 44.9 61.9 145,5 Net Income 95,25 Revenue and Net Income by Segment x 0.036375 x 0.0079375 $M $M 12,000 4 000 10,602 4,000 10,508 10,000 3 500 3,741 3,500 8,000 3 000 6,997 3,141 6,752 3,000 6,000 2,907 2 500 2,500 4,000 2,435 2,822 2 000 2,785 2,252 3 741 2,416 2,137 2,150 2,000 2,077 2,000 3 141 1 500 481 421 396 2 907395 0 0 0 1,500 2 435 2 252 071 000 08 07 08 07 08 07 08 Generation Transmission Distribution Construction 1,000 500 Revenue Net income 500 0 0 2004 2005 2006 2007 2008 04 05 06 07 08 95,25 Total Assets by Segment 12 000 10 508 10 602 Net income totaled $3.1 billion, up $234 million from 2007.x This0.0027 increase 10 000 was due to growth of $380 million in $M 8 000 6 997 net electricity exports and a $126-million 6 752 gain related to the price adjustments 35,000 6 000 called for in the contract of sale for the 30,000 30,651 interest in Transelec, in Chile. These 4 00029,509 2 822 2 785 2 416 factors were offset by a $285-million 25,000 2 077 2 137 2 150 increase in water-power royalties. 2 000 20,000 481 396 395 421 0 0 17,158 16,707 15,000 0 12,274 Production Transport 11,833 Distribution Construction 10,000 5,000 360 0 263 07 08 07 08 07 08 07 08 Generation Transmission Distribution Construction PMs 632 - 100% PMs 632 - 70% PMs 632 - PMs50% 632 - 100% PMs 632 - PMs40% 632 - 70% PMs 632 - 50% PMs 632 - 40% Note: Certain comparative figures have been reclassified to reflect the presentation adopted for 2008. 2 HYDRO-QUÉBEC > annuaL REPort 2008 > Hydro-QUÉBEC at A GLANCE 100% K + 100% K + 35 000 100% K 30% K 15% K 100% K 30% K 15% K 25% pMS 632 25% pMS 632 26 250 17 500 29 509 30 651 8 750 16 707 17 158 11 833 12 274 0 263 360 Production Transport Distribution Construction PMs 632 - 100% PMs 632 - 70% PMs 632 - 50% PMs 632 - 40% 100% K + 100% K 30% K 15% K 25% pMS 632 2008 2007 2006 2005 2004 Customers and Sales Total customer accounts in Québec 3,913,444 3,868,972 3,815,126 3,752,510 3,701,275 Electricity sales in Québec (TWh) 170.4 173.2 167.3 169.2 165.9 Electricity sales outside Québec (TWh) 21.3 19.6 14.5 15.3 14.4 Number of Employeesa Permanent as at December 31 19,297 19,459 19,116 19,009 18,835 Temporary (year’s average) 4,048 3,910 3,799 3,577 3,567 Facilities Number of hydroelectric generating stations 59 57 55 54 53 Total installed capacity (MW)b 36,429 35,647 35,315 34,571 33,892 Peak power demand in Québec (MW)c 37,230 35,352 36,251 33,636 34,956 Lines (overhead and underground) Transmission (km) 33,058 33,008 32,826 32,544 32,487 Distribution (km)d 110,127 109,618 108,883 108,344 107,423 Number of transmission substations 510 509 508 505 506 Power Generation and Purchases Renewables (GWh)e 200,109 194,154 184,379 185,571 177,949 All generating sources (GWh) 206,603 208,156 196,236 195,035 190,513 Proportion of renewables (%) 97 93 94 95 93 a) Excludes employees of subsidiaries and joint ventures. b) Hydro-Québec also has access to almost all the output from Churchill Falls generating station (5,428 MW) and purchases all the output from eight privately owned wind farms with a total installed capacity of 530 MW. In addition, 1,277 MW are available under agreements with other independent suppliers. c) Total power demand at the annual domestic peak for the winter beginning in December, including interruptible power. d) These figures include off-grid systems but exclude private systems, lines under construction and 44-kV lines (transmission). e) Does not include wind energy purchases for which renewable energy certificates were sold to third parties. 145,5 Revenue, Average Rate 145,5 Dividends Declared 145,5 Investments in Property, Increase Index and and Capitalization Plant and Equipment, x 0.0104 Consumer Price Index x 0.058 x 0.0364 Intangible Assets and the EEPa $M $M % $M -95 x 4,157 donnée – 20 x 8.08 3 000 42 40 3,992 14,000 130 2,500 37.7 38 4,000 37.5 2 500 2 342 4 500 36.1 2 252 38 3,636 12,717 14 000 12 717 130 37,5 37,7 12,330 36 3,500 12 330 3,497 2 095 3 992 12,000 125 3,384 36,1 36 11 161 11,161 12 000 125 2,000 2,252 10 887 2 000 124,9 3 636 3,112 10,887 2,342 10 341 34 34,1 34 3 497 10,341 3,000 122,1 3 384 2,095 32,7 10,000 120 10 000 119,5 120 3 375 3 112 32 32.7 34.1 32 1 500 1 350 117,2 2,500 1,500 115,91 126 30 8,000 115 8 000 114,7 115 30 112,9 28 2,0001 000 6 000 109,9 110 28 26 6,000 110 1,350 2 250 1,000 1,500 114.7 117.2 119.5 122.1 124.9 4 000 105,4 105 24 1,126 104,126 500 4,000 105 22 2 000 1,000 100 24 500 0 1 125 20 2,000 100 0 2004 200595 2006 2007 2008 22 500 2004 2005 2006 2007 2008 104.1 105.4 109.9 112.9 115.9 0 95 0 20 0 04 05 06 07 08 04 05 06 07 08 04 05 06 07 08 0 Revenue Dividends declared a) EEP: Energy Effi ciency Plan Average rate increase index (1998 = 100) Capitalization Consumer Price Index (1998 = 100) Revenue rose by $387 million to $12.7 billion Dividends declared from 2004 to 2008 Cash from operations totaled $5.0 billion.
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