Michael Sabia Pitching Hydro-Quebec's $137 Billion Action Plan to Canada's Pensions?

Mathieu Hydro-Quebec’s CEO says $137 billion power plan is drawing attention:

The head of Hydro-Quebec said he’s confident the state-owned utility will find investors to back a massive expansion of a provincial electrical grid that’s expected to cost well over $100 billion.

Chief Executive Officer Michael Sabia is pitching what he calls an “Action Plan” that may amount as much as C$185 billion ($137 billion) to build new power generation capacity and improve transmission reliability by 2035. The plan, unveiled in November, would see Hydro-Quebec’s capacity increase by nearly 25%, allowing the utility to meet demand for hydroelectricity and fulfill its power export commitments to the US.

“The ambition of the Action Plan has managed to attract a considerable amount of attention in the financial markets,” Sabia said at a Wednesday press conference after the company released annual results. “We’ve also had a lot of very positive incoming from suppliers, from producers, people who are interested in building partnerships with us going forward.”

Hydro-Quebec is in its “very early days” of finding the right solutions to raise the money from different sources, said Sabia, who didn’t disclose who was interested. “We’re at the very beginning of having conversations with them about different ways in which we can partner.”

Partnerships don’t necessarily mean equity participation and public debt markets shouldn’t be “neglected,” he said.

“Bonds of Hydro-Quebec are both very green and very liquid,” Sabia said. “That is a significant financing competitive advantage.”

Hydro-Quebec has around C$50 billion of long-term debt outstanding, according to its annual report. The company, which has the fourth-highest investment grade rating with S&P Global Ratings, is able to raise funding at similar levels to the Province of Quebec, its sole shareholder. For example, Hydro-Quebec’s 5-year bond yield in Canada is around 3.94%, about 6 basis points wider than Quebec’s provincial yield curve, according to data compiled by Bloomberg.

Lower Profit

Hydro-Quebec reported annual profit of C$3.3 billion for last year, down 28% from a record 2022, partly due to below-average water levels at dam reservoirs that forced the utility to reduce electricity exports to the US. Quebec’s provincial government will receive a dividend of C$2.5 billion, slashed by about $900 million compared with last year.

I wasn't going to post tonight as I spent the day at the hospital preparing for a second back surgery but this article caught my attention.

Michael Sabia, former CDPQ CEO, is now Hydro Quebec's CEO and he knows all about the energy transition economy and the key role electrification will play in the future.

He also knows he won't have a problem raising C$185 billion ($137 billion) to build new power generation capacity and improve transmission reliability by 2035.

Michael is plugged into the Maple Eight, obviously knows Charles Emond very well and he knows he can pitch this idea to Canada's mighty pension funds or go to public markets to sell green bonds.

The advantage of going the private credit route via CDPQ and other large pension funds is he can get better terms and it's a mutually beneficial relationship as pensions have long dated liabilities they need to pay and this project will interest them either through equity stakes or a private debt loan.

In fact, if Michael pulls this off which he will, he might set in motion something that other large utilities can emulate, bypassing the Canada Infrastructure Bank altogether.

Yes, Hydro-Quebec is a behemoth and can easily do this with great long-term partners but I like these types of deals and we desperately need to ramp up our power generation capacity to keep up with growing demand and legislative changes forcing the decarbonization of our economy.

Anyways, it's still early days but I will be tracking Hydro-Quebec's new Action Plan very closely.

Below, Radio-Canada's Patrice Roy interviews Hydro-Quebec CEO Michael Sabia on the new Action Plan (in French).

Second, Hydro-Quebec CEO Michael Sabia unveils new action plan and explains why Quebec needs to build new damns (in French).

Lastly, Michael Sabia presents his vision for Hydro-Quebec's Action Plan. Michelle Courchesne, Jean-François Lisée, Françoise Boivin and Dimitri Soudas discuss (in French).