Case 4 Hydro Quebec And The Great Whale Project

Topics: Quebec, Hydroelectricity, Hydro-Québec Pages: 16 (6078 words) Published: April 22, 2015
A06-97-0020

Hydro-Quebec and the
Great Whale Project
In February 1992, managers at Hydro-Quebec were concerned about the possible cancellation of a major contract to export electricity to the New York Power Authority (NYPA). The agreement, which was set to run for 21 years and was worth $17 billion in revenue, formed the backbone of a massive effort by Hydro-Quebec to further expand electrical generation in the north of the province. While a contract had been signed more than two years earlier, it was still subject to confirmation by both parties. At the request of NYPA, the original ratification deadline of November 30, 1991 had already been extended by one year. Now, political pressures from environmental groups in the United States, along with reduced demand forecasts for Northeast U.S. power needs, were causing New York State officials to consider terminating the deal.

For Hydro-Quebec, cancellation of the contract would have a severe impact on the economics of the project named after the Great Whale River, a major waterway in northern Quebec. Managers at Hydro-Quebec realized that as a government-owned utility, a decision to halt development could also have far-reaching effects on Quebec’s economy, as well as adversely influence the province’s economic leverage in ongoing Canadian constitutional talks. A decision to proceed would carry its own economic risks, namely whether the massive amounts of electricity generated could be sold at a price that would cover both fixed and variable costs. In addressing the trade-offs, managers at Hydro-Quebec realized that fixed costs were influenced in part by the nature and extent of concessions offered to expedite construction. How to proceed was anything but clear.

Hydro-Quebec And James Bay
Hydro-Quebec was created in 1944 by the Quebec parliament as a government-owned utility. Under its charter of incorporation, Hydro-Quebec’s mandate was to provide energy to industrial and commercial enterprises as well as to Quebec citizens through municipal distributors. With the backing of the province, Hydro-Quebec took control over essentially all electrical generation in the province, thereby streamlining production, eliminating redundancies, and encouraging the development of new sources of power generation. Copyright © 1993 Thunderbird, The American Graduate School of International Management and The University of Western Ontario. All rights reserved. This case was prepared by Professor Allen J. Morrison and Detlev Nitsch for the purpose of classroom discussion only, and not to indicate either effective or ineffective management. Certain identifying information may have been disguised to protect confidentiality. Partial funding was provided by the Canadian Public Relations Society.

In the late 1960s, Hydro-Quebec officials became increasingly convinced of the huge potential of the province’s northern regions for hydroelectric power generation. Shaped by ice-age glaciers, northern Quebec was covered with thousands of lakes and fast running rivers. Advocates of commercializing the hydroelectric potential of the region argued that every day millions of potential kilowatt-hours of electrical energy flowed out to sea. The energy potential from the James Bay region of the province was regarded as particularly high. If fully developed, estimates of power generation from the James Bay region topped 30,000 megawatts (MW) at peak production.

Set against this generating potential was the growing demand for electricity in Quebec and the Northeast United States. Throughout the 1970s, Quebec and Northeast U.S. electrical energy demand was predicted to rise at an average annual rate of over 7%. The forecast growth for the 1984 to 1993 period was considerably less at 2.7% for the U.S. and 3.1% for Canada. However, even this more modest rate of growth would require huge increases in generating capacity over the next decade. The cost and pollution associated with coal and oil-fired...
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