Hydro-Québec is still generating billions of dollars in profits, but an unusually prolonged shortage of water is creating serious challenges for Canada’s largest electricity producer. The provincially owned utility reported $2.6 billion in net income for the first nine months of 2026, even as four consecutive years of exceptionally low water inflows placed growing pressure on its hydroelectric operations.
With reservoirs receiving less water than normal and electricity demand reaching historic levels during the winter, Hydro-Québec is being forced to reconsider how much power it can afford to sell outside the province. The company is reducing short-term exports, increasing electricity purchases and investing billions in infrastructure. Its latest financial results reveal how difficult it has become to balance profitability, energy security and growing electricity demand.
Strong Profits Hide Growing Financial Pressures
Hydro-Québec’s latest financial results demonstrate that the Crown corporation remains profitable despite increasingly difficult operating conditions. For the first nine months of 2026, the utility recorded net income of $2.6 billion, compared with $2.83 billion during the same period in 2025. The $230-million decline represents a decrease of approximately 8.1%. However, revenues moved in the opposite direction, climbing by $744 million to nearly $14 billion. The third quarter was particularly notable, with net income reaching $580 million, up from $553 million a year earlier. These figures suggest that electricity demand and new commercial arrangements continue to support the business, even as the underlying costs of supplying power become more difficult to manage. For a publicly owned utility responsible for delivering electricity across Québec, the challenge is not simply earning money but maintaining reliable service while dealing with increasingly unpredictable water conditions.
One of the biggest pressures comes from purchasing electricity outside the company’s own generating system. During the first three quarters of 2026, electricity purchase expenses reached $3.63 billion, an increase of $987 million from the corresponding period in 2025. These additional costs reflected the need to meet elevated winter demand and replenish hydroelectric reserves following years of weak water inflows. The year-over-year profit comparison was also affected by a one-time $256-million gain recorded in 2025 from the disposal of Hydro-Québec’s investment in Innergex Renewable Energy. Meanwhile, domestic electricity sales increased by $549 million, supported by colder winter conditions, electricity rate adjustments and industrial contract revenues. The overall picture is therefore more complicated than a simple decline in profits. Hydro-Québec is continuing to earn substantial income, but changing weather patterns and higher operating costs are reshaping how that money is generated and spent.
Four Exceptionally Dry Years Create an Unprecedented Water Challenge
Hydro-Québec’s most pressing challenge is not a lack of generating equipment but an unusually prolonged shortage of the water needed to produce electricity. According to the utility, the period beginning in 2023 represents the four driest consecutive years for natural water inflows since hydrological records began in the 1940s. Reduced precipitation and weaker spring runoff have limited the amount of water reaching reservoirs, creating difficult operating conditions across its hydroelectric system. Hydro-Québec relies on 28 major reservoirs that function much like enormous natural batteries, storing water that can be converted into electricity when demand increases. Unlike conventional batteries, however, these reservoirs depend on rainfall, snowmelt and river flows to replenish their stored energy. When those natural supplies remain below normal for several consecutive years, the company has less flexibility to increase generation without drawing further on reserves that may be needed during a future winter.
The situation became particularly challenging during the winter of 2026, when extreme cold pushed electricity demand to unprecedented levels. In January, demand exceeded 38,000 megawatts for seven consecutive days, with temperatures averaging approximately 9°C below seasonal norms during that period. For households relying on electric heating, particularly during overnight cold spells, these conditions translate into significant electricity consumption. Businesses and industrial customers also require reliable supplies regardless of the weather. Domestic electricity sales consequently reached a record 135.5 terawatt-hours during the first nine months of the year. Hydro-Québec must therefore manage two competing pressures: preserving enough stored water for periods of exceptionally high demand while allowing reservoirs to recover from several years of weak inflows. The company has emphasized that maintaining Québec’s energy security remains its priority. Although low runoff does not automatically mean electricity shortages for customers, it reduces the utility’s ability to operate as freely as it could during years with abundant water.
Electricity Export Limits Come as New U.S. Contracts Boost Revenue
Hydro-Québec’s response to the water shortage is already changing its electricity trading activities with neighbouring markets. The utility has confirmed that it must limit short-term electricity sales outside Québec to preserve its reserves and protect domestic energy security. During the first nine months of 2026, short-term export volumes declined by 2.7 terawatt-hours compared with the previous year. However, total revenue from electricity sales outside Québec actually increased by $427 million to $1.85 billion. Much of that growth resulted from new long-term contracts connected to two major transmission projects. The New England Clean Energy Connect interconnection began commercial operation in January, while the Champlain Hudson Power Express connection to New York City entered commercial operation in May. These projects have expanded Hydro-Québec’s ability to deliver electricity to American customers, even as water shortages restrict how much additional power the utility can sell through short-term markets.
At the same time, Hydro-Québec has been purchasing substantially more electricity from neighbouring jurisdictions. According to figures reported by Le Journal de Montréal, the utility bought approximately 13.9 terawatt-hours from the United States and Ontario during the first nine months of 2026, compared with 15.2 terawatt-hours throughout all of 2025. Hydro-Québec reported an average electricity selling price of approximately 15 cents per kilowatt-hour on external markets during the first three quarters, while short-term purchases averaged around 8 cents per kilowatt-hour. These figures should not be interpreted as a simple seven-cent profit margin, since purchases and sales occur under different market conditions, contractual arrangements and accounting treatments. Instead, the strategy reflects a broader effort to buy electricity when prices are favourable, preserve stored water and fulfill contractual obligations. Chief financial officer Maxime Aucoin has also indicated that the company has some contractual flexibility to adjust U.S. deliveries during exceptional cold-weather events. The commercial challenge is substantial: cross-border electricity contracts can generate valuable long-term revenue, but they cannot eliminate the physical limitations created by prolonged water shortages.
Hydro-Québec Invests Billions as Future Electricity Shortages Become a Growing Concern
Despite the financial pressures created by low water levels, Hydro-Québec is maintaining an ambitious investment program intended to strengthen its electricity system and prepare for future demand. During the first nine months of 2026, the utility invested approximately $5.5 billion, compared with $5.25 billion during the equivalent period in 2025. Its capital spending included $3.25 billion dedicated to maintaining and modernizing existing assets, alongside $1.63 billion for development projects. Work has continued at generating facilities including Rapide-Blanc, Carillon and Bersimis-2, while investments in transmission infrastructure and electrical equipment are intended to improve system performance. These projects are particularly important for communities that depend on reliable electricity during harsh winter conditions. However, infrastructure improvements alone cannot eliminate the effects of prolonged low water inflows. Modernized generating stations may operate more efficiently, but the amount of electricity they can produce remains dependent on available water and the capabilities of the broader power system.
The longer-term outlook presents an even greater challenge. In its electricity supply planning for 2027 through 2041, Hydro-Québec projects that annual provincial electricity needs could increase by approximately 60 terawatt-hours, reaching 240 terawatt-hours by 2041. Winter peak demand is also expected to climb to approximately 52,000 megawatts. Growing industrial activity, transportation electrification and other forms of energy transition are expected to drive much of this additional consumption. According to reporting by The Canadian Press, the utility’s projections indicate that supply gaps could emerge as early as 2029 without sufficient new resources, potentially increasing its dependence on electricity purchases from neighbouring jurisdictions. Hydro-Québec is responding with plans to expand renewable generation, modernize existing facilities, develop energy storage and improve electricity efficiency. Its objectives include saving 21 terawatt-hours annually through efficiency initiatives by 2035. Ultimately, the company’s latest results illustrate that financial profitability and long-term energy security are different challenges. Hydro-Québec remains a major economic asset for Québec, but continued investment, careful reservoir management and greater supply flexibility will be essential to maintaining that position.
