Hydro-Quebec. 83HB 3rd Quarter Results

  Hydro-Quebec. (83HB) - 3rd Quarter Results

RNS Number : 1520S
Hydro-Quebec
27 November 2012




Regulatory Announcement





Hydro-Québec

27 November 2012









Re:  Hydro-Québec's   Quarterly  Report   for  the   third  quarter   ended 
September30, 2012

A copy of this document has  been submitted to the National Storage  Mechanism 
and is available for inspection at: http://www.morningstar.co.uk/uk/NSM

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/1520S_-2012-11-27.pdf

For further information, please contact:

Stéphane Pépin
Director - International Financing, Cash and Financial Services
Hydro‑Québec
Telephone Number: 1-514-289-2210
Fax Number: 1-514-289-5143



Hydro-Québec

                                                              Quarterly Report

                                                            Third Quarter 2012

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

Third quarter

The result from continuing  operations amounted to  $376million in the  third 
quarter of 2012, compared to $404million in 2011. The difference is due to  a 
$61‑million reduction in the  net result from  special contracts with  certain 
large industrial customers  in Québec on  account of aluminum  prices and  the 
exchange rate, as  well as to  electricity purchases of  $45million from  Rio 
Tinto Alcan. These  factors were partly  offset by a  $51‑million increase  in 
revenue from net electricity exports by Hydro-Québec Production.

Summary of operations for the first three quarters

For the  nine months  ended September  30, 2012,  the result  from  continuing 
operations was $2,121million, compared to $2,271million for the same  period 
last year. The difference is partly attributable to a decrease in revenue from
electricity sales in Québec  owing to lower demand,  mainly in the  industrial 
sector, which had an impact  of $89million. It is  also due to a  $99‑million 
decrease  in  the  net  result  from  special  contracts  with  certain  large 
industrial customers in Québec on account of aluminum prices and the  exchange 
rate, as  well as  to electricity  purchases of  $119million from  Rio  Tinto 
Alcan. These factors were partly offset  by a $34‑million increase in  revenue 
from Hydro-Québec Production's  net electricity exports  and by a  $47-million 
reduction in financial expenses. Cash flows from operating activities  totaled 
$3,230million as at September30, 2012.



In September 2012, following the decision to abandon the project to  refurbish 
Gentilly‑2 nuclear generating station,  Hydro-Québec posted a negative  result 
from discontinued  operations  that  essentially  stems  from  the  accounting 
treatment of  the facility's  definitive shutdown  at the  end of  2012.  More 
specifically, the abandonment  of the refurbishment  project and the  imminent 
shutdown of Gentilly‑2 led to a  write-off of $978million in property,  plant 
and equipment under construction and to the recognition of an asset impairment
charge of  $827million,  for  a  total of  $1,805million.  The  result  from 
discontinued  operations  also  includes   a  negative  operating  result   of 
$51million. It should be noted that  this accounting treatment has no  impact 
on the cash flows from operating activities.



When the discontinued operations are factored in, the net result for the first
nine months  of  the  year  amounted to  $265million  in  2012,  compared  to 
$2,237million in 2011.



Consolidated operations for the first three quarters

Revenue totaled $9,006million, compared to $9,132million in 2011.



In Québec,  revenue  from electricity  sales  amounted to  $7,674million,  or 
$317million less  than  in  2011,  mainly  because  of  the  effect  of  mild 
temperatures in 2012 and  lower demand, especially  in the industrial  sector. 
Revenue from special  contracts with  certain large  industrial customers  was 
also lower than in 2011 on account of aluminum prices and the exchange rate.



On markets outside  Québec, revenue from  electricity sales was  $961million, 
comparable to last year's level.



Other revenue totaled $371million, a $192-million increase over 2011 that  is 
mainly due  to the  amounts that  Hydro-Québec will  be able  to recover  from 
customers, primarily for revenue variances related to climate conditions given
the mild temperatures in 2012.



Total expenditure  amounted to  $5,086million, or  $71million more  than  in 
2011, mainly on account of the $119million in electricity purchases from  Rio 
Tinto  Alcan.  On  the   other  hand,  Hydro-Québec  Production's   short-term 
electricity purchases decreased by $66million.

Segmented
operations for the first three quarters

Generation

Hydro-Québec  Production  posted  a  result  from  continuing  operations   of 
$1,208million, compared to $1,492million in 2011. This $284-million decrease
is due  to an  $89-million  reduction in  revenue  from electricity  sales  to 
Hydro-Québec Distribution on account of the  mild temperatures in 2012 and  of 
lower demand in  Québec. In addition,  the net result  from special  contracts 
with certain large  industrial customers  in Québec,  assumed by  Hydro-Québec 
Production, was $99million lower than in 2011 because of aluminum prices  and 
the exchange rate, and the division made electricity purchases of $119million
from Rio Tinto Alcan. On the other hand, revenue from net electricity  exports 
increased by $34million with respect to last year.



Hydro-Québec Production  also recorded  a  negative result  from  discontinued 
operations  of  $1,847million  on  account  of  the  definitive  shutdown  of 
Gentilly-2 nuclear generating station at the end of 2012.

Transmission

Hydro-Québec   TransÉnergie's   result   from   continuing   operations    was 
$478million, a  $54-million increase  over 2011  that is  due to  a  positive 
change of $25million in the amounts that Hydro-Québec is entitled to  recover 
from customers  for  variances  in revenue  from  point-to-point  transmission 
services, among other  things. In  addition, financial  expenses decreased  by 
$47million.



Hydro-Québec TransÉnergie  also posted  a  negative result  from  discontinued 
operations of $9million on account  of the definitive shutdown of  Gentilly-2 
nuclear generating station at the end of 2012.

Distribution

Hydro-Québec Distribution  recorded a  result  from continuing  operations  of 
$346million,  an  increase  of  $80million  over  last  year.  Revenue  from 
electricity sales decreased  by $229million,  mainly on account  of the  mild 
temperatures in 2012 and lower demand,  mostly in the industrial sector.  This 
decrease was offset by a positive  change of $152million in the amounts  that 
Hydro-Québec will be  able to  recover from customers,  primarily for  revenue 
variances related to climate conditions, as well as by a $108-million decrease
in electricity  purchases  from  Hydro-Québec  Production  and  a  $49-million 
reduction in financial expenses.

Construction

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



Work  handled  by  Hydro-Québec   Équipement  et  services  partagés   totaled 
$1,429million, compared  to  $1,245million  in 2011.  Among  other  projects 
carried out for Hydro-Québec  Production, the division continued  construction 
of the  Romaine  complex. Work  done  for Hydro-Québec  TransÉnergie  included 
connecting Romaine-2 generating station, integrating output from wind farms as
well  as  various  projects  stemming  from  continued  investment  in   asset 
sustainment, among other things.



As for SEBJ,  its volume  of activity  amounted to  $122million, compared  to 
$244million last  year.  In January  2012,  the  Eastmain-1-A/Sarcelle/Rupert 
project reached  an important  milestone with  the commissioning  of the  last 
generating unit at Eastmain-1-A powerhouse.

Investment

In the  first nine  months of  2012, Hydro-Québec  invested $2,627million  in 
property, plant  and equipment  and intangible  assets, including  the  Energy 
Efficiency  Plan,  compared  to  $2,619million   in  2011.  As  expected,   a 
largeportion  of  this  amount  was   devoted  to  the  major   hydroelectric 
development    projects     of     Hydro-Québec     Production,     especially 
Eastmain‑1‑A/Sarcelle/Rupert and the Romaine complex.



Hydro-Québec TransÉnergie continued investing in its transmission system. Work
progressed on the 735-kV line  that will connect Romaine-2 generating  station 
with Arnaud substation. The division 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 as  well as to  maintain and improve  the quality of  its 
facilities, especially  those related  to distribution  system automation.  It 
also continued implementation of the Energy Efficiency Plan.

Financing

During  the  third  quarter  of  2012,  Hydro-Québec  issued  $500million  of 
debentures on the Canadian market, bearing  interest at 5.00% and maturing  in 
February 2050. This financing is in addition to the US$1,000million raised in
the first half  of the year.  The funds will  be used to  support part of  the 
investment program and to refinance maturing debt.

/s/ Michael L. Turcotte /s/ Thierry Vandal
Michael L. Turcotte     Thierry Vandal
Chairman of the Board   President and Chief Executive Officer



November 16, 2012

CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)





CONSOLIDATED STATEMENTS OF OPERATIONS

In millions of Canadian dollars           Three months ended Nine months ended
(unaudited)                                     September30      September30
                                    Notes      2012    2011      2012   2011
Revenue                               3       2,619    2,611     9,006   9,132
Expenditure
Operations                                      551      537     1,770   1,695
Electricity and fuel purchases                  295      266       901     852
Depreciation and amortization         4         576      593     1,740   1,812
Taxes                                           212      202       675     656
                                              1,634    1,598     5,086   5,015
Operating result                                985    1,013     3,920   4,117
Financial expenses                    5         609      609     1,799   1,846
Result from continuing operations               376      404     2,121   2,271
Discontinued operations               6
Operating result                               (28)     (21)      (51)    (34)
Write-off of property, plant and
equipment under construction                  (978)        -     (978)       -
Impairment of nuclear generating
station assets                                (827)        -     (827)       -
Result from discontinued operations         (1,833)     (21)   (1,856)    (34)
Net result                                  (1,457)      383       265   2,237





CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

In millions of Canadian dollars  Three months ended Nine months ended
(unaudited)                            September30      September30
                                      2012     2011     2012     2011
Balance, beginning of period        16,340   15,819   14,618   13,965
Net result                         (1,457)      383      265    2,237
Balance, end of period              14,883   16,202   14,883   16,202











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







CONSOLIDATED BALANCE SHEETS

In millions of Canadian dollars   Notes As at September30, As at December31,
(unaudited)                                            2012               2011
ASSETS
Current assets
Cash and cash equivalents                             1,095              1,377
Short-term investments                                  945              1,102
Accounts receivable and other
receivables                                           1,509              1,744
Derivative instruments                                1,476              1,322
Regulatory assets                                        20                 18
Materials, fuel and supplies                            193                236
                                                      5,238              5,799
Property, plant and equipment       7                56,731             56,901
Intangible assets                                     2,133              2,187
Investments                                             136                124
Derivative instruments                                1,187              1,313
Regulatory assets                                        10                 21
Other assets                                          3,604              3,292
                                                     69,039             69,637
LIABILITIES
Current liabilities
Borrowings                                              524                 52
Accounts payable and accrued
liabilities                                           1,800              2,099
Dividend payable                                          -              1,958
Accrued interest                                        466                862
Asset retirement obligations        8                   114                 12
Derivative instruments                                  629                261
Current portion of long-term debt                       682              1,025
                                                      4,215              6,269
Long-term debt                                       41,804             40,744
Asset retirement obligations        8                   824                528
Derivative instruments                                2,001              2,098
Other long-term liabilities                             932                883
Perpetual debt                                          272                281
                                                     50,048             50,803
EQUITY
Share capital                                         4,374              4,374
Retained earnings                                    14,883             14,618
Accumulated other comprehensive
income                                                (266)              (158)
                                                     14,617             14,460
                                                     18,991             18,834
                                                     69,039             69,637
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                         Michael L. Turcotte
Chair of the Audit Committee          Chairman of the Board

CONSOLIDATED STATEMENTS OF CASH FLOWS

In millions of Canadian dollars           Three months ended Nine months ended
(unaudited)                                     September30      September30
                                    Notes      2012     2011     2012     2011
Operating activities
Net result                                  (1,457)      383      265    2,237
Adjustments to determine net cash
flows
from operating activities
Depreciation and amortization         4         581      598    1,754    1,826
Amortization of premiums, discounts
and
issue expenses related to debt
securities                            5          57       29      213       80
Write-off of property, plant and
equipment
under construction                    6         978        -      978        -
Impairment of nuclear generating
station assets                        6         827        -      827        -
Other                                            57     (65)       21      187
Change in non-cash working capital
items                                 9       (103)      198    (531)    (505)
Net change in accrued benefit
assets and liabilities                        (101)    (151)    (297)    (390)
                                                839      992    3,230    3,435
Investing activities
Additions to property, plant and
equipment                                     (969)    (865)  (2,497)  (2,429)
Additions to intangible assets                 (44)     (62)    (130)    (190)
Cash receipts from the government
reimbursement
for the 1998 ice storm                            3        2        6        5
Net disposal (acquisition) of
short-term investments                           83    (141)      166      797
Other                                             4        8       92       16
                                              (923)  (1,058)  (2,363)  (1,801)
Financing activities
Issuance of long-term debt                      661      593    1,675    4,090
Repayment of long-term debt                   (708)    (520)  (1,330)  (2,553)
Cash receipts arising from credit
risk management                                 954    1,188    3,726    2,982
Cash payments arising from credit
risk management                             (1,548)    (720)  (3,724)  (2,671)
Net change in borrowings                      (319)     (70)      468        2
Dividend paid                                     -        -  (1,958)  (1,886)
Other                                           (1)        -      (2)      (1)
                                              (961)      471  (1,145)     (37)
Foreign currency effect on cash and
cash equivalents                                (5)        8      (4)        6
Net change in cash and cash
equivalents                                 (1,050)      413    (282)    1,603





Cash and cash equivalents,
beginning of period                           2,145    1,270    1,377       80
Cash and cash equivalents, end of
period                                        1,095    1,683    1,095    1,683
Supplementary cash flow information   9

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

In millions of Canadian dollars           Three months ended Nine months ended
(unaudited)                                     September30      September30
                                                2012    2011     2012     2011
Net result                                   (1,457)     383      265    2,237
Other comprehensive income
Change in deferred (losses) gains on
items
designated as cash flow hedges                 (123)     104      102      104
Reclassification to operations of
deferred gains on items designated as
cash flow hedges                                (68)    (76)    (210)    (203)
                                               (191)      28    (108)     (99)
Comprehensive income                         (1,648)     411      157    2,138

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 September30, 2012 and 2011

Amounts shown in tables are in millions of Canadian dollars.

Note 1 Basis of Presentation

In September 2010, the Canadian  Accounting Standards Board (AcSB)  authorized 
rate-regulated entities  to  defer  the adoption  of  International  Financial 
Reporting Standards  (IFRS) until  January1, 2012,  or the  beginning of  the 
first fiscal year  starting after  that date. In  May 2012,  the AcSB  granted 
these entities an optional one-year extension to make the changeover to  IFRS. 
Since Hydro-Québec was entitled to exercise these deferral rights, it opted to
prepare its 2011  and 2012  financial statements in  accordance with  Canadian 
generally accepted accounting principles (GAAP) as set forth in PartV of  the 
Canadian  Institute   of  Chartered   Accountants  Handbook,   "Pre-Changeover 
Accounting Standards."  In  October  2012,  the  AcSB  granted  rate-regulated 
entities  an   additional  one-year   extension   to  make   the   transition. 
Consequently,  Hydro-Québec  could  decide  to  present  its  2013   financial 
statements in accordance with Canadian GAAP.

Hydro-Québec's consolidated financial statements also reflect the decisions of
the Régie de l'énergie (the "Régie"). These decisions may 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  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 2011.

The accounting policies used to  prepare the quarterly consolidated  financial 
statements are consistent with those presented in Hydro-Québec's Annual Report
2011.

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 Effects of Rate Regulation on the Consolidated Financial
Statements

Adoption of IFRS-compliant accounting policies

In decision  D-2012-021 of  March2,  2012, the  Régie authorized  changes  to 
certain accounting  policies  applied by  the  Transmission Provider  and  the 
Distributor for  rate-setting purposes,  in order  to ensure  compliance  with 
IFRS.

These  changes  concern  the  recognition  of  costs  related  to  the  Energy 
Efficiency Plan according  to IAS38,  Intangible Assets,  the recognition  of 
asset retirement  obligations  according  to  IAS37,  Provisions,  Contingent 
Liabilities  and  Contingent   Assets,  and  IFRIC1,   Changes  in   Existing 
Decommissioning, Restoration and Similar  Liabilities, and the recognition  of 
employee benefits according to IAS19, Employee Benefits. In addition, the net
amount of accrued benefit assets and liabilities is no longer included in  the 
rate base. These  changes have  been taken into  account in  setting the  2012 
rates of the Transmission Provider and the Distributor.

Transmission

In decision D-2012-066  of June6,  2012, the Régie  set Hydro-Québec's  power 
transmission rates for 2012. The authorized return on the rate base was set at
6.84%, assuming a capitalization with 30% equity.

Distribution

In  decision  D-2012-035   of  March28,   2012,  the   Régie  authorized   an 
across-the-board reduction  of  0.45%  in  Hydro-Québec's  electricity  rates, 
effective April1, 2012.  The authorized return  on the rate  base was set  at 
6.80%, assuming a capitalization with 35% equity.

In decision D-2012-024 of March8, 2012, the Régie allowed the Distributor  to 
create deferred-expense accounts  bearing interest at  the authorized rate  on 
the rate base,  in order to  recognize expenses relating  to projects of  more 
than $10million that were  integrated into a rate  application, but that  are 
pending approval at the  time the decision on  the rate application is  handed 
down. As at September30, 2012, an amount of $9million had been recognized as
a regulatory asset in this regard.



Note 3 Revenue

                    Three months ended Nine months ended
                          September30      September30
                         2012     2011     2012     2011
Electricity sales^a     2,538    2,532    8,635    8,953
Other                      81       79      371      179
                        2,619    2,611    9,006    9,132

a) Including unbilled electricity deliveries, which totaled $631million as
at September30, 2012 ($632 million as at September30, 2011).

Note 4 Depreciation and Amortization

                                Three months ended Nine months ended
                                      September30      September30
                                     2012     2011     2012     2011
Property, plant and equipment^a       495      547    1,516    1,623
Intangible assets                      61       53      181      158
Regulatory assets                       4        1       15        9
Disposals of capital assets            16      (8)       28       22
                                    576^b    593^b  1,740^b  1,812^b

a) The revision of the useful life of property, plant and equipment in  2012 
resulted in a $54-million decrease in  the depreciation expense for the  three 
months ended September30, 2012, and in  a $129-million decrease for the  nine 
months then ended. For 2012,  it should result in a  decrease on the order  of 
$183 million. As part  of this revision, the  maximum depreciation period  for 
some hydroelectric generation  assets increased from  100 to 120years,  while 
the maximum  period  for  certain  transmission  line  and  substation  assets 
increased from 50 to 70 years and for certain distribution line and substation
assets, from 40 to  60years. The 2011 revision  had no significant impact  on 
the  depreciation  expense  for  the  three-  and  nine-month  periods   ended 
September30, 2011.

b) The depreciation and amortization  expense presented in the  consolidated 
statements of  cash flows  also includes  an amount  of $5million  for  assets 
related to discontinued  operations for the  three months ended  September30, 
2012 ($5million in 2011)  and of $14million for  the nine months then  ended 
($14 million in 2011).

Note 5 Financial Expenses

                                          Three months ended Nine months ended
                                                September30      September30
                                               2012     2011     2012     2011
Interest
Interest on debt securities                     588      630    1,684    1,873
Amortization of premiums, discounts and
issue expenses
related to debt securities                       57       29      213       80
                                                645      659    1,897    1,953
Net exchange loss (gain)                          5     (21)        5     (12)
Guarantee fees related to debt securities        50       47      148      141
                                                 55       26      153      129
Less
Capitalized financial expenses                   84       72      231      226
Net investment income                             7        4       20       10
                                                 91       76      251      236
                                                609      609    1,799    1,846

Note 6 Discontinued Operations

In September 2012, the decision was  made to abandon the project to  refurbish 
Gentilly‑2 nuclear generating station. The facility will continue to  generate 
electricity until the end of 2012, in accordance with the terms and conditions
of its operating licence, after which time Hydro-Québec will start to  prepare 
it for dormancy with a view to dismantling it around the year 2060.

The abandonment  of the  refurbishment project  led to  the write-off  of  the 
property, plant and equipment under construction as part of this project,  for 
a total amount of $978million.

Gentilly-2's operating result  is presented under  discontinued operations  in 
the consolidated  statements  of operations  for  all periods  concerned.  For 
segmented  information  purposes,  these   activities  are  classified   under 
Generation and Transmission.

In  addition,   as  indicated   in  Note8,   Asset  Retirement   Obligations, 
Hydro-Québec had  to review  the key  assumptions underlying  the  calculation 
parameters and estimated amount of the asset retirement obligations related to
the dismantling of Gentilly‑2 at the  end of its useful life, particularly  as 
regards the start date of work, which was moved forward. This review  resulted 
in a $365‑million increase in the asset retirement obligations related to  the 
facility and in the facility's carrying amount.

Since the refurbishment project was  abandoned, Hydro-Québec also had to  test 
the nuclear facility's  assets for  impairment. The carrying  amount of  these 
assets, including the increase in the asset retirement obligations related  to 
the facility's  dismantling,  was compared  to  their fair  value,  which  was 
determined using the discounted cash flow  method. As a result, an  impairment 
charge of $827million was recognized.

The following  table provides  a  breakdown of  the result  from  discontinued 
operations:

                                          Three months ended Nine months ended
                                                September 30      September 30
                                               2012    2011      2012   2011
Operating result
Revenue                                          14       33       102     139
Expenditure                                      42       54       153     173
                                               (28)     (21)      (51)    (34)
Write-off of property, plant and
equipment
under construction                            (978)        -     (978)       -
Impairment of nuclear generating station
assets
Property, plant and equipment^a               (795)        -     (795)       -
Materials, fuel and supplies                   (32)        -      (32)       -
                                              (827)        -     (827)       -
                                            (1,833)     (21)   (1,856)    (34)

a)  Including  the$365-million  increase  in  asset  retirement  obligations 
related to the generating station's dismantling.



Note 7 Property, Plant and Equipment

                                                                         As at
En                                                               September30,
                                                                          2012
                                       Accumulated        Under   Net carrying
                           In service depreciation construction         amount
Generation
Hydraulic                      40,140       14,678        3,566         29,028
Thermal                           781          733            1             49
Nuclear^a                       2,329        2,329            -              -
Other^a                           769          478           20            311
                               44,019       18,218        3,587         29,388
Transmission
Lines and substations^a        24,575        9,185        1,468         16,858
Other^a                         2,237        1,344          157          1,050
                               26,812       10,529        1,625         17,908
Distribution
Lines and substations          13,334        5,832          430          7,932
Other                           2,031        1,155          165          1,041
                               15,365        6,987          595          8,973
Construction                       28           17            1             12
Corporate and Other
Activities                      1,098          736           88            450
                               87,322       36,487        5,896         56,731

a) The abandonment of the project to refurbish Gentilly-2 nuclear generating
station led to  the recognition of  an impairment charge  of $795million  for 
property, plant and equipment in service and to a write-off of $978million in
property, plant and equipment under construction as at September30, 2012,  as 
indicated in Note 6, Discontinued Operations.





                                                                         As at
                                                                  December31,
                                                                          2011
                                        Accumulated        Under  Net carrying
                            In service depreciation construction        amount
Generation
Hydraulic                       39,723       14,205        2,857        28,375
Thermal                            782          721            -            61
Nuclear                          1,921        1,550          852         1,223
Other                              764          441           15           338
                                43,190       16,917        3,724        29,997
Transmission
Lines and substations           24,478        8,729          806        16,555
Other                            2,248        1,318          104         1,034
                                26,726       10,047          910        17,589
Distribution
Lines and substations           13,082        5,605          375         7,852
Other                            2,001        1,113          120         1,008
                                15,083        6,718          495         8,860
Construction                        27           16            1            12
Corporate and Other
Activities                       1,085          700           58           443
                                86,111       34,398        5,188        56,901

Note 8 Asset Retirement Obligations

The abandonment  of the  project to  refurbish Gentilly-2  nuclear  generating 
station, as indicated in Note6, Discontinued Operations, prompted a review of
the key assumptions underlying the calculation parameters and estimated amount
of the asset retirement obligations related to the dismantling of the facility
at the end of its useful life. The  main impact of this review was to  advance 
the start of work by 27years.

The aggregate  carrying  amount of  the  asset retirement  obligations  is  as 
follows:

                                                            As at        As at
                                                    September30, December31,
                                                             2012         2011
                               Removal                   
                  Dismantling       of
                   of nuclear   spent  Dismantling       
                   generating  nuclear           of
                      station     fuel otherassets         Total        Total
Balance,
beginning of
period                    208      201          131           540          504
Liabilities
incurred                    -       12            -            12           21
Accretion expense           8       13            4            25           34
Liabilities
settled                     -      (1)          (3)           (4)          (4)
Revision of
estimated cash
flows and                                                                    
expected timing
of payments               365        -            -           365         (15)
Balance, end of
period                    581      225          132           938          540
Less
Current portion            92        2           20           114           12
                          489      223          112           824          528



The carrying  amount of  the  asset retirement  obligations  is based  on  the 
following key assumptions:

                              Dismantling of
                                     nuclear       Removal of
                                  generating    spentnuclear   Dismantling of
                                     station             fuel     otherassets
Estimated cash flows (in
constant dollars)                                                          
required to settle the
obligations^a                                                              

As at September30, 2012               1,186              662              171

As at December31, 2011                  951              624              173
                                                                           

Expected timing of payment                                                 
of the cash flows required
to settle the obligations       Between 2013 Between 2012 and Between 2012 and
                                    and 2062             2164             2092
As at September30, 2012
                                Between 2040 Between 2012 and Between 2012 and
As at December 31, 2011             and 2071             2164             2092
Credit quality-adjusted,
risk-free rate (%)                                                           
                                           
Initial recognition of                                        Between 1.0 and
obligations                              6.4                               6.4
                                                          6.4
Subsequent recognition of    Between 5.0 and                   Between 1.3 and
obligations                              5.7      5.5 and 5.7              6.1

a) Inflation rates ranging between 1.9% and 3.7% were used to determine  the 
asset retirement obligations.

Note 9 Supplementary Cash Flow Information

                                          Three months ended Nine months ended
                                                September30      September30
                                               2012     2011     2012     2011
Change in non-cash working capital items
Accounts receivable and other receivables       290      488      231      174
Materials, fuel and supplies                     12       31       11       60
Accounts payable and accrued liabilities       (49)       59    (350)    (307)
Accrued interest                              (356)    (380)    (423)    (432)
                                              (103)      198    (531)    (505)
Investing activities not affecting cash
Increase in property, plant and equipment
and intangible assets                           631       25      679       50
Interest paid                                   822      920    1 841    2 039

Note 10 Employee Future Benefits

                                  Three months ended
                                        September30
                     Pension Plan        Other plans
                       2012  2011      2012     2011
Accrued benefit cost     51    31        28       22



                                  Nine months ended
                                       September30
                     Pension Plan       Other plans
                       2012  2011     2012     2011
Accrued benefit cost    153    91       84       84



Note 11 Segmented Information

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



                                                                             Three months ended
                                                                             September30, 2012
                                                                           Intersegment
                                                                 Corporate eliminations
                                                                 and Other          and
              Generation Transmission Distribution Construction Activities  adjustments   Total
Revenue
External
customers            403           24        2,178            -          8           6ª   2,619
Intersegment
customers            984          754           19          635        363      (2,755)       -
Result from
continuing
operations           280          161        (125)            -         60            -     376
Result from
discontinued
operations       (1,824)          (9)            -            -          -            - (1,833)
Net result       (1,544)          152        (125)            -         60            - (1,457)
Total assets
as at
September30,
2012              31,039       18,865       12,828          422      6,096        (211)  69,039

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



                                                                            Three months ended
                                                                            September30, 2011
                                                                           Intersegment
                                                                 Corporate eliminations
                                                                 and Other          and
              Generation Transmission Distribution Construction Activities  adjustments  Total
Revenue
External
customers            371           26        2,181            -         33            -  2,611
Intersegment
customers          1,028          750           17          543        337      (2,675)      -
Result from
continuing
operations           335          157        (165)            -         77            -    404
Result from
discontinued
operations          (21)            -            -            -          -            -   (21)
Net result           314          157        (165)            -         77            -    383
Total assets
as at
September30,
2011              31,239       18,346       12,629          446      5,702        (293) 68,069



Note 11 Segmented Information (continued)



                                                                              Nine months ended
                                                                             September30, 2012
                                                                           Intersegment
                                                                 Corporate eliminations
                                                                 and Other          and
              Generation Transmission Distribution Construction Activities  adjustments   Total
Revenue
External
customers          1,043           83        7,842            -         32           6ª   9,006
Intersegment
customers          3,483        2,248           56        1,551      1,073      (8,411)       -
Result from
continuing
operations         1,208          478          346            -         89            -   2,121
Result from
discontinued
operations       (1,847)          (9)            -            -          -            - (1,856)
Net result         (639)          469          346            -         89            -     265
Total assets
as at
September30,
2012              31,039       18,865       12,828          422      6,096        (211)  69,039

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



                                                                             Nine months ended
                                                                            September30, 2011
                                                                           Intersegment
                                                                 Corporate eliminations
                                                                 and Other          and
              Generation Transmission Distribution Construction Activities  adjustments  Total
Revenue
External
customers          1,085           79        7,920            -         48            -  9,132
Intersegment
customers          3,673        2,242           55        1,489      1,035      (8,494)      -
Result from
continuing
operations         1,492          424          266            -         86            3  2,271
Result from
discontinued
operations          (34)            -            -            -          -            -   (34)
Net result         1,458          424          266            -         86            3  2,237
Total assets
as at
September30,
2011              31,239       18,346       12,629          446      5,702        (293) 68,069

Note 12 Comparative Information

Some corresponding period data of the previous year have been reclassified  to 
conform to the presentation  adopted in the current  periods or in  accordance 
with  the  changes  to  accounting   policies  described  in  Note2  to   the 
consolidated financial statements  published in  Hydro-Québec's Annual  Report 
2011.



CONSOLIDATED FINANCIAL HIGHLIGHTS

(unaudited)

Amounts shown in tables are in millions of Canadian dollars.



                                   Three months ended        Nine months ended
                                         September30             September30
Summary of Operations           2012  2011 Change (%)    2012  2011 Change (%)
Revenue                        2,619 2,611    0.3  Û    9,006 9,132    1.4  Ü
Expenditure                    1,634 1,598    2.3  Û    5,086 5,015    1.4  Û
Financial expenses               609   609      -  -    1,799 1,846    2.5  Ü
Result from continuing
operations                       376   404    6.9  Ü    2,121 2,271    6.6  Ü
Result from discontinued
operations                   (1,833)  (21)      -  Ü  (1,856)  (34)      -  Ü
Net result                   (1,457)   383      -  Ü      265 2,237   88.2  Ü





                                                              2012
Consolidated Financial Information by Quarter    Q1    Q2    Q3 Q4
Result from Continuing Operations             1,343   402   376
Revenue                                       3,735 2,652 2,619
Revenue from Electricity Sales in Québec      3,242 2,281 2,151
Revenue from Electricity Sales Outside Québec   320   254   387







                                                                 2011
Consolidated Financial Information by Quarter    Q1    Q2    Q3    Q4
Result from Continuing Operations             1,403   464   404   415
Revenue                                       3,758 2,763 2,611 3,113
Revenue from Electricity Sales in Québec      3,359 2,431 2,201 2,729
Revenue from Electricity Sales Outside Québec   354   277   331   290







Note: Throughout the  Consolidated Financial  Highlights, certain  comparative 
figures have been reclassified to conform  to the presentation adopted in  the 
current periods.



Quarter Highlights

Distribution

Rate adjustment application

In July,  Hydro-Québec Distribution  filed an  application with  the Régie  de 
l'énergie for a rate adjustment of 2.9%, effective April1, 2013.

Power purchase program for electricity produced by forest biomass

Also in July, the Régie approved the change to the power purchase program  for 
electricity produced by forest biomass cogeneration. This change was filed  in 
response to the Québec government's decision to raise the program's target  to 
300MW.  During  the  quarter,  Hydro-Québec  Distribution  signed  three  new 
contracts for the purchase of electricity  under this program, for a total  of 
69.3MW.

Technological innovation

2012 CIGRÉ Canada Conference

Hydro-Québec hosted the 7th annual conference of the International Council  on 
Large Electric Systems (CIGRÉ) Canada,  held in Montréal from September24  to 
26 on the  theme Technology and  Innovation for the  Evolving Power Grid.  The 
event, which  was organized  by Hydro-Québec's  research institute  and  other 
Hydro-Québec units, brought together over 400participants from  22countries. 
All  industry  players  were   represented:  transmission  system   operators, 
manufacturers, engineers, researchers, regulators and academics.

Transportation electrification

The Electric Circuit welcomes new partners

During  the  quarter,  the  founding  partners  of  The  Electric  Circuit-Les 
Rôtisseries St-Hubert, RONA, METRO, the Agence métropolitaine de transport and
Hydro-Québec-announced that agreements to install public charging stations had
been signed  with Aéroports  de Montréal,  the city  of Sherbrooke  and  other 
organizations in the  region, the Auberge  Internationale du Témiscouata,  the 
burrough of Saint-Laurent and Place des Arts in Montréal, and Discount Car and
Truck Rentals.









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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END


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