Hydro-Québec Proposes Higher Power Rates for Data Centers

Hydro-Québec is proposing a system that would allow data center operators to voluntarily pay more for electricity in Quebec, as growing demand from artificial intelligence projects intensifies competition for limited power supplies. The provincial utility wants to establish a minimum rate of 13 Canadian cents per kilowatt-hour and let the government consider higher offers when allocating electricity to industrial projects.

The proposal is under review by Quebec's energy regulator, the Régie de l'énergie, which began examining the utility's request to double electricity rates for data centers earlier this month. Hydro-Québec says the minimum rate reflects the cost of producing new electricity and argues that additional payments could reduce upward pressure on bills for other customers.

Demand for electricity from data centers has surged alongside artificial intelligence development, while Quebec faces constraints on the amount of power it can currently supply. According to the report by Radio-Canada, data center projects account for half of the requests for electricity allocations submitted to the provincial government for industrial projects.

Hydro-Québec's chief pricing officer, Sarah Trabelsi, defended the proposal during hearings before the energy regulator, citing strong interest from prospective customers.

"There is strong interest, and if they can derive more value from this electricity, if they want to value it more highly, why should we deprive ourselves of that?" said Sarah Trabelsi, Hydro-Québec's chief pricing officer.

Trabelsi emphasized that paying above the minimum would remain optional rather than becoming a mandatory charge. Hydro-Québec spokesperson Cendrix Bouchard also said in a written statement to Radio-Canada that the approach could benefit all customers by reducing upward pressure on electricity rates.

Since 2023, Quebec's Ministry of Economy, Innovation and Energy has selected industrial projects requiring more than 5 megawatts for electricity allocations. The ministry evaluates applications using several criteria, including economic benefits and environmental and social impacts.

Trabelsi said price is one factor in the government's assessment but does not independently determine which projects receive electricity allocations. She said Hydro-Québec does not know how much weight the ministry would assign to offers above the minimum rate.

Keel Infrastructure, which has a project facing opposition from some residents in Sherbrooke, raised concerns during the hearings about the possibility of two customers with identical consumption profiles paying different rates. The company's lawyer questioned how the government would weigh voluntary price increases in allocation decisions.

Radio-Canada reported that it could not establish whether the ministry would give data centers offering higher rates a better chance of receiving electricity. The ministry said the Régie de l'énergie is the decision-making body in the current proceeding and that it would assess the resulting decisions in due course.

Jocelyn Allard, president of the Quebec Association of Industrial Electricity Consumers, opposed the proposal, arguing that it conflicts with the principle of preventing a monopoly utility from favoring customers with similar consumption profiles based on their willingness to pay more.

Jean-Pierre Finet, an analyst with the Group of Environmental Organizations in Energy, also criticized the approach, warning that it could direct electricity allocations toward large technology companies at the expense of local businesses and industrial decarbonization efforts.

Finet called for a broad investigation by Quebec's Bureau of Public Hearings on the Environment to establish the sector's actual electricity needs, taking digital sovereignty into account. He said the government and Hydro-Québec could subsequently consider auctioning a limited amount of electricity while accounting for the province's overall energy requirements.

A comparative analysis commissioned by Hydro-Québec from consulting firm Dunsky identified British Columbia's BC Hydro as the closest existing example. The utility has offered a 400-megawatt block of electricity through an auction for data centers.

Hydro-Québec rejected the characterization of its own proposal as an auction, arguing that its approach would avoid price volatility and uncertainty because customers would decide how much they were willing to pay above the established minimum. The next hearing before the Régie de l'énergie is scheduled for December 7.