Hydro-Quebec paid millions of dollars to McKinsey to help manage its dams

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Hydro-Québec paid millions of dollars to McKinsey to help manage its dams

Since 2016, the consulting firm McKinsey has won 27 contracts worth a total of $38 million to help the state-owned company make decisions, which has sparked discontent within the company. #x27;State.

Over the past six years, Hydro-Québec has paid $31 million to McKinsey, Radio-Canada has learned. Another amount of $7 million must be paid to carry out ongoing mandates.

Before launching repair work on a hydroelectric power station, Hydro-Québec has its decision validated by the consulting firm McKinsey, Radio-Canada has learned. And this is not the only role played, behind the scenes, by this American firm in the affairs of the Quebec state corporation.

Hydro-Québec confirms that this firm works on strategic mandates, procurement issues and innovations. Over the past six years, the Crown corporation has paid $31 million to McKinsey and still owes it $7 million for outstanding warrants.

However, experts and internal sources question the extent and relevance of this business relationship. Hydro-Québec claims that this consulting firm saves it money and that industrial secrets are well protected.

In some files, there are always McKinsey people at meetings, says a Hydro-Quebec executive who is not authorized to speak publicly. It frustrates a lot of people.

As with the Legault government during the pandemic, McKinsey does not make the decisions, but the firm plays a key role in the decision-making process to validate choices. It weighs down the process, denounces this manager.

Often, consultants come to the same conclusion as engineers initially, says this source. What's the point?

“There is a loss of confidence, of courage. It becomes a corporate culture.

— A Hydro-Quebec executive who requested anonymity

They are listened to blindly at times, notes another internal source who requested anonymity. A third source wonders about the subcontracting of expertise that the State should have. offers

Of the $38 million in contracts awarded, contracts worth $5.8 million were awarded without a call for tenders, by mutual agreement. The method of solicitation used for all files respects the regulatory framework, assures Hydro-Québec.

Last year, McKinsey was awarded a five million dollar contract by Hydro-Quebec to analyze the costs and relevance of refurbishment work at hydroelectric plants until 2024. C It is expertise that we have at home, but we seek to validate the decisions, explains the spokesperson for the state company, Maxence Huard-Lefebvre.

Maxence Huard-Lefebvre is a spokesperson for Hydro-Québec.

Internally, Hydro-Québec even uses a concept inspired by McKinsey, called “optimal technical solution”, whose objective is to spend neither too much nor too little on a project.

“It's good to question your practices, sometimes, then to ''challenger& #x27; and to wonder if we are investing the right amounts. […] It can confirm to us that we are on the right track. »

— Maxence Huard-Lefebvre, spokesperson for Hydro-Québec

Hydro-Québec also points out that it benefits from the firm's international network, which allows you to stay abreast of global best practices and make informed decisions afterwards.

For example, McKinsey has helped Hydro-Québec position itself in innovation markets. We can think of battery materials and everything that is done in our research institutes, explains Maxence Huard-Lefebvre.

“ We want to remain world leaders. This is an area that is rapidly changing everywhere. »

— Maxence Huard-Lefebvre, spokesperson for Hydro-Québec

McKinsey advised Hydro-Québec on the development of the Hilo subsidiary, launched in 2020, to reduce electricity consumption during winter peaks.

Professor Sylvain Audette, member associated with the Chair of Energy Sector Management at HEC Montreal, believes that the use of consultants such as McKinsey can be useful, “with parsimony”, to avoid ad hoc hiring, to analyze international practices or to validate a decision.

On the other hand, he warns Hydro-Québec against the risks of drift.

We must avoid becoming dependent on a single firm, where it becomes so intertwined in the processes that it is part of the employees, […] neglecting the development of internal expertise, he says.

« I hope these firms are not there to influence decisions. »

— Sylvain Audette, associate member of the Energy Sector Management Chair at HEC Montréal

Normand Mousseau, scientific director of the Trottier Energy Institute at Polytechnique Montréal

For his part, the scientific director of the Trottier Energy Institute at Polytechnique Montreal, Normand Mousseau, thinks that when it comes to planning, it's not bad to see what the trends are elsewhere. , but he says he regrets that consultants are often used to get what you want to hear, in order to get a “deposit”.

“That's also the role of consultants: to be able to be told what you want to be told. And consultants are good at understanding that. Afterwards, it is easier to justify more difficult decisions. »

— Normand Mousseau, Scientific Director of the Trottier Energy Institute at Polytechnique Montréal

According to our sources, recourse to the firm McKinsey had accelerated under the time of former CEO Éric Martel from 2016. However, the current CEO, Sophie Brochu, is said to be willing to x27; make greater use of in-house expertise. Since 2020, we have strengthened our internal strategic planning team, says the Hydro-Québec spokesperson.

McKinsey works for many public clients and private individuals whose interests may be divergent. This firm has a habit of not disclosing with whom it does business.

According to one of our sources at Hydro-Quebec, if other McKinsey customers learned about export data and power data from Hydro-Quebec, it could help them bid better on contracts.

“Yes, there is a risk” that the knowledge of the Quebec state corporation will be disseminated elsewhere, according to Sylvain Audette, of HEC Montreal.

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“These consultants, even if they sign a confidentiality clause, if they do a mandate for another [client], their brain is not not erased. »

— Sylvain Audette, associate member of the HEC Montréal Energy Sector Management Chair

Professor Audette reminds that during meetings in which they participate, consultants may have access to information that is not necessarily covered by confidentiality agreements.

This is not something we see as a risk, responds the spokesperson for the state company. The great industrial secrets of Hydro-Québec, we do not give them to our consultants.

The interior of the Outardes-3 power plant

We do not disclose confidential information to the outside or to third parties, ensures for its part the McKinsey firm.

The consultancy claims that its employees are leaders in consulting in the energy sector with 3000 mandates in this field worldwide since 2016.

As part of these projects, we work with organizations to help them define their strategy, improve their operations and create value, explains the firm by email, specifying that it provides to its customers, for example Hydro-Québec, markers and beacons, diagnostic tools and analyses.

“We act in addition to the skills and tools of our clients on very complex and multidisciplinary issues. »

— An email from McKinsey to Radio-Canada, October 25, 2022

The firm sets an example of the changing needs of neighboring markets or best practices in managing capital deployment projects.

This American firm employs 30,000 consultants in 130 offices in 65 countries.

It advises both private and public companies. The consulting firm has been talked about recently in Quebec because of the central role it has played in the management of the pandemic with the Legault government.

McKinsey has advised numerous national governments to combat COVID-19, including those of the United States, the United Kingdom, Germany, Mexico… In France, a Senate investigation concluded that the government had outsourced the management of its crisis.

These amounts, although they seem large, are not significant overall, says Hydro-Québec spokesperson Maxence Huard-Lefebvre, who recalls that the state company manages assets of & #x27;worth $85 billion. He even claims that these consultants save him money in the end: Their profits are significant.

Dam rehabilitation projects cost hundreds of millions of dollars every year. Hydro-Québec wants to increase the capacity of its old plants by 2000 megawatts (MW) to obtain more power.

“With the energy transition and new technologies, everything is going so fast that the amounts are all in all reasonable to be sure that the decisions taken are informed. »

— Maxence Huard-Lefebvre, spokesperson for Hydro-Québec

Hydro-Québec clarifies that McKinsey did not work on the assessment of the additional needs of 100 terawatt hours (TWh) by 2050. The firm has also not played a role in the recent acquisition of 13 power plants in the United States or in the reflection on electricity rates.

Furthermore, the ongoing analysis of the remaining hydroelectric potential in Quebec is being conducted entirely by in-house teams, assures the state corporation. McKinsey confirms: We are not and have not been involved in defining strategies for the growth of Hydro-Québec's generation fleet.

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