UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_________________

 

FORM 40-F

 

[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

 

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2020  Commission File Number: 001-35400

 

JUST ENERGY GROUP INC.
(Exact name of Registrant as specified in its charter)

 

Canada

(Province or other Jurisdiction of Incorporation or Organization)

4924

(Primary Standard Industrial Classification Code Number)

Not Applicable

(I.R.S. Employer Identification No.)

 

100 King Street West, Suite 2630
Toronto, Ontario M5X 1E1
(905) 670-4440
(Address and telephone number of Registrant’s principal executive offices)

 

Just Energy (U.S.) Corp.
5251 Westheimer Road, Suite 1000
Houston, Texas 77056
(855) 694-8529
(Name, address (including zip code) and telephone number
(including area code) of agent for service in the United States)

_________________

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Common Shares, No Par Value

8.50% Series A Fixed-to-Floating

Rate Cumulative Redeemable

Perpetual Preferred Shares

Trading Symbol(s)

 

JE

JE.PR.A

Name of Each Exchange on
Which Registered

New York Stock Exchange

New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None

 

For annual reports, indicate by check mark the information filed with this Form:

[X]  Annual information form  [X]  Audited annual financial statements

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

The Registrant had 151,614,238 Common Shares outstanding and 4,662,165 Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares outstanding as of March 31, 2020.

 

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

  Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 12b-2 of the Exchange Act.

 

Emerging growth company ☐  

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

 

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

 

 

 

 

A.                  Principal Documents

 

The following documents (the “Incorporated Documents”) are incorporated by reference in this Annual Report on Form 40-F (this “Annual Report”) of Just Energy Group Inc. (“Just Energy” or the “Registrant”):

 

·Annual Information Form for the year ended March 31, 2020 (“AIF”), which is attached hereto as Exhibit 1.1.

 

·Management’s Discussion and Analysis (“MD&A”) for the year ended March 31, 2020, which is attached hereto as Exhibit 1.2.

 

·Audited Consolidated Financial Statements for the year ended March 31, 2020, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, including the report of the auditors thereon, which is attached hereto as Exhibit 1.3.

 

B.                  Cautionary Note Regarding Forward-Looking Statements

 

This Annual Report, including the Incorporated Documents, may contain forward-looking statements and information, including statements and information regarding: guidance for Base EBITDA for the fiscal year ending March 31, 2020; the ability of the Registrant to reduce selling, marketing and general and administrative expenses and the quantum of such reductions and the impact thereof on the Registrant’s current fiscal year; the Registrant’s ability to identify further opportunities to improve its cost structure; discussions with lenders; the impact of the COVID-19 pandemic; the Registrant’s transition from a RCE (defined in the MD&A) growth focus; improvement in the Registrant’s expected credit loss experience; the Registrant’s ability to attract and retain strong-fit customers and the impact thereof on the achievement by the Registrant of greater profitability; and the impact of the actions and remediation efforts taken or implemented by the Registrant in remediating the material weaknesses in the Registrant’s internal controls over financial reporting. These statements are based on current expectations that involve several risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, the impact of the evolving COVID-19 pandemic on the Registrant’s business, operations and sales, including risks associated with reliance on suppliers, uncertainties relating to the ultimate spread, severity and duration of the COVID-19 pandemic and related adverse effects on the economies and financial markets of countries in which the Registrant operates, the ability of the Registrant to successfully implement its business continuity plans with respect to the COVID-19 pandemic, the Registrant’s ability to access sufficient capital to provide liquidity to manage its cash flow requirements, general economic, business and market conditions, the ability of management to execute its business plan, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, customer credit risk, rates of customer attrition, fluctuations in natural gas and electricity prices, interest and exchange rates, actions taken by governmental authorities including energy marketing regulation, increases in taxes and changes in government regulations and incentive programs, changes in regulatory regimes, results of litigation and decisions by regulatory authorities, competition, the performance of acquired companies and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations, financial results or dividend levels is included in the AIF and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or by visiting EDGAR on the website of the Securities and Exchange Commission (the “SEC”) at www.sec.gov.

 

C.                  Disclosure Controls and Procedures

 

Both the chief executive officer (“CEO”) and chief financial officer (“CFO”) of Just Energy have designed, or caused to be designed under their supervision, the Registrant’s disclosure controls and procedures, which provide reasonable assurance that: (i) material information relating to the Registrant is made known to management by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Registrant in its annual and interim filings or other reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time period specified in the Exchange Act. The CEO and CFO are assisted in this responsibility by a Disclosure Committee composed of senior management. The Disclosure Committee has established procedures so that it becomes aware of any material information affecting Just Energy to evaluate and communicate this information to management, including the CEO and CFO as appropriate, and determine the appropriateness and timing of any required disclosure. Based on the foregoing evaluation, conducted by or under the supervision of the CEO and CFO of the Registrant’s Internal Control over Financial Reporting (“ICFR”) in connection with the Registrant’s financial year-end, it was concluded that because of the material weakness described below, the Registrant’s disclosure controls and procedures were not effective.

 

D.                  Management’s Annual Report on Internal Control Over Financial Reporting

 

Both the CEO and CFO have designed, or caused to be designed under their supervision, the Registrant’s ICFR, the effectiveness of the design and operation of which has been evaluated by the Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with International Financial Reporting Standards. Based on that evaluation, the CEO and CFO concluded that because of the material weakness described below, the Registrant’s ICFR was not effective.

 

 

 

Identification of material weaknesses in reconciliation and estimation of certain balance sheet accounts

 

During the quarter ended March 31, 2020, and following Just Energy’s discovery of certain historical errors related to the Registrant’s cost of sales and trade accounts payable and other captions within the Registrant’s Consolidated Financial Statements for the year ended March 31, 2019 and other historical periods, in accordance with the internal control reporting requirements, management completed an assessment of the effectiveness of the Registrant’s ICFR as at March 31, 2020. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control—Integrated Framework (2013). The COSO framework summarizes each of the components of a company’s internal control system, including the: (i) control environment; (ii) control activities (process-level controls); (iii) risk assessment; (iv) information and communication; and (v) monitoring activities. The COSO framework defines a “material weakness” as a deficiency, or combination of deficiencies, that results in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Management’s evaluation of the Registrant’s ICFR identified material weaknesses resulting from several design and operational control deficiencies within the system of internal control that allowed these errors to manifest and the failure to detect them for an extended period of time:

 

Control activities and monitoring

 

The Registrant did not design or maintain effective control activities and monitoring activities over the following:

 

The Registrant did not design an effective control activity regarding Just Energy’s reconciliation and estimation procedures as disclosed within the restatement tables of Note 5 of the consolidated financial statements for the year ended March 31, 2020. Specifically, the Registrant did not establish, to an appropriate degree of precision, a control to identify material misstatements regarding differences between commodity suppliers’ payables and accruals initial estimates and final costs incurred, including establishing lookback procedures related to such estimates. Further, the Registrant did not design, to an appropriate degree of precision, a control to fully reconcile certain of the trade accounts payable and other accounts, which also included certain reclassifications to other balance sheet accounts. The Registrant did not maintain monitoring of the design of certain aspects of the financial statement close process. Specifically, both the finance and operations teams did not coordinate activities to explain certain balance sheet reconciliations. Additionally, the Registrant did not design effective controls to prevent or detect misstatements during the operation of the financial statement close process, including finalization of the trial balance to the preparation of financial statements in fiscal 2020 and previous periods. A material weakness is a deficiency, or a combination of deficiencies, in ICFR, such that there is a reasonable possibility that a material misstatement of the Registrant’s annual or interim financial statements will not be prevented or detected on a timely basis. Due to the aforementioned adjustments, management identified material weaknesses for the year ended March 31, 2020.

 

Remediation of material weaknesses in ICFR

 

Management is committed to the planning and implementation of remediation efforts to address the material weakness, as well as to foster improvement in the Registrant’s internal controls. These remediation efforts are underway and are intended to address the identified material weakness and enhance the overall financial control environment.

 

While performing year-end close procedures for fiscal 2020, the Registrant engaged third parties to assist the Registrant in addressing the identified material weaknesses and made operational and financial reporting control changes throughout the organization. Management is enhancing its system of internal control methodology to foster a stronger interaction between the Registrant’s finance and operations teams to produce more precise information for accruals and reconciliation performance by requiring both teams to participate in reconciliation and monitoring activities. The Registrant has deployed a formal balance sheet reconciliation policy across the organization, trained accountants and other participants to perform reconciliations, and instituted a quality review of certain reconciliations within the Registrant.

 

To further remediate the material weakness identified herein, the management team, including the CEO and CFO, have reaffirmed and re-emphasized the importance of internal control as part of its commitment to competence, control consciousness and to fostering a strong control environment. The Registrant hired a full-time chief accounting officer and a full-time controller, both with expertise in finance and accounting within the retail energy sector. The remediation of these material weaknesses is ongoing, as not enough time has elapsed in order to conclude that the remediation efforts are operating effectively.

 

No assurance can be provided at this time that the actions and remediation efforts the Registrant has taken or will implement will effectively remediate the material weaknesses described above or prevent the incidence of other significant deficiencies or material weaknesses in the Registrant’s internal controls over financial reporting in the future. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving Just Energy’s stated goals under all potential future conditions.

 

 2 

 

Identification and remediation of previously identified material weakness within fiscal 2020

 

During the quarters ended December 31, 2018, March 31, 2019 and June 30, 2019, management failed to effectively operate the control designed to capture appropriate expected credit loss rates to be reflected in the estimated allowance for doubtful accounts in the Texas residential market and the U.K. market. This material weakness arose due to insufficient analysis of a rapid deterioration of the aging of the Registrant’s accounts receivable caused by operational enrolment deficiencies in the Texas market, and due to operational and accounts receivable non-collection issues in the U.K. market.

 

On July 23, 2019, the Registrant announced operational measures implemented in the Texas residential market to address identified customer enrolment issues arising during prior periods that led to additional overdue accounts being identified during the quarter ended June 30, 2019 that were impaired. Management identified these issues through operating controls related to the expected credit loss calculation.

 

Management identified an impairment of certain accounts receivable within the Texas residential markets of $58.6 million at June 30, 2019, of which $34.5 million relates to the quarter ended December 31, 2018, $19.2 million relates to the quarter ended March 31, 2019 and $4.9 million relates to the quarter ended June 30, 2019.

 

During the operation of the same control that identified the Texas enrollment and collections impairment at June 30, 2019, the Registrant determined the allowance for doubtful accounts related to the U.K. receivables required an adjustment of $74.1 million at June 30, 2019, of which $40.1 million relates to the quarter ended December 31, 2018, $17.4 million relates to the quarter ended March 31, 2019 and $16.6 million relates to the quarter ended June 30, 2019.

 

During the quarter ended June 30, 2019, the Registrant made operational and financial reporting control changes throughout the organization and engaged third parties to advise the Registrant regarding this material weakness. Due to the aforementioned adjustments, management identified a material weakness after issuing the financial statements for the year ended March 31, 2019.

 

Management enhanced its methodology that quantifies and contemplates the aging profile of receivables, and recent collection history, in a more disaggregated manner than the model utilized in previous periods and trained the finance team in the use of the enhanced model. Management also installed more granular operational controls to more timely monitor emerging bad debt issues. As at March 31, 2020, management has concluded it has completed remediation efforts of this material weakness.

 

Changes in internal control over financial reporting

 

Other than as described above, there were no changes in ICFR during the last fiscal year that materially affected, or are reasonably

likely to materially affect, ICFR.

 

Inherent Limitations

 

A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that its objectives are met. Due to these inherent limitations in such systems, no evaluation of controls can provide absolute assurance that all control issues within any company have been detected. Accordingly, Just Energy’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the Registrant’s disclosure control and procedure objectives are met.

 

E.                  Attestation Report of the Registered Public Accounting Firm

 

Ernst & Young LLP (“E&Y”), the independent registered public accounting firm of the Registrant, has issued an attestation report on the effectiveness of the internal control over financial reporting of the Registrant as of March 31, 2020. For a copy of E&Y’s report, see Exhibit 1.3 to this Annual Report.

 

F.                   Changes in Internal Control Over Financial Reporting

 

As described above under “D. Management’s Annual Report on Internal Control Over Financial Reporting,” management identified material weaknesses, as described therein. Other than as set forth under “D. Management’s Annual Report on Internal Control Over Financial Reporting,” there were no changes in ICFR during the last fiscal year that materially affected, or are reasonably likely to materially affect, ICFR.

 

 3 

 

The information set forth above under “D. Management’s Annual Report on Internal Control Over Financial Reporting” is incorporated by reference into this “F. Changes in Internal Control Over Financial Reporting.”

 

G.                 Notice of Pension Fund Blackout Period

 

The Registrant was not required by Rule 104 of Regulation BTR to send any notice to any of its directors or executive officer during the fiscal year ended March 31, 2020.

 

H.                 Audit Committee Financial Expert

 

The Registrant’s board of directors has determined that Mr. H. Clark Hollands, an individual serving on the audit committee of the Registrant’s board of directors, is an audit committee financial expert within the meaning of General Instruction B(8)(b) of Form 40-F under the Exchange Act and is independent within the meaning of Rule 10A-3 under the Exchange Act and the listing standards of the New York Stock Exchange.

 

The SEC has indicated that the designation or identification of a person as an audit committee financial expert does not make such person an “expert” for any purpose, impose any duties, obligations or liability on such person that are greater than those imposed on members of the audit committee and the board of directors who do not carry this designation or identification, or affect the duties, obligations or liability of any other member of the audit committee or board of directors.

 

I.                    Code of Ethics

 

The Registrant has adopted a code of ethics (the “Code of Conduct”) that applies to all directors, officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. The Code of Conduct is available on the Registrant’s internet website, www.justenergygroup.com, under the “Corporate Governance” tab and will be provided without charge to any person that requests a copy by contacting the Corporate Secretary of the Registrant at the address that appears on the cover page of this Annual Report.

 

J.                   Principal Accountant Fees and Services and Audit Committee Pre-Approval Policies

 

Principal Accountant Fees and Services

 

The information provided under the heading “Schedule “A”—Form 52-110F1—Audit Committee Information Required in an AIF” in the AIF, filed as Exhibit 1.1 to this Annual Report, is incorporated herein by reference.

 

Audit Committee Pre-Approval Policies and Procedures

 

All audit and non-audit services performed by the Registrant’s external auditor must be pre-approved by the audit committee of the Registrant.

 

For the fiscal year ended March 31, 2020, all audit and non-audit services performed by E&Y were pre-approved by the audit committee of the Registrant.

 

The information provided under the headings “Pre-Approval Policies and Procedures” and “External Auditor Service Fees” contained in the AIF, filed as Exhibit 1.1 to this Annual Report, is incorporated herein by reference.

 

K.                 Off-Balance Sheet Arrangements

 

The Registrant has issued letters of credit in accordance with its credit facility totaling $72.5 million to various counterparties, primarily utilities in the markets where it operates, as well as suppliers.

 

Pursuant to separate arrangements with several bond agencies, The Hanover Insurance Group and Charter Brokerage LLC, the Registrant has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at March 31, 2020 were $63.4 million.

 

The information provided under the heading “Management’s Discussion and Analysis—Off balance sheet items,” contained in the MD&A for the year ended March 31, 2020, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 4 

 

L.                  Tabular Disclosure of Contractual Obligations

 

The information provided under the heading “Management’s Discussion and Analysis—Contractual obligations,” contained in the MD&A for the year ended March 31, 2020, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

M.                Identification of the Audit Committee

 

The Registrant has established a separately-designated standing audit committee in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit committee is comprised of Messrs. Hollands, Ross and Weld, all of whom are independent as such term is defined under Rule 10A-3 of the Exchange Act and the listing standards of the New York Stock Exchange.

 

N.                  Critical Accounting Policies

 

The information provided under the heading “Management’s Discussion and Analysis—Critical Accounting Estimates,” contained in the MD&A for the year ended March 31, 2020, filed as Exhibit 1.2 to this Annual Report, is incorporated herein by reference.

 

O.                 Interactive Data File

 

The Registrant has submitted to the SEC, included in Exhibit 101 to this Annual Report, an Interactive Data File.

 

P.                   Mine Safety

 

The Registrant is not currently required to disclose the information required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 

Q.                 Corporate Governance Practices

 

There are certain differences between the corporate governance practices applicable to the Registrant under Canadian laws and the listing standards of the Toronto Stock Exchange, and those applicable to U.S. companies under the New York Stock Exchange listing standards. A summary of these differences can be found on the Registrant’s website at www.justenergygroup.com under “Investor Relations—Corporate Governance Overview.”

 

 

 5 

 

UNDERTAKING AND CONSENT TO SERVICE OF PROCESS

 

A.                  Undertaking

 

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the SEC staff, and to furnish promptly, when requested to do so by the SEC staff, information relating to the securities in relation to which the obligation to file an annual report on Form 40-F arises or transactions in said securities.

 

B.                  Consent to Service of Process

 

The Registrant has previously filed with the SEC a Form F-X in connection with its common shares. Any change to the name or address of the agent for service of process shall be communicated promptly to the SEC by an amendment to the Form F-X.

 

EXHIBITS

 

The following exhibits are filed as part of this Annual Report:

 

Number Document
1.1 Annual Information Form for the year ended March 31, 2020.
1.2 Management’s Discussion and Analysis for the year ended March 31, 2020.
1.3 Audited Consolidated Financial Statements for the year ended March 31, 2020, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, including the report of the auditors thereon.
23.1 Consent of Ernst & Young LLP.
31.1 Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 Interactive Data File (formatted as Inline XBRL).

 

 

 6 

 

SIGNATURE

 

Pursuant to the requirements of the Exchange Act, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorized.

 

  JUST ENERGY GROUP INC.
     
     
Dated: July 9, 2020 By: /s/ Jim Brown
    Name: Jim Brown
    Title: Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 1.1

 

 

 

 

 

 

 

 

 

 

ANNUAL INFORMATION FORM

 

JUST ENERGY GROUP INC.

 

July 07, 2020

 

 

 

 

 

 

 

JUST ENERGY GROUP INC.

 

July 07, 2020

 

ANNUAL INFORMATION FORM (1)(2)

 

TABLE OF CONTENTS

 

Page

Forward Looking StatementS 1
three year history of the company 5
BUSINESS OF JUST ENERGY 11
RISK FACTORS 22
DIVIDENDS and distributions 22
MARKET FOR SECURITIES 23
PRIOR SALES 26
Escrowed securities 27
DIRECTORS AND Executive OFFICERS OF the company 27
LEGAL PROCEEDINGS and regulatory actionS 29
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS 29
AUDITORS, TRANSFER AGENT AND REGISTRAR 31
INTEREST OF EXPERTS 31
MATERIAL CONTRACTS 31
AUDIT COMMITTEE INFORMATION 31
ADDITIONAL INFORMATION 31
schedule “A” - FORM 52-110F1 33
SCHEDULE “B” - AUDIT COMMITTEE MANDATE 35
SCHEDULE “C” - GLOSSARY 39

 

(1) Except as otherwise indicated, all information in this Annual Information Form is as at July 07, 2020.

(2) All capitalized terms not otherwise defined in the body of this Annual Information Form shall have the meanings ascribed to them in Schedule C - Glossary.

 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Annual Information Form and documents incorporated by reference herein constitute forward-looking statements. These statements relate to future events and future performance. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “may”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Just Energy Group Inc. (the “Company”) believes the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. In particular, this Annual Information Form, and the documents incorporated by reference herein, contain forward-looking statements pertaining to the ability of the Company to reduce selling, marketing and general and administrative expenses and the quantum of such reductions and the impact thereof on the Company’s current fiscal year; the Company’s ability to identify further opportunities to improve its cost structure; discussions with lenders, the impact of COVID-19; the Company’s transition from a volume-based growth focus; improvement in the Company’s expected credit loss experience; the Company’s ability to attract and retain strong-fit customers and the impact thereof on the achievement by the Company of greater profitability. These risks include, but are not limited to, the impact of the evolving COVID-19 pandemic on the Company’s business, operations and sales, including risks associated with reliance on suppliers, uncertainties relating to the ultimate spread, severity and duration of COVID-19 and related adverse effects on the economies and financial markets of countries in which the Company operates, the ability of the Company to successfully implement its business continuity plans with respect to the COVID-19 pandemic, the Company’s ability to access sufficient capital to provide liquidity to manage its cash flow requirements, general economic, business and market conditions, the ability of management to execute its business plan, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, customer credit risk, rates of customer attrition, fluctuations in natural gas and electricity prices, interest and exchange rates, actions taken by governmental authorities including energy marketing regulation, increases in taxes and changes in government regulations and incentive programs, changes in regulatory regimes, results of litigation and decisions by regulatory authorities, competition, the performance of acquired companies and dependence on certain suppliers. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of future results. These forward-looking statements are made as of the date of this Annual Information Form and, except as required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements.

 

 

 

 

 

 

 

 

Just Energy Group Inc.

 

Just Energy Group Inc. (the “Company” or “Just Energy”) is a CBCA corporation created on January 1, 2011, pursuant to a plan of arrangement approved by unitholders of the Just Energy Income Fund (the “Fund”) on June 29, 2010, and by the Alberta Court of the Queen’s Bench on June 30, 2010 (the “Trust Conversion”). See “Articles of Arrangement of the Company” on page 3 for a detailed description of the Articles and Common Shares of the Company. The head offices of the Company are located at 80 Courtneypark Drive West, Mississauga, Ontario, L5W 0B3 and 5251 Westheimer Road, Suite 1000, Houston, Texas 77056. Its registered office is located at First Canadian Place, 100 King Street West, Suite 2630, Toronto, Ontario, M5X 1E1. The predecessors of the Company were founded in 1997 and went public on the Toronto Stock Exchange in April of 2001.

 

Organizational Structure of the Company

 

The following diagram sets forth the simplified organizational structure of the Company’s continuing operations:

 

 

 

Notes:

 

(1)The Canadian Subsidiaries are corporations, limited partnerships, and unlimited liability companies directly or indirectly wholly-owned by the Company. The Canadian material or operating Subsidiaries are Just Energy Ontario L.P. (Ontario); Just Energy Alberta L.P. (Alberta); Just Green L.P. (Alberta); Just Energy Manitoba L.P. (Manitoba); Just Energy B.C. Limited Partnership (British Columbia); Just Energy Québec L.P. (Quebec); Just Energy Prairies L.P. (Manitoba); Just Energy Trading L.P. (Ontario); Filter Group Inc.; and Hudson Energy Canada Corp. (Canada). Just Energy Corp. is the general partner of each of the Canadian operating limited partnerships. Additionally, the Company indirectly holds an approximate 8% fully diluted interest in ecobee Inc., a manufacturer and distributor of smart thermostats located in Toronto, Ontario.
(2)The U.S. Subsidiaries are corporations, limited liability companies and limited partnerships indirectly wholly-owned by the Company and are incorporated or formed, as applicable, under the laws of the State of Delaware, unless otherwise noted. The U.S. material or operating Subsidiaries are Just Energy (U.S.) Corp.; Just Energy Illinois Corp.; Just Energy Indiana Corp.; Just Energy Massachusetts Corp.; Just Energy New York Corp.; Just Energy Texas I Corp.; Just Energy Texas LP (Texas); Just Energy Pennsylvania Corp.; Just Energy Solutions Inc. (California); Just Energy Marketing Corp.; Just Energy Michigan Corp.; Hudson Energy Services LLC (New Jersey); Just Energy Limited; Fulcrum Retail Energy LLC d/b/a Amigo Energy (Texas); Tara Energy, LLC (Texas); Just Solar Holdings Corp.; and Interactive Energy Group LLC.

 

 

 2 

 

Brands

 

The Company operates under the following brands:

 

 

Articles of Arrangement of the Company

 

Below is a summary of the Articles of Arrangement of the Company. For a full description, please see www.sedar.com, www.sec.gov or www.justenergygroup.com.

 

Share Capital of the Company

 

The authorized share capital of the Company consists of an unlimited number of Common Shares and 50,000,000 Preferred Shares of which, as of July 07, 2020, 151,640,574 Common Shares and 4,662,165 Preferred Shares were issued and outstanding. The Company’s Common Shares are listed on the Toronto Stock Exchange (TSX: JE) and the New York Stock Exchange (NYSE: JE) and the Company’s Preferred Shares are listed on the Toronto Stock Exchange (TSX: JE.PR.U) and on the New York Stock Exchange (NYSE: JE.PR.A).

 

Common Shares

 

Each Common Share entitles the holder thereof to receive notice of and to attend all meetings of shareholders of the Company and to one vote per share at such meetings (other than meetings of another class of shares of the Company). The holders of Common Shares are, at the discretion of the Board and subject to the preferences accorded to the holders of Preferred Shares and any other shares of the Company ranking senior to the Common Shares from time to time, as well as applicable legal restrictions, entitled to receive any dividends declared by the Board of Directors on the Common Shares.

 

Preferred Shares

 

The Board may at any time in accordance with the CBCA issue Preferred Shares in one or more series, each series to consist of such number of shares and rights, privileges, restrictions and conditions as may be determined by the Board prior to such issuance. Except where specifically provided by the CBCA, the holders of the Preferred Shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and shall not be entitled to vote at any such meeting. The holders of each series of Preferred Shares shall be entitled, in priority to holders of Common Shares and any other shares of the Company ranking junior to the Preferred Shares from time to time, to be paid rateably with holders of each other series of Preferred Shares, the amount of accumulated dividends, if any, specified as being payable preferentially to the holders of such series.

 

8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

The first series of Preferred Shares consists of up to 10,000,000 Preferred Shares, designated as the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “Series A Preferred Shares”).

 

The Series A Preferred Shares rank senior to the Common Shares and to any other equity securities the terms of which specifically provide that they rank junior to the Preferred Shares. The Series A Preferred Shares shall rank junior to the Company’s existing and future indebtedness.

 

Except as provided by applicable law and as provided for herein, holders of Series A Preferred Shares will have no voting rights. Holders of Series A Preferred Shares shall be entitled to vote separately as a class to: (a) amend, alter or repeal any provisions of the Company’s articles relating to the Series A Preferred Shares to affect materially and adversely the rights, privileges, restrictions or conditions of the Series A Preferred Shares; or (b) authorize, create or increase the authorized amount of, any class or series of shares having rights senior to the Series A Preferred Shares with respect to the payment of dividends or amounts upon liquidation, dissolution or winding up.

 3 

 

Holders of the Series A Preferred Shares are entitled to receive, when, as and if declared by the Board of Directors, out of funds legally available for the payment of dividends, cumulative cash dividends. During each dividend period from, and including, the date of original issuance to, but not including, March 31, 2022, dividends on the Series A Preferred Shares will accrue at the rate of 8.50% per annum of the Liquidation Preference. During each dividend period from, and including, March 31, 2022, to, but not including, March 31, 2027, dividends on the Series A Preferred Shares will accrue at an annual rate equal to the sum of (i) 6.48% plus the Mid Market Swap Rate as calculated on the immediately preceding dividend payment date and (ii) 0.50%, of the Liquidation Preference. During each dividend period from and including March 31, 2027, and thereafter, dividends on the Series A Preferred Shares will accrue at an annual rate equal to the sum of (i) 6.48% plus the Mid Market Swap Rate as calculated on the immediately preceding dividend payment date and (ii) 1.00%, of the Liquidation Preference. Dividends on the Series A Preferred Shares shall accrue daily and be cumulative from, and including, the date of original issue of each Series A Preferred Share and shall be payable quarterly on the last day of each March, June, September and December (each, a “dividend payment date”). On December 2, 2019, the Board of Directors suspended the dividend on the Preferred Shares.

 

Except where specifically provided by the CBCA, the holders of the Preferred Shares shall not be entitled to receive notice of or to attend any meeting of the shareholders of the Company and shall not be entitled to vote at any such meeting.

 

On and after March 31, 2022, the Company may, at its option, upon not less than 30 nor more than 60 days’ written notice, redeem the Series A Preferred Shares, in whole or in part, at any time or from time to time, for cash at a redemption price per Series A Preferred Share equal to the Liquidation Preference, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. Upon the occurrence of a Change of Control (i) at any time on or after March 31, 2022, and (ii) provided that there is not a credit document prohibiting the same, the Company may, at its option, upon not less than 30 nor more than 60 days written notice, redeem the Series A Preferred Shares, in whole or in part, within 120 days after the first date on which such Change of Control occurred, for cash at a redemption price per Series A Preferred Share equal to the Liquidation Preference, plus any accumulated and unpaid dividends thereon to, but not including, the date fixed for redemption. If, prior to the Change of Control Conversion Date, the Company has provided notice of redemption of some or all of the Series A Preferred Shares, the holders of Series A Preferred Shares will not have the Change of Control Conversion Right with respect to the Series A Preferred Shares so called for redemption.

 

Upon the occurrence of a Change of Control, each holder of Series A Preferred Shares will have the right (unless, prior to the Change of Control Conversion Date, the Company has provided or provides irrevocable notice of the Company’s election to redeem the Series A Preferred Shares, in which case each such holder will only have the right with respect to the Series A Preferred Shares not called for redemption) to convert some or all of the Series A Preferred Shares held by such holder on the Change of Control Conversion Date into a number of Common Shares per Series A Preferred Share, which is equal to the lesser of (A) the quotient obtained by dividing (i) the sum of the Liquidation Preference plus the amount of any accumulated and unpaid dividends (whether or not declared) to, but not including, the Change of Control Conversion Date (unless the Change of Control Conversion Date is after a dividend record date for a dividend declared on the Series A Preferred Shares and prior to the corresponding dividend payment date, in which case no additional amount for such accumulated and unpaid dividend will be included in this sum) by (ii) the Common Share Price; and (B) 8.606 Common Shares.

 

Liquidation, Dissolution or Winding-up

 

In the event of the liquidation, dissolution or winding-up of the Company or other distribution of its assets among its shareholders, the holders of the Preferred Shares and Common Shares shall be entitled, after payment of all liabilities of the Company, to share in all remaining assets of the Company as follows:

 

(a)the holders of the Preferred Shares shall be entitled in priority to holders of Common Shares and any other shares of the Company ranking junior to the Preferred Shares from time to time, to be paid rateably with holders of each other series of Preferred Shares in the amount, if any, specified as being payable preferentially to the holders of such series; and
 4 

 

(b)the holders of the Common Shares shall be entitled, subject to the preferences accorded to holders of Preferred Shares and any other shares of the Company ranking senior to the Common Shares from time to time, to share equally, share for share, in the remaining property of the Company.

 

three year history of the company

 

During the past three years the Company has been involved in several significant events. These events are described below in chronological order.

 

Amendments to Debt Covenants

 

On July 2, 2020, the Company announced that it had amended its senior secured credit facility to increase the senior debt to EBITDA covenant ratio from 1.50:1 to 2.00:1 and the total debt to EBITDA covenant from 3.50:1 to 4.00:1 with respect to the fiscal quarter ending June 30, 2020. In addition, the lenders under the Company’s senior unsecured term loan facility waived compliance with the senior debt to EBITDA and total debt to EBITDA covenants contained therein for the fiscal quarter ending June 30, 2020.

 

Sale of Japanese Business

 

On April 13, 2020, the Company announced that it sold all of the shares of Just Energy Japan KK (“Just Energy Japan”) to Astmax Trading, Inc. The purchase price was nominal, as the business was still in its start-up phase with more liabilities than assets and had fewer than 1,000 customers.

 

Update on the Strategic Review and COVID-19

 

On April 9, 2020, the Company provided a business update relating to the impact of the COVID-19 pandemic on its business, which it has been closely monitoring and assessing. The Company had taken a number of steps to ensure the health and safety of its employees, customers and communities, including suspending door-to-door selling, in-store retail partnerships and all business travel, as well as requiring employees to work from their homes unless required for business continuity.

 

Just Energy also provided an update on its previously announced strategic review process, which has taken into account the impact of COVID-19 on the Company and the markets more generally. Since the commencement of the strategic review on June 6, 2019, the Company had taken a number of actions to improve and optimize the Company’s business and refine its geographic footprint, including the sale of its U.K. operations, Irish business and certain other assets. The Company also cut approximately $60 million in costs in fiscal 2020, net of costs associated with severance and the strategic review process. The Company advised that it is no longer in active discussions regarding a specific transaction at this time, but is continuing to explore and evaluate alternatives under the strategic review process, including additional cost reduction and optimization strategies, improving efficiencies and eliminating redundancies, sales of certain assets, improvements to liquidity and leverage, refinancings and the sale of the entire business. Such efforts are being pursued with the goal of strengthening the Company’s financial foundation for the long-term benefit of Just Energy and its stakeholders as the Company continues to face and respond to the realities of the COVID-19 pandemic. The Company cautioned that there is no assurance that a transaction will result from the strategic review.

 

Shareholder Meeting Date Set

 

On April 6, 2020, Just Energy announced that it will hold its annual and special meeting of shareholders (the “Meeting”) on August 11, 2020.  The meeting will deal with normal course matters, matters related to the requisition for a special meeting of shareholders received by Robert L. Snyder Trust – 2005 Stream (“Snyder”) and any other necessary business.  The date selected reflected the impact of the ongoing COVID-19 pandemic, associated restrictions on public gatherings, and the difficulties in holding a potentially contested virtual-only meeting in Canada.

 

Amendments to Debt Covenants

 

On April 1, 2020, the Company announced that it amended its senior secured credit facility to increase the senior debt to EBITDA covenant ratio from 1.50:1 to 2.15:1 and the total debt to EBITDA covenant from 3.50:1 to 4.00:1 for the fourth quarter of the Company’s fiscal year ended March 31, 2020 (the “fourth quarter of Fiscal 2020”). In addition, the Company amended the covenants on its senior unsecured term loan facility to increase the senior debt to EBITDA covenant ratio from 1.65:1 to 2.30:1 and the total debt to EBITDA covenant from 3.50:1 to 4.25:1 for the fourth quarter of Fiscal 2020. Both changes are effective for the fourth quarter of Fiscal 2020 and the covenants will revert to the prior levels following March 31, 2020.

 5 

 

Receipt of Continued Listing Standards Notice from the NYSE

 

On March 24, 2020, the Company announced that on March 23, 2020 it received written notification from the New York Stock Exchange that it was not in compliance with the standard set forth in Rule 802.01C of the NYSE Listed Company Manual that requires listed companies to maintain an average closing share price of at least US$1.00 over a consecutive 30 trading-day period. This notification is not discretionary and is sent when a listed company’s share price falls below the NYSE’s minimum price listing standard. The Company has six months following the receipt of the noncompliance notice to cure the deficiency and regain compliance. Under the NYSE rules, the Company can regain compliance at any time during the six-month cure period if, on the last trading day of any calendar month during the cure period, its common stock has a closing share price of at least US$1.00 and an average closing share price of at US$1.00 over the 30 trading-day period ending on the last trading day of that month. Failure to regain compliance during the cure period or the Company’s failure to maintain other listing requirements could lead to a delisting. During this period, the Company’s common stock will continue trading on the NYSE under its existing ticker symbol, with the addition of a suffix indicating the “below compliance” status of its common stock, as “JE.BC.” The trading of Just Energy’s shares on the Toronto Stock Exchange remains unaffected. The notice does not affect the Company's business operations, or its Securities and Exchange Commission reporting requirements, and does not conflict with or cause an event of default under any of the Company's material debt agreements. The six-month period was subsequently extended to December 2, 2020, by the NYSE due to COVID-19.

 

Receipt of Shareholder Meeting Requisition

 

On March 18, 2020, the Company confirmed that on March 17, 2020, it received a letter from the Robert L. Snyder Trust – 2005 Stream, a shareholder beneficially holding more than 5% of the Common Shares of Just Energy, requisitioning a Just Energy shareholder meeting.

 

Receipt of Shareholder Proposals

 

On March 2, 2020, the Company confirmed that it received two shareholder proposals, on February 28, 2020, the deadline for shareholder proposals to be included in the management information circular for the 2020 annual general meeting of shareholders of the Company, by the Robert L. Snyder Trust – 2005 Stream. Pursuant to the shareholder proposals, Snyder proposed to increase the number of directors of Just Energy from six to eight, and to nominate six directors as candidates for election to the Board of Directors at the Company’s 2020 Annual Meeting of Shareholders. The Company also announced that the previously announced strategic review remains active and the Company expects to announce the outcome of this review by June 30, 2020.

 

Sale of Assets in Georgia and Closing of Sale of Irish Business

 

On December 31, 2019, the Company announced the sale all of its customer contracts and natural gas in storage in the State of Georgia to Infinite Energy for approximately US$3.4 million (approximately C$4.4 million), subject to customary adjustments. The Company advised that the Georgia market has limited growth possibility and was sub-scale for Just Energy.

 

In addition, the Company announced that it closed the previously announced sale of its Irish operations to Flogas Natural Gas Limited for approximately €700 thousand (approximately C$1.0 million), subject to customary adjustments.

 

Amendment to Covenants; Suspension of Preferred Share Dividend

 

On December 2, 2019, the Company announced that it amended its senior secured credit facility to increase the senior debt to EBITDA covenant ratio from 1.50:1 to 2.00:1 for the third quarter of Fiscal 2020. In addition, the Company amended the covenants on its senior unsecured term loan facility to increase the senior debt to EBITDA covenant ratio from 1.65:1 to 2.15:1 for the third quarter of Fiscal 2020. Both changes were effective only for the third quarter of Fiscal 2020 and the covenants revert to the prior levels following December 31, 2019. In connection with the amendments, the agreements governing both facilities were changed to restrict the declaration and payment of dividends on the Company’s Preferred Shares until the Company’s senior debt to EBITDA ratio is no more than 1.50:1 for two consecutive fiscal quarters. Accordingly, the Company suspended, with immediate effect, the declaration and payment of dividends on the Preferred Shares until the Company is permitted to declare and pay dividends under the agreements governing its facilities. However, dividends on the Series A Preferred Shares will continue to accrue in accordance with Series A Preferred Share terms during the period in which dividends are suspended. Any dividend payment following the suspended period will be credited against the earliest accumulated but unpaid dividend.

 6 

 

Closing of Sale of UK Operations

 

On November 29, 2019, the Company announced the closing of its previously announced sale of Hudson Energy Supply UK Limited (“Hudson UK”) to Shell Energy Retail Limited. Pursuant to the share purchase agreement, the aggregate amount of the closing consideration received was approximately £1.5 million (approximately C$2.8 million), following the closing adjustments. While the capacity market payments were reinstated in the UK in late October, any contingent consideration due to Just Energy will be paid following the determination of Hudson UK’s ultimate capacity market payment for the period up to June 30, 2019.

 

Announcement of Sale of UK Operations

 

On October 8, 2019, the Company announced the execution of a share purchase agreement to sell the Company’s UK operations, Hudson Energy Supply UK Limited to Shell Energy Retail Limited (“Shell Energy Retail”) for up to £10.5 million (approximately C$17 million). In addition, the Company has identified an incremental approximate C$20 million in annualized cost savings through its ongoing optimization efforts.

 

The sale of Hudson UK advanced the Company’s plan to streamline its operations, allowing the Company to narrow its geographic focus and concentrate on its core operations. In addition, the sale improves Just Energy’s liquidity position by eliminating significant capital investments in Hudson UK that would otherwise have been required in the short term to support the UK operations and to further grow the UK business.

 

Pursuant to the share purchase agreement, Just Energy announced it will receive £2 million (approximately C$3.2 million) at closing, adjusted by normal closing adjustments, and up to £8.5 million (approximately C$13.8 million) to be paid depending on whether the Office of Gas and Electricity Markets (Ofgem) or the Department for Business, Energy and Industrial Strategy reinstate the capacity market payments in the UK within a specified period of time.

 

Suspension of Common Share Dividend

 

As of August 14, 2019, the Board of Directors of the Company suspended the Common Share dividend.

 

Restatement of F2019 Audited Financial Statements and Q3 F2019 Interim Unaudited Financial Statements

 

Subsequent to the issuance of the financial statements for the year ended March 31, 2019, management identified an impairment of certain accounts receivable within the Texas residential markets of $58.6 million at June 30, 2019, of which $34.5 million related to the quarter ended December 31, 2018. The Company determined that the allowance for doubtful accounts related to the U.K. receivables required an adjustment of $74.1 million at June 30, 2019, of which $40.1 million related to the quarter ended December 31, 2018, $17.4 million related to the quarter ended March 31, 2019 and $16.6 million related to the quarter ended June 30, 2019.

 

Appointment of R. Scott Gahn as President and Chief Executive Officer

 

On August 5, 2019, the Company announced that Patrick McCullough departed the Company as President and Chief Executive Officer and stepped down from the Board of Directors. The Company named R. Scott Gahn as its President and Chief Executive Officer. Mr. Gahn has a long history in the deregulated energy industry, having served on the Electric Reliability Council of Texas board from 2005 to 2008 and having been involved in the sale of deregulated and regulated electricity and natural gas for over 28 years. He was one of the founding shareholders and Chief Executive Officer of Just Energy Texas LP, which was acquired by the Company in 2007. Following the acquisition, Mr. Gahn was the Chief Operating Officer of Just Energy until June 2011. He was appointed to the Board of Directors in December 2013.

 

 7 

 

Repurchase of US$13.2 Million and Extension of US$9.2 Million of the US$150 Million Convertible Bonds

 

On July 29, 2019, the Company redeemed US$13,200,000 in aggregate principal amount of US$150 Million Convertible Bonds. In addition, holders of US$9,200,000 in aggregate principal amount of the bonds elected to extend the maturity date of the bonds to December 31, 2020, pursuant to an option offered by the Company. The redemption was funded through the financing announced by the Company on September 12, 2018. All Bonds redeemed were submitted for cancellation.

 

Adjustment of Accounts Receivable

 

On July 23, 2019, the Company announced that as part of the previously announced Strategic Review process, management identified customer enrolment and non-payment issues, primarily in Texas, over the prior 12 months. As management identified these issues, more robust operational controls were put in place, culminating in numerous improvements being implemented during June and July 2019. Due to the identified issues, management updated its provisioning methodology used to estimate its reserve for trade receivables. Management expected an incremental impairment of the Texas residential accounts receivable of approximately $45 to $50 million as of June 30, 2019.

 

Option to Extend Maturity Date of Outstanding US$150 Million Convertible Bonds

 

On July 17, 2019, the Company announced that it provided notice to holders of its outstanding US$150 Million Convertible Bonds, due to mature on 29 July 2019, of an option to extend the maturity of the bonds to December 31, 2020 (the “Extension Option”).

 

Increase to the Credit Facility and Amendment to Senior Leverage Covenant

 

On June 28, 2019, Just Energy announced that its wholly owned subsidiaries, Just Energy Ontario L.P. and Just Energy (U.S.) Corp.,  completed an increase of their senior secured credit facility among National Bank of Canada, as Administrative Agent, and a syndicate of lenders, from C$352.5 million to C$370 million.  The senior debt to EBITDA covenant was amended from a ratio of 1.50:1 to 1.85:1 for the first quarter of Fiscal 2020.

 

Strategic Review Process

 

On June 6, 2019, the Company announced that its Board of Directors had decided to undertake a formal review process to evaluate strategic alternatives available to the Company (the “Strategic Review”). This decision followed expressions of interest from a number of parties concerning potential transactions involving the Company.

 

The Board of Directors appointed its Strategic Initiatives Committee, comprised of all of the independent directors, to oversee the Strategic Review, with the assistance of Guggenheim Partners, LLC and National Bank Financial Inc., who were retained as co-financial advisors.

 

Repurchase of US$21.8 Million of the US$150 Million Convertible Bonds

 

On March 25, 2019, the Company announced the repurchase of US$21,800,000 in aggregate principal amount of the US$150 Million Convertible Bonds through open market repurchases (the “OMR”). The OMR was funded through the financing announced by the Company on September 12, 2018. All Bonds repurchased pursuant to the OMR have been submitted for cancellation. Holders located in or resident in Canada were required to provide a signed confirmation and consent in the form approved by the Ontario Securities Commission in order for the Company to repurchase their Bonds.

 

Discontinued Operations

 

In March 2019, the Company formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. The decision was part of a strategic transition to a consumer-focused company. The disposal of the operations is expected to be completed within the next twelve months.

 

 

 8 

 

Cost Reduction Initiative

 

On March 21, 2019, the Company announced the elimination of over 200 positions, equating to approximately $40 million in general and administrative savings in the upcoming Fiscal Year.

 

Repurchase of US$60.2 Million of the US$150 Million Convertible Bonds

 

On February 21, 2019, the Company announced the repurchase of an aggregate principal amount of US$60,200,000 of the US$150 Million Convertible Bonds.

 

Addition of Insurance Wrap

 

On October 9, 2018, the Company announced that it entered into a Multi-Year Contingent Business Interruption Insurance Agreement (the “Insurance”) with Interstate Fire & Casualty Company (“IFCC”), a subsidiary of Allianz Global Corporate & Specialty SE. USI Insurance Services (“USI”) collaborated with Just Energy to customize and place the Insurance. The Insurance provides up to US$25 million of insured limit per event, US$50 million per year and US$225 million of limit over an eighty month term, covering risks such as loss of income due to natural perils, sabotage, terrorism including cyberattack, increased cost of supply from damage to supply and distribution infrastructure, interruption due to damage to customer property, losses in excess of Just Energy’s weather derivative program recoveries, and any unforeseen or unplanned weather related loss. The coverage period started August 1, 2018, and the initial premium was US$9.5 million per annum adjustable annually depending on loss experience. The policy structure allows for annualized amount of up to US$6.5 million return of premiums depending on loss experience and can be cancelled annually.

 

Acquisition of Filter Group Inc.

 

On October 1, 2018, the Company acquired Filter Group Inc. (“Filter Group”), a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Headquartered in Toronto, Ontario, Filter Group currently provides under-counter and whole-home water filtration solutions to residential markets in the provinces of Ontario and Manitoba and the states of Nevada, California, Arizona, Michigan and Illinois.

 

The Company acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third-party Filter Group debt. The aggregate consideration payable by the Company under the Purchase Agreement is comprised of: (i) $15 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy Common Shares (with up to an additional 2.4 million Just Energy Common Shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 

The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this was a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

 

Repurchase of US$45.6 Million of the US$150 Million Convertible Bonds

 

On September 19, 2018, the Company announced the repurchase of an aggregate principal amount of US$45,600,000 of the US$150 Million Convertible Bonds.

 

US$250 Million Term Financing

 

On September 12, 2018, the Company announced a US$250 million (approximately C$325 million equivalent) non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager. The Loan will bear interest at 8.75% per annum and will mature on September 12, 2023. The Company intends to use the net proceeds of this loan to repurchase the US$150 Million Convertible Bonds, for general corporate purposes, including to pay down the Company’s credit line, and for future acquisitions.

 9 

 

Credit Facility Renewal

 

On April 18, 2018, the Company announced that it renegotiated an agreement with a syndicate of lenders that includes CIBC, National Bank of Canada, HSBC Bank Canada, JPMorgan Chase Bank N.A., ATB Financial and Canadian Western Bank. In addition, Morgan Stanley Senior Funding, Inc., a subsidiary of Morgan Stanley Bank N.A., joined the syndicate. Current lenders, CIBC and National Bank of Canada served as Co-Lead Arrangers and Joint Bookrunners. The agreement extends Just Energy’s credit facility for an additional two years to September 1, 2020. The facility size was increased to $352.5 million from $342.5 million, with an accordion for Just Energy to draw up to $370 million.

 

Leadership Transition

 

On March 20, 2018, the Company announced that Deborah Merril and James Lewis were transitioning out of their President and Co-CEO roles and Patrick McCullough, Just Energy’s CFO, would be appointed as President and CEO and join the Board of Directors, effective April 1, 2018. Jim Brown, the President of Just Energy’s commercial business, replaced Mr. McCullough as CFO as of April 1, 2018. Ms. Merril and Mr. Lewis continued as directors of the Company. Ms. Merril and Mr. Lewis also provided advisory services to the Company until December 31, 2018.

 

Early Redemption of $100 Million Convertible Debentures

 

On March 27, 2018, the Company announced that it closed the redemption of the $100 Million Convertible Debentures scheduled to mature on September 30, 2018. The Company paid in cash to the holders of such debentures a redemption price equal to $1,028.0411 for each $1,000 principal amount of debentures, being equal to the aggregate of $1,000 and all accrued plus unpaid interest thereon to but excluding the redemption date, in each case less any taxes required to be deducted or withheld.

 

Normal Course Issuer Bid (2018)

 

On March 15, 2018, the Company announced its intention to initiate a normal course issuer bid for its 6.75% $160 Million Convertible Debentures and to renew its normal course issuer bid for its Common Shares. The notice provided that the Company may, during the 12-month period commencing March 19, 2018, and ending March 15, 2019, purchase on the Toronto Stock Exchange, the New York Stock Exchange (only in respect of the Common Shares) or alternative trading systems, if eligible, up to $16,000,000 of the $160 Million Convertible Debentures and up to 9,733,847 Common Shares, being 10% of the “public float” of the $160 Million Convertible Debentures and the Common Shares. The aggregate amount of the $160 Million Convertible Debentures and Common Shares that the Company may purchase during any trading day would not exceed $38,565 and 115,449, respectively, being approximately 25% of the average daily trading volume of the $160 Million Convertible Debentures and the Common Shares based on the trading volume on the TSX for the most recently completed six calendar months. Any of the $160 Million Convertible Debentures and Common Shares purchased pursuant to this normal course issuer bid will be cancelled by the Company. The price that the Company will pay for the $160 Million Convertible Debentures and Common Shares will be the market price at the time of acquisition.

 

6.75% Convertible Unsecured Senior Subordinated Debenture Offering

 

On February 12, 2018, Just Energy entered into an underwriting agreement with a syndicate of underwriters, pursuant to which Just Energy issued, on February 22, 2018 on a “bought deal” basis, $100,000,000 aggregate principal amount of convertible unsecured senior subordinated debentures at a price of $1,000 per debenture (the “6.75% 100 Million Convertible Debentures”). The debentures bear interest from the date of issue at 6.75% per annum, with interest payable semi-annually in arrears on March 31 and September 30 of each year commencing on September 30, 2018. The debentures will mature on March 31, 2023.

 

 10 

 

EdgePower Acquisition

 

On February 5, 2018, Just Energy and Just Energy (U.S.) Corp. entered into the Share Purchase Agreement with the Sellers, pursuant to which Just Energy (U.S.) Corp. agreed to acquire all of the issued and outstanding shares of EdgePower for total consideration of approximately US$14 million on closing, subject to customary adjustments based on working capital (the “Purchase Price”). The Purchase Price consisted of: (i) US$7 million in cash; (ii) US$7 million to be satisfied by the issuance of the Consideration Shares (the “Share Consideration Amount”), approximately 43% of which is subject to a three-year escrowed hold period; and (iii) a one-time performance-based payout of 20% of the cumulative EBITDA over three years, up to a maximum of US$6 million subject to annual and cumulative thresholds. The specific number of Consideration Shares to be issued as part of the Purchase Price was determined by dividing (A) the Share Consideration Amount by (B) the sum of the daily dollar volume weighted average price for a Common Share on the NYSE for each of the five trading days ending on and including the second trading day immediately prior to the Closing Date, divided by five.

 

At-the-Market Offering Renewal

 

On January 5, 2018, Just Energy renewed its at-the-market offering in the United States of up to US$146,096,810 million aggregate principal amount of 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares pursuant to a prospectus supplement dated January 5, 2018. Dividends on the Preferred Shares will initially accrue at the rate of 8.50% per annum of the US$25.00 liquidation preference per Preferred Share and will thereafter accrue at a floating rate. The Preferred Shares are convertible into Common Shares upon a change of control of Just Energy.

 

Energy Broker Business

 

In the fall of 2017, the Company launched its energy broker business under the brand Interactive Energy Group, which markets energy solutions to businesses for multiple suppliers. Just Energy also provides LED retrofit services in certain markets including Ontario and Texas.

 

Termination of Exclusivity with Red Ventures LLC

 

On August 1, 2017, the Company announced that it had reached an agreement with its joint venture partner, Red Ventures LLC, to end the exclusive relationship for online sales of the Just Energy brand in North America. To facilitate the transaction, Just Energy acquired the outstanding 50% interest of Just Ventures LLC in the United States and Just Ventures L.P. in Canada.

 

BUSINESS OF JUST ENERGY

 

General

 

Just Energy is a retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions and renewable energy options to customers. Currently operating in the United States and Canada, Just Energy serves residential and commercial customers. Just Energy is the parent company of Amigo Energy, Filter Group, Hudson Energy, Interactive Energy Group, Tara Energy and terrapass.

 

By fixing the price of electricity or natural gas under its fixed-price energy contracts for a period of up to five years, Just Energy’s customers offset their exposure to changes in the price of these essential commodities. Variable and indexed rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat bill products offer a consistent price regardless of usage. The Company derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the price at which it purchases the associated volumes from its commodity suppliers as well as from margins obtained through the sale of home energy management services and products. Under the Company’s terrapass brand, through carbon offset and Renewable Energy Credits programs, customers can reduce the negative impact of their own day-to-day energy consumption. The Company launched its energy broker business under the brand Interactive Energy Group in the fall of 2017 which markets energy solutions to businesses for multiple suppliers. Through Filter Group, the Company sold water filtration systems in Ontario, California, Nevada and Texas.

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The Company’s operating Subsidiaries currently carry on business in the United States in the states of Illinois, New York, Indiana, Michigan, Ohio, New Jersey, California, Maryland, Pennsylvania, Massachusetts, Texas and Delaware and in Canada in the provinces of Ontario, Alberta, Manitoba, Québec, British Columbia and Saskatchewan.

 

The map in Fig-1 below shows the jurisdictions in the United States and Canada in which Just Energy operates.

 

Fig-1:

 

 

As of March 31, 2020, Just Energy had aggregated approximately 3,396,000 RCEs, with approximately 35% from its Consumer Division (residential and small business) and 65% from its Commercial Division.

 

Consumer Division

 

Electricity

 

In the Provinces of Ontario and Alberta and the States of New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California, Ohio, Delaware and Massachusetts, Just Energy and its affiliates offer a variety of solutions to its electricity customers, including fixed-price, variable-price, and flat-bill products on both short-term and longer-term electricity contracts. Some of these products provide customers with price-protection programs for the majority of their electricity supply requirements. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.

 

The Local Distribution Companies (“LDCs”) provide billing in all electricity markets except Alberta and Texas (see “Business of Just Energy – Natural Gas”). The LDCs also provide collection services, including the collection and remittance to Just Energy of the commodity portion of each customer’s account for a small monthly fee, except in Alberta, California, Massachusetts and Texas. In California and Massachusetts, the LDC provides collection services only until the account is delinquent. In Alberta and Texas, Just Energy bills and collects itself. In Ontario, New York, Pennsylvania, New Jersey, Ohio, Illinois, Maryland and Michigan, each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential customers.

 

Natural Gas

 

Just Energy and its affiliates offer natural gas customers a variety of products, such as five-year fixed-price contracts, flat-bill options and month-to-month variable-price offerings in the Provinces of Ontario, Québec, British Columbia, Alberta, Manitoba and Saskatchewan, and in the States of Maryland, Michigan, New York, Illinois, Indiana, Ohio, California, Pennsylvania and New Jersey. Although customers purchase their gas supply through Just Energy, the LDC is still mandated, on a regulated basis, to distribute the gas. Except in Alberta, the LDCs provide billing and, except in Alberta, Illinois and California, the LDCs provide collection services, including the collection and remittance to Just Energy of the commodity portion of each customer’s account for a small monthly fee. In Illinois and Pennsylvania, the LDC provides collection services only until the account is delinquent. In Ontario, British Columbia, Manitoba, Quebec, New York, Ohio and Michigan, each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential and commercial customers. In all Canadian markets except for Alberta, the LDCs pay Just Energy for the gas when it is delivered. In other jurisdictions, including Alberta, Just Energy is paid upon consumption by the customers.

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Filter Group

 

Acquired by the Company on October 1, 2018, Filter Group is a provider of subscription-based home water filtration systems to residential customers in Canada and the United States. Filter Group offers consumers both under-counter and whole-home water filtration systems.

 

Commercial Division

 

Just Energy’s commercial business is operated primarily through Hudson Energy. Hudson Energy offers fixed and variable rate natural gas and electricity contracts, as well as more customized products to meet the needs of specific customers. Hudson Energy generates the majority of its sales through a large network of non-exclusive independent brokers. Some sales are also made through Independent Contractors, exclusive brokers, and inside sales teams. With its web-based sales portal, Hudson Connex, Hudson Energy has technology that enables more efficient selling of products to commercial customers by delivering customer-specific pricing and contract documents on demand. Hudson Connex also provides tools for independent brokers to manage their customer accounts after the sale is complete. Except in Alberta, Illinois, and Texas, the LDC provides billing and collection services for the majority of Hudson Energy customers. In New Jersey and California, the LDC provides collection services only until the account is delinquent.

 

Interactive Energy Group

 

The Company launched its energy broker business under the brand Interactive Energy Group in the fall of 2017. This business markets energy solutions to businesses for multiple suppliers.

 

JustGreen and terrapass

 

Just Energy also offers carbon offsets and renewable energy certificates through its JustGreen Electricity and Natural Gas, and terrapass programs. Sales of these products continue to support and reaffirm the strong customer demand for green product options in all markets.

 

JustGreen™

 

The JustGreen electricity product offers customers the option of choosing renewable energy certificates which contribute to ‘greening the grid’. The JustGreen Gas product offers carbon offsets which allow the customer to reduce the carbon footprint of their home or business associated with the gas purchased from Just Energy.

 

Just Energy believes that these JustGreen products will not only add to profits, but also increase sales receptivity. When a customer purchases a unit of JustGreen Electricity or Natural Gas, it creates a contractual obligation for Just Energy to obtain renewable energy certificates or carbon offsets of a quantity at least equal to the demand created by the customer’s purchase. Of all residential customers who contracted with Just Energy in the year ending March 31, 2020, 58% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 88% of their consumption as green supply.

 

Terrapass

 

Since 2004, terrapass has been a provider of sustainable carbon emissions solutions. Terrapass supports projects throughout North America that reduce greenhouse gases and produce renewable energy. Terrapass products and services provide consumers and businesses with options to help them reduce the environmental impact of their everyday activities through carbon offsets, renewable energy certificates and BEF Water Restoration Certificates.

 

The Company retains an independent auditor to validate its renewable and carbon offset purchases annually to ensure that customer requirements have been matched or exceeded with relevant carbon offsets or renewable energy certificates for both JustGreen and terrapass products. An independent auditor has performed this review since 2009 and determined that Just Energy was compliant each year.

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Marketing

 

Residential customers are contracted through a number of sales channels including online, retail stores, telemarketing, door-to-door and affinity programs. Commercial customers are primarily obtained through independent brokers utilizing the Hudson Connex sales portal to solicit Energy Contracts but also uses door-to-door, telemarketing and affinity relationships. On April 1, 2020, Just Energy announced that due to COVID-19, the Company had taken several proactive steps to support the health and well-being of its customers, employees, their families and the communities in which it operates, including the suspension of door-to-door selling and in-store retail partnerships. In May and June 2020, in-store retail selling commenced again in a reduced number of stores; however, door-to-door selling did not recommence and the Company continues to evaluate the viability of the channel.

 

Corporate Social Responsibility

 

Community Investment

 

Just Energy conducts business with a mind that its activities benefit the communities in which it operates through job creation, charitable donations and employee volunteerism.

 

Support for communities

 

As a leading energy retailer in North America, Just Energy’s vision is to support organizations in Canada and the United States that make positive contributions to energy consumers. The Company is dedicated to supporting organizations that work to provide financial aid and resources to disadvantaged/high-needs communities. Through such support, Just Energy is committed to being a strong corporate citizen and community partner to promote the livelihood and enhance the quality of life for those most vulnerable.

 

Women’s Leadership Council

 

The Women’s Leadership Council was formed in 2016 to cultivate the success and leadership of women at Just Energy. The Council hosts social events to encourage industry networking in addition to offering women at all levels of the Company the opportunity to participate workshop sessions focused on professional development. Since 2019, the Council has been a member in the Hawthorn Club, a global network of executive women whose mission is to promote the appointment of women to senior corporate positions and boards, and to facilitate gender diversity within the energy sector.

 

Environmental Stewardship

 

Just Energy provides sustainable energy solutions to residential and commercial customers that allow them to reduce their environmental impact. See “Just Green” and “terrapass” on pages 13 and 14. The renewable energy and renewable energy credits are sourced from EDP Renewables’ Lone Star II Wind Farm.

 

Accountability and transparency

 

Just Energy proactively evaluates its green energy sales to ensure the Company’s project investments match customers’ green energy selections. Just Energy’s green purchases are reviewed annually by Grant Thornton LLP. This validates that the money spent by customers on Just Energy’s green products through terrapass.com or with JustGreen Natural Gas and Power goes directly to renewable energy or carbon offset projects.

 

One hundred percent of the carbon offsets purchased are verified and validated against broadly accepted protocols by independent third party verifiers.

 

 

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Standards and certifications

 

Terrapass Renewable Energy Credits (“RECs”) are certified by Green-E Energy (U.S.) and EcoLogo (Canada) to assure transparency and quality in creation, quantification, and verification. Each REC receives a unique identification number to track every MWh of energy generated.

 

Carbon offsets are verified and retired under the Climate Action Reserve (CAR), Verified Carbon Standard (VCS), Gold Standard (GS), and the CSA Registry.

 

The National Fish and Wildlife Foundation, a widely recognized leader in freshwater restoration projects, certifies all BEF WRC® restoration projects. BEF tracks the amount of water restored by each project on the International Markit Registry which ensures no double counting. Every BEF (Bonneville Environmental Foundation) Water Restoration Certificate® created represents 1,000 gallons of water restored on a customer’s behalf. By purchasing BEF WRCs®, customers are directly contributing to the restoration of recreational and ecological vitality in critical freshwater ecosystems.

 

Terrapass is a member of Green-e Climate certification to ensure transparency and quality of offsets.

 

Generation sources

 

Just Energy seeks and purchases RECs and carbon offsets from a variety of renewable sources that reduce greenhouse gases including:

 

Farm power – working with farms to make the best possible use of animal waste.

Landfill gas capture – turns garbage into power by capturing the methane released by organic waste as it breaks down.

Coal mine methane – support methane capture projects at abandoned coal mines where methane naturally exists in coal beds and is released into the atmosphere through mine shafts.

Forest management – forests sequester carbon dioxide in the trunks, leaves, branches and roots of trees. The projects improve forest management to sequester more carbon.

Wind energy – wind energy displaces electricity that is generated by dirty fossil fuels like gas and coal.

 

Corporate Governance

 

The Company has an active Board of Directors to guide its operations and ensure transparency to investors. Just Energy’s corporate governance committee meets the recommended standards established by the Canadian and U.S. Securities Administrators and other shareholder groups. The Company’s Board of Directors currently comprises the Executive Chair, the CEO, and four non-management directors, and is monitored by a lead independent director. The Board has delegated certain decisions to its committees that are comprised of non-management directors only. The committees are the Audit Committee; Risk Committee; Nominating and Corporate Governance Committee; Compensation, Human Resources, Environmental and Health and Safety Committee; and the Special Committee.

 

Code of Business Conduct and Ethics Policy

 

Just Energy has implemented a Code of Business Conduct and Ethics Policy which is available on its website at www.justenergygroup.com. All employees are required to acknowledge the Code of Business Conduct and Ethics Policy annually.

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Human Resources

 

As a company, Just Energy has implemented a number of policies to foster a safe, welcoming and equitable work environment, including with respect to the following:

 

 

Supply Arrangements

 

Commodity

 

For fixed-price contracts, Just Energy purchases gas and electricity supply through physical or financial transactions with Commodity Suppliers in advance of marketing, based on forecasted customer aggregation for residential and small commercial customers. For larger commercial customers, electricity and gas supply is generally purchased concurrently with the execution of a contract. Each LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. For natural gas, some LDCs may require Just Energy to inject gas into storage in the summer for delivery to customers in the winter pursuant to a pre-set delivery schedule.

 

Just Energy attempts to mitigate exposure to weather variations through active management of the electricity and gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. This strategy provides price and volume protection, but will not eliminate all supply cost risks. The expected cost of this strategy is incorporated into the price to the customer. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Further, customer margin is lowered proportionately to the decrease in consumption. In the case of greater than expected consumption, Just Energy must purchase the short supply in the spot market. Consequently, customer margin increases proportionately to the increase in consumption net of the gain or loss associated with the incremental supply purchase. Additionally, to the extent that supply balancing is not fully covered through customer pass-throughs, active management or the options employed, Just Energy’s customer gross margin may be impacted depending upon market conditions at the time of balancing.

 

Just Energy transacts with a number of different counterparties for its energy supply. Its primary suppliers participate in an Intercreditor Agreement pursuant to which the Commodity Suppliers and lenders to Just Energy share in the collateral provided by the energy commodity business of Just Energy. The supply participants to the Intercreditor Agreement are Shell, BP, Exelon, Bruce Power, EDF Trading North America, LLC, Nextera Energy Power Marketing, LLC, Macquarie and Morgan Stanley Capital Group Inc. (collectively, the “Secured Suppliers”). Certain of these Commodity Suppliers also assist in managing, balancing and/or scheduling gas and/or power requirements in certain markets for a fee pursuant to additional agreements.

 

Just Energy’s financial obligations to the Secured Suppliers are secured by general security agreements providing for, among other things, a priority security interest over all customer contracts. If the Secured Suppliers default in their obligations to deliver gas and electricity to Just Energy, or if Just Energy defaults in its obligations to accept delivery of gas or electricity, the contractual arrangements between them contain provisions requiring, subject to force majeure, the payment of various amounts by the defaulting party to the non-defaulting party, including liquidated damages.

 

Just Energy has also entered into contractual arrangements for the physical purchase or financial hedge of energy from other Commodity Suppliers. Although the contractual arrangements with these other Commodity Suppliers are not secured on the same basis as the transactions with the Secured Suppliers, in certain circumstances, security for the obligations of Just Energy to these other Commodity Suppliers or vice versa is provided by way of letter of credit.

 

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JustGreen/terrapass

 

On behalf of its customers, Just Energy purchases and retires RECs and carbon offsets from certified sources for greenhouse gas reduction and green energy production offsetting their average electricity and/or natural gas use for those customers who elect to purchase JustGreen or terrapass products. Just Energy may attempt to purchase the RECs and carbon offsets from facilities, such as wind farms, solar, biomass projects and landfill gas projects, located in the local jurisdiction in which it sells its green products. The RECs are Green-e Energy (U.S.) and EcoLogo (Canada) certified or comply with renewable portfolio standards where registered; the carbon offset projects are verified through Climate Action Reserve, Voluntary Carbon Standard or American Carbon Registry in the U.S., and meet the ISO 14064 Standard in Canada. Water Restoration Certificates® (“WRC”) are purchased from the Bonneville Environmental Foundation which operates the program. The National Fish and Wildlife Foundation verifies each project. Each WRC is individually registered on the international Markit Environmental Registry.

 

Risk Management

 

Just Energy’s commodity and volume forecasts are a function of historical data and current market conditions and have been meticulously tested and analyzed under a number of potential scenarios.

 

 

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As detailed below, Just Energy effectively hedges its weather exposure so that weather volatility is substantially mitigated.

 

 

Just Energy’s risk management policy has established risk limits that mitigate any material downside. These include value-at-risk limits, volume thresholds for electricity, natural gas, and carbon and renewable energy credits, and weather exposure. These risk limits are reviewed on a quarterly basis by the Risk Committee and are subject to change.

 

Competition

 

Management of Just Energy believes the Company is well positioned in the market through: (i) a diversified marketing and sales channel approach; (ii) a responsive customer care and customer service process; (iii) a disciplined risk management approach to commodity supply and green products; and (iv) products priced to achieve stable margin growth vs. customer growth in all business sectors. The industry credibility of Just Energy is based on the long-term experience of its management team relating to the deregulation of natural gas and electricity and their innovations in providing consumer choices including its terrapass product offerings within the direct purchase market.

 

Industry Competition

 

Electricity and Natural Gas

 

Just Energy has natural gas and electricity competition in every jurisdiction in which it carries on business. Generally, competitors are local in nature with a few extending to multiple jurisdictions. There can be upwards of twenty competitors in many markets. The nature and product offerings vary by jurisdiction. It is possible that new entrants may enter the market and compete directly for the customer base that Just Energy targets, slowing or reducing its market share. Other than LDCs (discussed below), Just Energy’s largest competitors are Direct Energy Marketing Ltd. (which is owned by Centrica plc), IGS Energy Inc., NRG Energy Inc., which owns Green Mountain Energy Company and Reliant Energy, and MXenergy Inc., Constellation (which is owned by Exelon) and Vistra Energy.

 

The LDCs are currently not permitted to make a profit on the sale of the gas and electricity commodity to their supply customers. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas at prices other than cost, their existing customer bases could provide them with a significant competitive advantage. This may limit the number of customers available for marketers including Just Energy. To the extent that Just Energy is successful through its marketing program in educating customers, it believes that it can be successful in signing LDC customers to its products.

 

 

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JustGreen/terrapass

 

The most significant competitors with respect to Just Energy’s JustGreen products are TXU Energy and Green Mountain Energy Company in the United States and Bullfrog Power in Canada.

 

The most significant competitors with respect to Just Energy’s terrapass products are carbonfund.org, 3 Degrees Group Inc., and NativeEnergy, Inc.

 

Water Filtration Systems

 

The Company’s most significant competitors with respect to water filtration systems are Aquasana, Inc., Culligan Water, and Brita whose North American rights are owned by The Clorox Company.

 

Environmental Protection

 

With respect to the sale of natural gas and electricity, Just Energy does not view potential environmental liabilities as a significant concern. Just Energy does not have physical control of the natural gas or electricity or any facilities used to transport it. Therefore, any potential liability of Just Energy for gas leaks or explosions during transmission and distribution is considered to be relatively remote.

 

Employees

 

As of July 07, 2020, Just Energy and its affiliates employed approximately 880 people.

 

 

Real Property

 

Just Energy leases space for its Canadian and U.S. head offices in Mississauga, Ontario and Houston, Texas, respectively; corporate office in Toronto, Ontario; operating office in Dallas, Texas; call centres in Mississauga, Ontario, and Houston, Texas; JEBPO office in Bangalore, India; as well as 11 sales offices throughout North America.

 

Industry Regulation

 

In each jurisdiction in North America, the energy markets are regulated under the oversight of a state or provincial government agency with legislated authority to regulate generally all aspects of the industry including the sale of electricity and natural gas. Although the sale of the commodity itself is considered a ‘deregulated’ service, with the exception of Quebec and Indiana, Just Energy is required to obtain a certificate of authority or license from the regulatory agency and pursuant to that license, operate in accordance with state or provincial legislation and established regulations and rules as it pertains to the marketing of energy services within the jurisdiction. In Quebec and Indiana, Just Energy markets services under a direct contractual arrangement established with the LDC and is subject to operate in accordance with rules established under the LDC’s tariffs. Just Energy currently has obtained and maintains all of the licenses and contractual arrangements required to undertake its business in all of the jurisdictions in which it operates.

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In the US, the Company is subject to regulation by the Federal Energy Regulatory Commission (“FERC”) and the North American Electricity Reliability Corporation (“NERC”). FERC regulates transportation of natural gas by interstate pipelines. Such regulation affects the Company’s access to natural gas supplies. As to the wholesale electricity sector, FERC has issued regulations that require wholesale electric transmission services to be offered on an open-access, non-discriminatory basis. The Company’s electric operations are dependent upon the availability of open access, non-discriminatory electric transmission service. FERC also regulates the sale of wholesale electricity by requiring companies who sell in the wholesale market to obtain a market-based rate authority unless they justify their rates on a cost-of-service basis. Several of the Company’s subsidiaries have market-based rate authority. If these subsidiaries do not comply with FERC’s rules on market-based rate authority be subject to sanctions, including substantial monetary penalties. The Company is also subject to mandatory reliability standards enacted by the NERC and enforced by FERC. Compliance with the mandatory reliability standards may subject the Company and others to higher operating costs and may result in increased capital expenditures. If the Company is found to be in noncompliance with the mandatory reliability standards, the Company could be subject to sanctions, including substantial monetary penalties.

 

In addition, the Dodd-Frank Act provides a regulatory regime for derivatives that generally requires derivatives to be traded on an exchange and cleared together with related collateral and margin requirements. The Company qualifies for the commercial end-user exception which allows it to continue to enter into swaps in the over-the-counter market without being subject to mandatory exchange trading and clearing. Additionally, Dodd-Frank has brought about enhanced reporting and record keeping requirements as well as expanded position limits that are still pending final adoption. In addition, the Canadian regulators have commenced a process to implement a similar regulatory regime for derivatives that is not yet finalized. These Canadian rules are meant to be similar to the US’s Dodd Frank Act but have differences that may be more impactful to the Company than the current U.S. regulations.

 

Financing

 

Just Energy Credit Facility

 

Just Energy Ontario L.P. and Just Energy (U.S.) Corp., Subsidiaries of the Company, are parties to the eight amended and restated credit agreement (as amended, restated and supplemented from time to time), providing Just Energy with a credit facility of up to $370 Million for working capital purposes, which includes a $65 million LC Facility (the “Credit Facility”). Under the terms of the Credit Facility, Just Energy is able to make use of Bankers’ Acceptances and LIBOR advances at stamping fees that vary between 2.625 percent and 3.75 percent, prime rate advances at rates of interest that vary between bank prime plus 1.625 percent and 2.75 percent, and letters of credit at rates that vary between 2.625 percent and 3.75 percent. Interest rates are adjusted quarterly based on certain financial performance indicators. The current syndicate of lenders includes National Bank of Canada, HSBC Bank of Canada, CIBC, ATB Financial, Canadian Western Bank, JPMorgan Chase Bank N.A. and Morgan Stanley Senior Funding, Inc. The principal amount outstanding under the LC Facility is guaranteed by Export Development Canada (“EDC”) under EDC’s Account Performance Security Guarantee Program. To complement the Credit Facility, Just Energy, the Secured Suppliers and the lenders have entered into the Intercreditor Agreement pursuant to which the Secured Suppliers and the lenders jointly hold security over substantially all of the assets of the Company and its North American operating Subsidiaries. Securities with respect to the commodity business owned directly or indirectly by the Company in its North American operating Subsidiaries have been pledged to National Bank of Canada, the collateral agent, as part of the security. All receipts are directed to bank accounts over which National Bank of Canada, as collateral agent, has deposit account control agreements in place (each a “Blocked Account”). Gas Suppliers and Electricity Suppliers invoice the operating Subsidiaries of the Company directly and, provided that no event of default exists under the Credit Facility, the Intercreditor Agreement or the related security agreements, the Subsidiaries of the Company, on a periodic basis, pay the cost of commodity and related administration fees directly from the Blocked Accounts. Where an event of default exists, National Bank of Canada, as collateral agent, has the right to exercise control over each Blocked Account in any manner and in respect of any item of payment or proceeds thereof in accordance with the terms of the Intercreditor Agreement. The Credit Facility contains a number of covenants, including, without limitation, with respect to financial ratios. As of March 31, 2020, Just Energy is in compliance with all covenants under the Credit Facility. The Credit Facility matures on September 1, 2020.

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US$250 Million Term Financing

 

On September 12, 2018, the Company entered into a US$250 million non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager. The Loan will bear interest at 8.75% per annum and will mature on September 12, 2023. The Company used the net proceeds of this loan to repurchase the $150 Million Convertible Bonds, for general corporate purposes, including to pay down the Company’s credit line, and for future acquisitions. As at March 31, 2020, US$207 million had been drawn on the term loan.

 

$150 Million Convertible Bonds

 

On January 29, 2014, the Company announced the closing of the European-focused offering of US$150 million of senior unsecured convertible bonds due July 2019 with a coupon of 6.5% per annum payable semi-annually in arrears. The initial conversion price is US$9.3762 share, which represents a premium of 22.5% over the 5-day volume weighted average price of Just Energy’s Common Shares on January 21, 2014 (being the day on which the offering was publicly announced). On July 17, 2019, the Company announced that it provided notice to holders of its outstanding US$150 Million Convertible Bonds, due to mature on 29 July 2019, of an option to extend the maturity of the bonds to December 31, 2020, of which US$9.2 million of the Convertible Bonds were extended. As of the date hereof, US$140.8 million of the Convertible Bonds have been redeemed. The $150 Million Convertible Bonds are subject to certain covenants. As of March 31, 2020, all of these covenants have been met.

 

6.75% Convertible Debentures

 

On October 5, 2016, the Company announced the closing of its $160,000,000 public offering of convertible unsecured senior subordinated debentures (the “6.75% Debentures”) at a price of $1,000 per debenture, bearing interest at 6.75% per annum and maturing on December 31, 2021 (the “Maturity Date”). Each $1,000 principal amount of the 6.75% Debentures is convertible at the option of the holder at any time prior to the close of business on the last business day immediately preceding the earlier of the Maturity Date and the date fixed for redemption, into 107.5269 Common Shares of Just Energy, representing a conversion price of $9.30, subject to certain antidilution adjustments. The 6.75% Debentures are listed on the Toronto Stock Exchange under the symbol JE.DB.C.

 

The 6.75% Debentures are not redeemable before December 31, 2019 (except in limited circumstances following a Change of Control as provided herein). On and after December 31, 2019 and prior to December 31, 2020, the 6.75% Debentures may be redeemed by the Company, in whole or in part, on not more than 60 days’ and not less than 30 days’ prior notice, and at a redemption price equal to the principal amount thereof plus accrued and unpaid interest thereon, if any, provided that the current market price on the date on which notice of redemption is given is at least 125% of the conversion price. On or after December 31, 2020, the 6.75% Debentures may be redeemed by the Company, in whole or in part, at a redemption price equal to the principal amount thereof plus accrued and unpaid interest.

 

8.5% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On February 7, 2017, Just Energy closed its underwritten public offering of 4,000,000 of its 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (the “Preferred Shares”) at a public offering price of US$25.00 per Preferred Share, for gross proceeds of US$100 million. Just Energy granted the underwriters an option exercisable for 30 days from January 30, 2017, exercisable in whole or in part, to purchase up to 600,000 additional Preferred Shares at the same price and on the same terms as the 4,000,000 Preferred Shares. In addition, concurrently with the closing of the public offering of Preferred Shares, Just Energy closed a non-brokered private placement of 40,000 Preferred Shares at a price of US$25.00 per Preferred Share, for gross proceeds of US$1 million.

 

At-the-Market Program in the United States for the 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares

 

On May 2, 2017, the Company announced it has entered into an at-the-market issuance sales agreement dated May 1, 2017 (the “Sales Agreement”) with FBR Capital Markets & Co. (“FBR”), pursuant to which Just Energy may, at its discretion and from time-to-time during the term of the Sales Agreement, offer and sell in the United States, through FBR, acting as the Company’s agent, 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares of the Company (“Preferred Shares”) having an aggregate offering price of up to US$150 million (the “Offering”). The At-the-Market Program expired in February 2020 with 613,349 Preferred Shares having been sold under the At-the-Market Program for US$19.4 million.

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6.75% Convertible Unsecured Senior Subordinated Debenture Offering

 

On February 12, 2018, Just Energy entered into an underwriting agreement with a syndicate of underwriters, pursuant to which Just Energy issued, on February 22, 2018 on a “bought deal” basis, $100,000,000 aggregate principal amount of convertible unsecured senior subordinated debentures at a price of $1,000 per debenture (the “6.75% 100 Million Convertible Debentures”). The debentures bear interest from the date of issue at 6.75% per annum, with interest payable semi-annually in arrears on March 31 and September 30 of each year commencing on September 30, 2018. The debentures will mature on March 31, 2023. The 6.75% 100 Million Convertible Debentures were used to early redeem the 5.75% Debentures on March 27, 2018.

 

RISK FACTORS

 

The business of the Company and an investment in securities of the Company are subject to certain risks. Prospective purchasers of securities of the Company should carefully consider the risk factors set forth on page 1 and under the heading “Risk Factors” of the Company’s Fiscal 2020 Fourth Quarter Management Discussion and Analysis (“MD&A”) (in Just Energy’s Annual Report), which portions of such documents are incorporated by reference in this Annual Information Form and are available on the SEDAR website at www.sedar.com, the U.S Securities and Exchange Commission website at www.sec.com and on Just Energy’s website at www.justenergygroup.com. The principal risks and uncertainties that Just Energy can foresee are described in the above referenced excerpts, which are qualified in their entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Annual Information Form. The list may not be an exhaustive list as some future risks may be as yet unknown. Other risks currently regarded as immaterial could turn out to be material. If any such risks actually occur, the business, financial condition and/or liquidity and results of operations of the Company could be materially adversely affected and the ability of the Company to pay dividends on the Common Shares could be materially adversely affected.

 

DIVIDENDS and distributions

 

Dividends on Common Shares

 

The Company’s dividend policy provides that the amount of cash dividends, if any, to be paid on the Common Shares is subject to the discretion of the Board of Directors and may vary depending on a variety of factors, including, without limitation: (i) the prevailing economic and competitive environment; (ii) the Company’s results of operations and earnings; (iii) financial requirements for the operations and growth of the Company and its Subsidiaries; (iv) the satisfaction of solvency tests imposed by the CBCA for the declaration and payment of dividends; (v) contractual restrictions and financing agreement covenants; and (vi) other relevant factors and conditions existing from time to time. As of August 14, 2019, the Board of Directors of the Company suspended the Common Share dividend.

 

Preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price of US$25.00 per Preferred Share when, as and if declared by the Company’s Board of Directors, out of funds legally available for the payments of dividends, on the applicable dividend payment date. As the Preferred Shares are cumulative, dividends on Preferred Shares will accrue even if they are not paid. Common shareholders will not receive dividends until the Preferred Share dividends in arrears are paid. On December 2, 2019, in connection with amendments its Credit Agreement and US$250 Million Loan Agreement, the Company suspended the declaration and payment of dividends on the Preferred Shares until the Company is permitted to declare and pay dividends under the agreements. However, dividends on the Series A Preferred Shares will continue to accrue in accordance with Series A Preferred Share terms during the period in which dividends are suspended. Any dividend payment following the suspended period will be credited against the earliest accumulated but unpaid dividend.

 22 

 

The following table sets forth the month of payment and dividends per Common Share paid by the Company, as applicable for the three most recently completed fiscal years and for the months of April, May and June of 2020.

 

Record of Cash   Fiscal 2021   Fiscal 2020   Fiscal 2019   Fiscal 2018
Distributions/ Dividends (1)   $ Per Common Share   $ Per Common Share   $ Per Common Share   $ Per Common Share
                 
June   -   0.125   0.125   0.125
September   -   -   0.125   0.125
December   -   -   0.125   0.125
March   -   -   0.125   0.125

 

Notes:

(1)Distributions are also paid on all outstanding performance-based grants (“PBGs”), restricted stock grants (“RSGs”) and deferred share grants (“DSGs”) equal to the dividend paid on the Common Shares. As of March 31, 2020, there were 936,570 PBGs, 1,335,114 RSGs and 203,028 DSGs outstanding.

 

Dividends on Preferred Shares

 

The following table sets forth the month of payment and dividends per Preferred Share paid by the Company, as applicable for the three most recently completed fiscal years and for the months of April, May and June of 2020.

 

Record of Cash Distributions/   Fiscal 2021   Fiscal 2020   Fiscal 2019   Fiscal 2018
Dividends   US$ Per Preferred Share   US$ Per Preferred Share   US$ Per Preferred Share   US$ Per Preferred Share
                 
June   -   0.53125   0.53125   0.53125
September   -   0.53125   0.53125   0.53125
December   -   -   0.53125   0.53125
March   -   -   0.53125   0.53125

 

MARKET FOR SECURITIES

 

Common Shares of the Company

 

The Common Shares of the Company are listed for trading on the TSX and the NYSE under the symbol JE. The following tables set forth the price range and trading volume of Common Shares traded on the TSX and the NYSE for the periods indicated as reported by the TSX and the NYSE, respectively.

 

TSX

(CDN$)

 

Period High ($) Low ($) Volume
2019      
April 4.93 4.53 2,928,130
May 4.95 4.16 6,756,400
June 5.76 4.41 12,933,290
July 5.78 4.36 8,360,100
August 4.71 1.43 25,052,540
September 3.33 1.42 24,024,580
October 3.34 2.54 11,752,170
November 3.76 2.54 8,277,140
December 3.53 1.96 10,744,760
2020      
January 2.41 1.84 5,294,080
February 2.14 1.01 8,057,980
March 1.38 0.51 12,005,680
April 0.83 0.58 4,134,610
May 0.68 0.51 4,650,680
June 1.20 0.53 9,094,830

 23 

 

NYSE

(US$)

 

Period High ($) Low ($) Volume
2019      
April 3.67 3.39 3,330,940
May 3.69 3.10 6,175,790
June 4.34 3.27 10,390,730
July 4.42 3.30 8,941,720
August 3.56 1.08 27,386,560
September 2.52 1.08 46,828,590
October 2.57 1.91 22,019,290
November 2.84 1.92 11,594,860
December 2.65 1.50 16,272,740
2020      
January 1.85 1.40 8,873,270
February 1.62 0.76 15,515,540
March 1.05 0.35 17,911,680
April 0.59 0.41 10,911,200
May 0.48 0.36 9,806,870
June 0.90 0.39 30,326,580

 

Preferred Shares of the Company

 

The Preferred Shares of the Company are listed for trading on the NYSE under the symbol JE.PR.A and on the TSX under the Symbol JE.PR.U. The following tables set forth the price range and trading volume of Preferred Shares traded on the NYSE and TSX for the periods indicated as reported by the NYSE and the TSX, respectively.

 

TSX

(CDN$)

 

Period High ($) Low ($) Volume
2019      
April 21.50 20.26 650
May 23.25 21.74 4,500
June 23.97 21.90 35,200
July 23.50 22.60 6,600
August 22.96 11.80 36,996
September 18.00 14.50 3,120
October 18.35 17.00 1,350
November 18.00 16.01 8,850
December 12.00 9.05 73,905
2020      
January 10.99 9.67 1,664
February 10.00 5.01 44,716
March 5.54 1.52 37,060
April 4.13 1.55 12,035
May 2.35 1.64 26,426
June 3.90 1.64 19,785

 

 

 24 

 

NYSE

(US$)

 

Period High ($) Low ($) Volume
2019      
April 21.83 20.35 305,156
May 23.48 21.30 376,252
June 23.60 21.69 420,727
July 23.68 22.46 333,006
August 23.59 11.90 744,106
September 18.47 13.56 266,971
October 19.44 17.49 226,441
November 18.64 14.31 449,007
December 13.60 8.96 746,969
2020      
January 11.79 9.80 268,977
February 10.32 4.64 451,337
March 6.40 1.68 439,842
April 3.55 1.89 393,342
May 2.17 1.58 143,899
June 4.24 1.58 573,103

 

6.75% Convertible Debentures

 

The 6.75% Convertible Debentures are traded on the TSX under the symbol JE.DB.C. The following table sets forth trading information for the 6.75% Convertible Debentures for the periods indicated as reported by the TSX:

 

Period High ($) Low ($) Volume
2019      
April 99.50 97.27 2,991,000
May 99.80 57.00 1,508,000
June 99.99 97.40 2,079,000
July 100.00 94.00 1,375,000
August 97.55 64.00 9,458,000
September 85.00 66.50 2,236,000
October 85.00 82.00 2,492,000
November 84.00 75.00 3,824,000
December 81.00 60.00 4,240,000
2020      
January 74.00 57.00 2,168,000
February 59.90 35.00 4,785,000
March 43.00 12.00 2,998,000
April 30.00 16.40 5,409,000
May 20.00 14.01 2,238,000
June 29.97 15.50 1,181,000

 25 

 

6.75% $100 Million Convertible Debentures

 

The 6.75% $100 Million Convertible Debentures began trading on the TSX under the trading symbol JE.DB.D on February 12, 2018. The following table sets forth trading information for the $100 Million Convertible Debentures for the periods indicated as reported by the TSX:

 

Period High ($) Low ($) Volume
2019      
April 95.00 92.00 1,456,000
May 95.02 92.26 2,981,000
June 99.00 94.01 4,414,000
July 100.00 93.50 3,144,000
August 98.00 64.00 8,027,000
September 81.00 64.02 1,604,000
October 88.00 80.25 1,079,000
November 82.75 77.00 851,000
December 80.01 56.26 3,021,000
2020      
January 72.00 60.00 1,029,000
February 59.55 34.99 2,256,000
March 40.00 12.00 1,989,000
April 28.00 15.00 3,054,000
May 18.25 13.01 895,000
June 30.99 14.57 1,383,000

 

$150 Million Convertible Bonds

 

The $150 Million Convertible Bonds were listed on the Professional Securities Market of the LSE under the trading symbol 48IL on June 12, 2014. To date the LSE has not reported any trading activity.

 

PRIOR SALES

 

The Company issued the following securities during the most recently completed fiscal year, none of which are listed or quoted on a marketplace:

 

1.3,281,465 RSGs/PBGs were granted on May 15, 2019, having a grant value of $4.53 per RSG/PBG.

 

2.7,463 RSGs/PBGs were granted on June 3, 2019, having a grant value of $4.42 per RSG/PBG.

 

3.5,000 RSGs/PBGs were granted on August 14, 2019, having a grant value of $4.12 per RSG.

 

4.50,000 RSGs/PBGs were granted on March 16, 2020, having a grant value of $0.56 per RSG/PBG.

 

5.25,000 RSGs/PBGs were granted on July 3, 2020, having a grant value of $0.76 per RSG/PBG.

 

As part of their fee-based compensation, DSGs or Common Shares are issued to directors at the end of each quarter at a value per DSG or Common Share equal to the 10-day simple average closing price of the Common Shares, as applicable, on the TSX preceding the quarter end.

 

The following table describes the number of DSGs or Common Shares granted, the date granted, and the 10-day simple average closing price of Common Shares, as applicable, used to determine the number of DSGs or Common Shares granted.

 

Quarter Ended

Total Number of DSGs/

Common Shares Granted

10 Day Average Closing Price

 

June 30, 2019 10,530 $5.50
September 30, 2019 11,909 $2.29
December 31, 2019 12,955 $2.18
March 31, 2020 44,756 $0.66
June 30, 2020 38,696 $0.75

 26 

 

Escrowed securities

 

As part of the acquisition of EdgePower on February 28, 2018, a portion of the consideration paid by Just Energy was satisfied by the issuance of 1,415,285 Just Energy Common Shares, 606,550 of which are subject to a three-year escrow hold period expiring on February 28, 2021.

 

DIRECTORS AND Executive OFFICERS OF the company

 

Members of the Board of Directors

 

The names, municipalities of residence, year of appointment and the present principal occupations of the directors of the Company as at July 07, 2020, are as follows:

 

Name, Municipality of Residence  

Year of Appointment(7)

 

Present Principal Occupation
During Five Preceding Years(8)

         

R. Scott Gahn

Houston, Texas

 

  2013   President and CEO of Just Energy Group Inc.

Walter Higgins (1)(2)(4)(5)

Reno, Nevada

 

  2019  

Chairman of the Board of South Jersey Industries Inc.

 

H. Clark Hollands (1)(2)(3)(4)(5)

Vancouver, British Columbia

 

  2015   Chartered Accountant, Businessman and Corporate Director

Rebecca MacDonald

Toronto, Ontario

 

  2001  

Executive Chair of the Company

 

 

Dallas H. Ross (1)(2)(3)(4)(5)

Vancouver, British Columbia

 

  2017   General Partner and Founder - Kinetic Capital Partners

William F. Weld (1)(2)(3)(5)(6)

New York, New York

 

2012

 

 

Principal, Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C (law firm)

 

 

Notes:

(1)Member of the Audit Committee. Mr. Hollands is the Chair of the Committee and the Financial Expert under the NYSE listing standards.
(2)Member of the Compensation, Human Resources, Environmental, Health and Safety Committee. Mr. Ross is the Chair of the Committee.
(3)Member of the Nominating and Corporate Governance Committee. Mr. Weld is the Chair of the Committee.
(4)Member of the Risk Committee. Mr. Higgins is the Chair of the Committee.
(5)Member of the Special Committee. Mr. Ross is the Chair of the Committee.
(6)Appointed lead director by the Board on June 25, 2015.
(7)Ms. MacDonald became a director of the Company on December 31, 2010, immediately prior to the Trust Conversion. Prior to the Trust Conversion, Ms. MacDonald was a director of Just Energy Corp., the administrator of the Fund.
(8)Each of the Directors of the Company has held the principal occupation indicated opposite his or her name during the preceding five years, other than Scott Gahn, who become the President and CEO of the Company on August 2, 2019. Prior to this date, Mr. Gahn was the President of Modern Systems Concepts, Inc.

 

 27 

 

Executive Officers of the Company

 

The names, municipality of residence and present principal occupations of the executive officers of the Company as at July 07, 2020, are as follows:

 

Name, Municipality of Residence

 

Principal Occupation
During Preceding Five Years(1)

     

Rebecca MacDonald

Toronto, Ontario

 

  Executive Chair

R. Scott Gahn

Houston, Texas

 

  President and Chief Executive Officer

Jim Brown

Houston, Texas

 

  Chief Financial Officer

Jonah T. Davids

Toronto, Ontario

 

  Executive Vice President, General Counsel and Corporate Secretary

Sam Mavalwalla

Houston, Texas

 

  Chief Information Officer

Amir Andani

Toronto, Ontario

 

  Chief Risk Officer

Mark Hanrahan

Toronto, Ontario

 

  Chief Strategy Officer

Alex Ince-Cushman

Toronto, Ontario

 

  Chief Technology Officer

Margaret Munnelly

Houston, Texas

  Senior Vice President, Human Resources
     

Notes:

(1)Each of the officers who is not a director of the Company has held the principal occupation referred to opposite his or her name or has held other positions and offices within the Company or its subsidiaries during the past five years except:

 

(a)Mr. Hanrahan was Vice President of Integrated Planning & Performance Management at Barrick Gold Corporation from September 2015 to December 2017. He was at McKinsey & Company from October 2007 to June 2015.
(b)Mr. Ince-Cushman was an Executive with Palantir Technologies from March 2015 to November 2018. He was at McKinsey & Company from November 2008 to February 2015.

 

Ownership, Control and Direction of Securities by Directors and Executive Officers

 

As of July 07, 2020, the above directors and executive officers of the Company, as a group, beneficially owned, or exercised control or direction over, directly or indirectly, an aggregate of approximately 8.5 million Common Shares, PBGs, RSGs and DSGs, representing approximately 5.6% of the issued and outstanding Common Shares.

 

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

 

Other than as set forth below, no director or executive officer of the Company, or a security holder holding a sufficient number of securities of the Company to affect materially the control of the Company, is, as at the date hereof, or has been within the 10 years before the date hereof, a director, or executive officer of any company that, while such person was acting in that capacity: (i) was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation for a period of more than 30 consecutive days; (ii) was subject to an event that resulted, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of a cease trade or similar order or an order that denied the relevant company any exemption under securities legislation, for a period of more than 30 consecutive days; or (iii) within a year of such person ceasing to act in that capacity become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets.

 28 

 

Mr. Ross was asked to join the Board of Directors of Catalyst Paper Corporation in May 2010 to assist in the possible restructuring of the company. The company subsequently filed for CCAA protection in January 2012, reorganized its financial affairs significantly over a number of months and then successfully emerged from CCAA in September 2012, at which time a new Board representing the post recapitalization stakeholders was appointed.

 

No director or executive officer of the Company, or a security holder holding a sufficient number of securities of the Company to affect materially the control of the Company (or any personal holding company of such person), has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority or any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision.

 

Personal Bankruptcies

 

No director or executive officer of the Company, or a security holder holding sufficient securities of the Company to affect materially the control of the Company, or a personal holding company of any such persons, has, within the 10 years preceding the date of this document, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold the assets of the individual.

 

Conflicts of Interest

 

There are potential conflicts of interest to which the directors and officers of the Company will be subject in connection with the operations of the Company. In particular, certain of the directors and officers of the Company are involved in managerial or director positions with other energy companies whose operations may, from time to time, be in direct competition with those of the Company or with entities which may, from time to time, provide financing to, or make equity investments in, competitors of the Company. Conflicts, if any, will be subject to the procedures and remedies available under the CBCA. The CBCA provides that in the event that a director has an interest in a contract or proposed contract or agreement, the director shall disclose his interest in such contract or agreement and shall refrain from voting on any matter in respect of such contract or agreement unless otherwise provided in the CBCA. As at the date hereof, the Company is not aware of any existing material conflicts of interest between the Company or a Subsidiary of the Company and any director or officer of the Company or a Subsidiary of the Company.

 

LEGAL PROCEEDINGS and regulatory actionS

 

Other than as set forth below, there are no outstanding legal proceedings or regulatory actions to which the Company or any of its Subsidiaries is a party or in respect of which any of their respective properties are subject, which are either: (a) individually, for claims in excess of 10% of the current asset value of the Company, or (b) material to the Company or any of its Affiliates, nor are there any such proceedings known to be contemplated.

 

In March 2012, Davina Hurt and Dominic Hill filed a lawsuit against Commerce Energy Inc. (“Commerce”), Just Energy Marketing Corp. and the Company in the Ohio Federal Court claiming entitlement to payment of minimum wage and overtime under Ohio wage claim laws and the Federal Fair Labor Standards Act (“FLSA”) on their own behalf and similarly situated door-to-door sales representatives who sold for Commerce in certain regions of the United States. The Court granted the plaintiffs’ request to certify the lawsuit as a class action. Approximately 1,800 plaintiffs opted into the federal minimum wage and overtime claims, and approximately 8,000 plaintiffs were certified as part of the Ohio state overtime claims. On October 6, 2014, the jury refused to find a willful violation but concluded that certain individuals were not properly classified as outside salespeople in order to qualify for an exemption under the minimum wage and overtime requirements. On September 28, 2018, the Court issued a final judgment, opinion and order. Just Energy filed its appeal to the Court of Appeals for the Sixth Circuit on October 25, 2018. Oral testimony was heard on October 24, 2019. A decision is pending. Just Energy strongly believes it complied with the law which is consistent with the recent findings in Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018) and Kevin Flood, et al. v. Just Energy Marketing Group, et al. 2d Circular No. 17-0546.

 29 

 

In May 2015, Kia Kordestani, a former door-to-door independent contractor sales representative for Just Energy Corp., filed a lawsuit against Just Energy Corp., Just Energy Ontario L.P. and the Company (collectively referred to as “Just Energy”) in the Superior Court of Justice, Ontario, claiming status as an employee and seeking benefits and protections of the Employment Standards Act, 2000 such as minimum wage, overtime pay, and vacation and public holiday pay on his own behalf and similarly situated door-to-door sales representatives who sold in Ontario. On Just Energy’s request, Mr. Kordestani was removed as a plaintiff but replaced with Haidar Omarali, also a former door-to-door sales representative. On July 27, 2016, the Court granted Omarali’s request for certification, refused to certify Omarali’s request for damages on an aggregate basis, and refused to certify Omarali’s request for punitive damages. Omarali’s motion for summary judgment was dismissed in its entirety on June 21, 2019. A trial date has been set commencing November 15, 2021.

 

On July 23, 2019, Just Energy announced that, as part of its Strategic Review process, management identified customer enrolment and non-payment issues, primarily in Texas. In response to this announcement, and in some cases in response to this and other subsequent related announcements, putative class action lawsuits have been filed in the United States District Court for the Southern District of New York, in the United States District Court for the Southern District of Texas and in the Ontario Superior Court of Justice, on behalf of investors that purchased Just Energy Group Inc. securities during various periods, ranging from November 9, 2017 through August 19, 2019. The U.S. lawsuits seek damages allegedly arising from violations of the United States Securities Exchange Act. The Ontario lawsuit seeks damages allegedly arising from violations of Canadian securities legislation and of common law. The U.S. lawsuits and the Ontario law suits have been consolidated, each with one lead plaintiff. Just Energy denies the allegations and will vigorously defend these claims.

 

In March of 2020, the seller representative (the “Claimant”) delivered a Notice of Dispute under the purchase agreement among the Claimant, Just Energy, a subsidiary of Just Energy (the “Buyer”) and other sellers with respect to the purchase of Filter Group Inc. by the Buyer on September 10, 2018 (the “Purchase Agreement”). In this arbitral proceeding, the Claimant alleges, among other things, that the Buyer breached its responsibilities by failing to conduct the business of Filter Group Inc. in a commercially reasonable manner to reduce or avoid the achievement of the EBITDA targets contained in the Purchase Agreement and failed to honour the obligations to the Claimant that would have been owing had the target EBITDA been achieved in the first period under the Purchase Agreement. The Claimant seeks, among other things, the immediate exchange of the 9,500,000 class A special shares of the Buyer for Common Shares of Just Energy, being the number of Common Shares of Just Energy that would be exchanged if the entire earn-out under the Purchase Agreement was achieved. Just Energy denies the allegations and will vigorously defend the Proceeding.

 

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

 

On October 1, 2018, the Company acquired Filter Group Inc., a leading provider of subscription-based home water filtration systems to residential customers in Canada and the United States. The CEO of Filter Group is the son of the Executive Chair of Just Energy. As such, this was a related party transaction under IAS 24 – Related Party Disclosure, but not under securities law. Just Energy’s Executive Chair recused herself from the negotiations and the decision-making processes with respect to the acquisition. The transaction was reviewed by the Strategic Initiatives Committee and it received a fairness opinion from National Bank Financial on the transaction.

 

The Company acquired all of the issued and outstanding shares of Filter Group and the shareholder loan owing by Filter Group. In addition, Filter Group had approximately $22 million of third-party Filter Group debt. The aggregate consideration payable by the Company under the Purchase Agreement is comprised of: (i) $15 million in cash, fully payable within 180 days of closing; and (ii) earn-out payments of up to 9.5 million Just Energy Common Shares (with up to an additional 2.4 million Just Energy Common Shares being issuable to satisfy dividends that otherwise would have been paid in cash on the Just Energy shares issuable pursuant to the earn-out payments (the “DRIP Shares”)), subject to customary closing adjustments. The earn-out payments are contingent on the achievement by Filter Group of certain performance-based milestones specified in the Purchase Agreement in each of the first three years following the closing of the acquisition. In addition, the earn-out payments may be paid 50% in cash and the DRIP Shares 100% in cash, at the option of Just Energy.

 30 

 

Other than as described above and in the Proxy and Management Information Circular dated May 24, 2019, which is incorporated by reference herein, there were no material interests, direct or indirect, of directors or executive officers of the Company, any person that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Common Shares, or any known associate or affiliate of such persons, in any transaction within the three most recently completed financial years or during the current financial year which has materially affected or is reasonably expected to materially affect the Company.

 

AUDITORS, TRANSFER AGENT AND REGISTRAR

 

The auditors of the Company are Ernst & Young LLP, Chartered Accountants, Toronto, Ontario. Based on the recommendation of the Audit Committee of the Company, the Board has proposed that Ernst & Young LLP continue as auditors of the Company at the Annual General Meeting of the Company to take place on August 11, 2020.

 

Computershare Investor Services Inc. at its principal transfer offices in Toronto, Ontario acts as the transfer agent and registrar for the Common Shares and Preferred Shares, and trustee for the 6.75% Convertible Debentures and the 6.75% $100 Million Convertible Debentures. US Bank Trustees Limited at their principal offices in London, England and Elavon Financial Services Limited, UK Branch act as trustees for the $150 Million Convertible Bonds.

 

INTEREST OF EXPERTS

 

There is no person or company whose profession or business gives authority to a statement, report or valuation made by such person or company and who is named as having prepared or certified a statement, report or valuation described or included in a filing, or referred to in a filing, made under National Instrument 51-102 by the Company during, or related to, the Company’s most recently completed financial year other than Ernst &Young LLP, the Company’s current auditors. Ernst & Young LLP have confirmed that they are independent within the meaning of the rules of professional conduct of the Institute of Chartered Accountants of Ontario. In addition, none of the aforementioned persons or companies, nor any director, officer or employee of any of the aforementioned persons or companies, is or is expected to be elected, appointed or employed as a director, officer or employee of the Company or of any associate or affiliate of the Company.

 

MATERIAL CONTRACTS

 

Except for contracts entered into by the Company in the ordinary course of business or otherwise disclosed herein, the only material contracts entered into by the Company and/or its Subsidiaries are: the Credit Facility and its respective amendments, the $150 Million Convertible Bonds Trust Deed, the 6.75% Convertible Debentures Trust Indenture, the 6.75% $100 Million Convertible Debenture Trust Indenture, and the US$250 Million Term Financing Loan Agreement, each of which is described herein. Copies of the Company’s material agreements are available on the Company’s SEDAR profile at www.sedar.com or, since January 30, 2012, on the U.S. Securities Exchange Commission’s website at www.sec.com.

 

AUDIT COMMITTEE INFORMATION

 

Multilateral Instrument 52-110 of the Canadian Securities Administrators requires the Company to disclose annually in its AIF certain information relating to the Company’s Audit Committee and its relationship with its independent auditors. Schedule “A” contains the additional information contemplated by Form 52-110F1 - “Audit Committee Information required in an AIF”, including information with respect to the financial literacy and experience of each member of the Audit Committee. The text of the mandate for the Audit Committee is included in Schedule “B”.

 31 

 

ADDITIONAL INFORMATION

 

Additional information relating to the Company may be found on SEDAR at www.sedar.com, at the U.S. Securities and Exchange Commission website at www.sec.gov, or on the Company’s website at www.justenergygroup.com. Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities, and securities authorized for issuance under equity compensation plans, is contained in the information circular of the Company for its most recent annual meeting of Shareholders that involved the election of directors of the Company. Additional financial and other information is contained in the Financial Statements and the MD&A.

 

 

 

 

 

 

 

 

 

 

 

 32 

 

schedule “A” - FORM 52-110F1

AUDIT COMMITTEE INFORMATION REQUIRED IN AN AIF

 

The Audit Committee’s Charter.

 

The text of the Company’s Audit Committee charter as approved on February 9, 2012, is attached hereto as Schedule “B”.

 

Composition of the Audit Committee and Relevant Education and Experience.

 

At July 07, 2020, the Company’s Audit Committee consisted of H. Clark Hollands (Chair), Walter Higgins, Dallas H. Ross and William F. Weld. All members of the audit committee are independent and financially literate (as those terms are defined in Multilateral Instrument 52-110 – Audit Committees).

 

Mr. Hollands is a chartered accountant. He obtained his B. Comm. from the University of British Columbia in 1975, his CA designation in 1977 and his FCA designation in 2008. He spent 25 years of his professional career as an international tax partner with KPMG LLP in Vancouver advising many significant Canadian based multi-national groups and large public companies on their international tax arrangements. Mr. Hollands left private practice in 2008 to devote most of his time to a variety of business and investment interests in which he is a partner and to devote more time to his family and several charitable foundations including The Jim Pattison Foundation. He also serves as a director and advisor to several other large Canadian based private foundations. Mr. Hollands’ broad background and experience in finance, accounting, business and taxation will significantly contribute, on behalf of all shareholders, to the deliberations of the Just Energy board of directors and the committees on which he will serve.

 

Mr. Higgins is currently the Chairman of the Board of South Jersey Industries Inc. Prior to this position, Mr. Higgins served as the CEO of the Puerto Rico Electric Power Authority, President and CEO of Ascendant Group Limited in Bermuda, Chairman, President and CEO of Sierra Pacific Resources (now NV Energy) and Chairman, President and CEO of AGL Resources, the parent company of Atlanta Gas and Light. Mr. Higgins graduated with distinction with a nuclear science degree from the U.S. Naval Academy, Annapolis, Maryland, in 1966, and completed postgraduate nuclear engineering and submarine training with the U.S. Navy. He served as a commissioned naval officer in nuclear submarines. He is a graduate of the Stanford University Graduate School of Business, Executive Program and the University of Idaho Public Utility Executive Course.

 

Mr. Ross is a General Partner and Founder of Kinetic Capital Partners in Vancouver, BC whose equity capital and strategic attention is focused on controlling positions in several private companies in the United States with substantial value creation underway. Mr. Ross is Chair or Senior Director of those private companies. Mr. Ross currently also serves on public company boards: he is Chair of Rogers Sugar; Director of Westshore Terminals; and a Director of Canfor Corporation. Previously he was a Director of Catalyst Paper and was brought in to assist with its financial restructuring as Chair of its Strategic Alternatives Committee; and previously was a Director of Futureshop.com. Mr. Ross was on the Board, and was the Chair of the Campus Task Force and was on the Executive Committee of Crofton House School during its substantial campus rebuild. Prior to Kinetic Capital Partners, Mr. Ross was Managing Director Investment Banking in Vancouver and Managing Director Mergers and Acquisitions in Toronto with ScotiaMcLeod. Before that Mr. Ross had qualified as a Chartered Accountant.

 

Mr. Weld currently practices with the law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., in Boston and New York where he specializes in government strategies, corporate governance and compliance and international business best practices. He also served as Senior Advisor to the Chair of Ivanhoe Capital Corporation, a private holding company headquartered in British Columbia. Mr. Weld has a very distinguished career in government and business. During the 1990’s, Mr. Weld served two terms as Governor of Massachusetts, being elected in 1990 and re-elected in 1994. He served as national co-chair of the Privatization Council and led business and trade missions to many counties in Asia, Europe, Latin America and Africa. He has served as a director of other public companies and is an active member of the United States Council on Foreign Relations. Prior to his election as Governor, Mr. Weld was a federal prosecutor for seven years, serving as the Assistant U.S. Attorney General in charge of the Criminal Division of the Justice Department in Washington, D.C. and the U.S. Attorney for Massachusetts during the Reagan administration. He was also a commercial litigator in Boston and Washington.

 33 

 

Pre-Approval Policies and Procedures

 

Recommendations are made from time to time from management to the Audit Committee for the engagement of all non-audit services. The Audit Committee considers such recommendations for pre-approval at its quarterly meetings or sooner, if necessary providing that where necessary, this function may be delegated to the Chair of the Audit Committee for approval on the basis that the Chair reports all such approvals to the Audit Committee at its next regularly scheduled meeting.

 

External Auditor Service Fees

 

Audit and Audit Related Fees

 

For fiscal 2020, fees charged by Ernst & Young LLP for professional audit services that are normally provided by external auditors in connection with statutory and regulatory filings or engagements as well as for assurance and related services rendered by it that are reasonably related to the performance of the audit or review of the Company’s financial statements were $3,524,572 (2019 — $2,192,900).

 

Tax Fees

 

Tax fees for professional services rendered by Ernst & Young LLP for tax compliance, tax advice, tax planning and other services were $649,625 (2019 — $257,700).

 

Strategic Review Fees

 

Fees for professional services rendered by Ernst & Young LLP for HR, IT, tax services were $809,455 (2019 — $0).

 

EY Fees Associated with Foreign Operations

 

Fees for professional services rendered by Ernst & Young LLP for HR, IT, tax services were $85,969 (2019 — $0).

 

Total Fees

 

The aggregate fees billed by Ernst & Young LLP were $5,069,620 (2019 — $2,450,600). No other services were provided to Just Energy and its subsidiaries by Ernst & Young LLP.

 

 

 

 34 

 

SCHEDULE “B” - AUDIT COMMITTEE MANDATE

 

JUST ENERGY group inc.

 

1.COMPOSITION

 

(a)Applicable Canadian corporate and provincial and United States securities legislation, regulation and policies, the Toronto Stock Exchange (“TSX”) and New York Stock Exchange (“NYSE”) by-laws rules, regulation and policies and applicable provisions of the Securities Act of 1933, the Securities and Exchange Act of 1934, the Sarbanes Oxley Act of 2002 and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to the extent applicable to a foreign private issuer (together “Applicable Legislation”) require that an audit committee (the “Committee”) be comprised of a minimum of three directors, each of whom will be financially literate and independent and one of whom shall be a “financial expert” as defined by Applicable Legislation and each of whom shall be independent (as set out in section 303 A.02 of the NYSE Company Manual) and shall not have any material relationship with the Company or any affiliate thereof, i.e., a relationship that could, in the view of the Company’s board of directors (the “Board”) reasonably interfere with the exercise of a member’s independent judgment.

 

(b)The Board of Directors of the Company (the “Board”) will appoint the members of the Committee annually at the first meeting of the Board after the annual meeting of shareholders of the Company and shall ensure that the members of the Committee meet the qualifications and other requirements outlined in (a) above under Applicable Legislation.

 

(c)Committee members will be appointed for a one-year term and may be reappointed subject to the discretion of the Board having regard: (i) to Applicable Legislation, and (ii) the desire for continuity and for periodic rotation of Committee members.

 

(d)One of the members of the Committee who is otherwise qualified under Applicable Legislation and who shall be a financial expert under Applicable Legislation shall be appointed Committee Chair by the Board. The Committee shall appoint a Secretary who shall be the Corporate Secretary of to the Company. Any Committee member, who for any reason, is no longer independent, ceases to be a member of the Committee.

 

(e)If an audit committee member simultaneously serves on the audit committee of more than 3 public companies, the Board must determine that such simultaneous service will not impair the ability of such member to effectively serve on the Company’s Committee.

 

2.AUTHORITY

 

(a)The Board may authorize the Committee to investigate any activity of the Company and any affiliate thereof for which the Committee has responsibility or with respect to those responsibilities imposed on audit committees herein and by Applicable Legislation. All employees are to co-operate as requested by the Committee.

 

(b)The Committee may, without the approval of management, retain persons having special expertise to assist the Committee in fulfilling its responsibilities, including outside counsel or financial experts and provide for their remuneration.

 

(c)The external auditor and internal audit shall report to the Committee.

 

3.MEETINGS

 

(a)The Committee is to meet at least four times per year preferably immediately following the meeting of the Risk Committee. The meetings will be scheduled to permit the review of the scope of the audit as presented by the Company’s auditor before commencement of the audit and the timely review of the quarterly and annual financial statements and such other annual filings required to be made by the Company and any affiliate thereof containing financial information about the Company and any affiliate thereof including the AIF, MD&A (quarterly and annual), quarterly press releases, reports to Shareholders, the management proxy circular and such other disclosure documents applicable to the Company and any affiliate thereof which contain financial data based upon, derived from or to form part of the financial statements of the Company and contemplated by Applicable Legislation.
 35 

 

(b)Meetings of the Committee shall be validly constituted if a majority of members of the Committee are present in person or by telephone conference. Additional meetings may be held as deemed necessary by the Committee Chair or as requested by any member or the external auditors or any director of the Company not a member of the Committee.

 

(c)Any member of the external auditors of the Company is entitled to receive notice of every meeting of the Committee and at the Company’s expense, to attend and be heard thereat and, if requested by a member of the Committee, to attend any meeting of the Committee.

 

(d)The Committee should require the attendance of the Company’s auditors at least once each year, and at such other times as the Committee deems appropriate in the context of Applicable Legislation and its responsibilities as outlined below. The Company’s external auditor shall be requested to review and comment on all disclosure documents issued by the Company containing financial statements or information derived therefrom.

 

(e)The Committee shall meet privately with the external auditor at least quarterly excluding members of management other than the Secretary to the Committee. The Committee shall meet privately with the internal audit staff at least twice yearly excluding other members of management other than the Secretary to the Committee.

 

4.REPORTING

 

(a)The minutes of all meetings of the Committee are to be provided to the Board and to the Company’s auditor. Oral reports by the Chair on recent matters not yet minuted will be provided to the Board at its next meeting. Minutes of all Committee meetings will be subsequently reviewed and approved by the Committee.

 

(b)Supporting schedules and information reviewed by the Committee will be available for examination by any director or the Company’s auditor upon request to the Secretary of the Committee.

 

5.RESPONSIBILITIES

 

The general responsibility of the Committee is to assist the Board in fulfilling its oversight responsibilities with respect to: (i) the integrity of annual and quarterly financial statements to be provided to shareholders and regulatory bodies; (ii) compliance with accounting and finance based legal and regulatory requirements; (iii) the independent auditor’s qualifications and independence; (iv) the system of internal accounting and financial reporting controls that management has established; (v) performance of the internal and external audit process and of the independent auditor; and (vi) to the extent not addressed by the Risk Committee, the implementation and effectiveness of the policies of the Company relating to Risk Management Policy and Procedures, the Policy on Dividends and such other policies of the Company approved from time to time by the Board or the Committee.

 

The specific responsibilities of the Committee shall be as follows:

 

(a)to review the Company’s quarterly and annual financial statements and any other financial statements of the Company and its affiliates required to be prepared by Applicable Legislation or otherwise for dissemination to the public, so as to be satisfied they are fairly presented in accordance with generally accepted accounting principles and in accordance with Applicable Legislation and to recommend to the Board whether the quarterly and the annual financial statements and any such other financial statements should be approved by the Board;

 

(b)prior to the dissemination to the public, to review the financial information and financial data contained in the Company’s quarterly financial statements, Annual Report to Shareholders and other financial publications of the Company or any affiliate thereof (including the Company’s interim and year end management discussions and analysis of financial condition and results of operation, annual information form, proxy information circular, quarterly press releases and material and timely disclosure reports containing any financial data) and the financial information contained in a prospectus and/or registration statement of the Company or any affiliate thereof or other document filed with any regulatory authority so as to be satisfied that the financial information and financial data is not significantly erroneous, misleading or incomplete and contains full, true and plain disclosure of all material facts or as otherwise required by Applicable Legislation and to make recommendations to the Board with respect to all such disclosure documents;
 36 

 

(c)to be satisfied that management of the Company and any affiliate thereof have implemented appropriate systems of capture of financial information and internal control over financial reporting and that these are operating effectively under Applicable Legislation and to review all reports prepared by the auditors with respect to the auditor’s attestation report;

 

(d)to be satisfied that management of the Company and the Company have implemented appropriate systems of internal control to ensure compliance with Applicable Legislation and ethical requirements and particularly to be satisfied that internal controls over financial reporting and disclosure controls and procedures are in place and that internal controls have been designed and implemented to provide reasonable assurance that the Company’s financial statements and other documents required to be mailed to shareholders or filed with regulatory authorities are fairly presented so as to enable the Chief Financial Officer and the Chief Executive Officer (and any other officer or director of the Company as may be required by Applicable Legislation) to personally certify the Company’s financial statements as required by Applicable Legislation;

 

(e)to the extent not addressed by the Risk Committee, to be satisfied that management of the Company and each affiliate thereof have implemented effective systems to identify significant financial and other risks of the business and changes to these risks including the implications of risks associated with the Company’s compensation policies and practices under Form 51-12 F6 under National Instrument 51-102. The Committee will review reports from management related to these risks and make recommendations to the Board with respect to a Risk Management Policy;

 

(f)to recommend to the Board the appointment of external auditors nominated at each annual meeting of shareholders and provide oversight with respect to the external audit engagement. The Committee will also recommend to the Board the re-appointment or appointment of the external auditors and the compensation payable to them. The Committee will pre-approve all non-audit services to be provided to the Company and its affiliates by the Company’s external auditors providing that where necessary, this function may be delegated to the Chair of the Committee for approval on the basis that the Chair reports all such approvals to the Committee at its next regularly scheduled meeting;

 

(g)to be satisfied that any significant or material matter brought to the attention of the Committee by the Company’s external auditors and internal audit or matters where there is significant disagreement between the Company’s external auditors and/or internal audit and Company officers (including the resolution or proposed resolution thereof) are communicated to the Board;

 

(h)to be satisfied that all significant matters raised in any report to management by the external auditors and internal audit are being addressed and dealt with by management in a satisfactory manner and, to the extent they are not, to make a report to the Board;

 

(i)to be satisfied that the declaration and payment of dividends by any affiliate of the Company to the Company or to any affiliate thereof and the declaration and payment of dividends by the Company to its shareholders, meet applicable legal requirements and Applicable Legislation and to make recommendations to the Board with respect thereto;

 

(j)as and when required by Applicable Legislation or as otherwise required including the laws and regulations in all jurisdictions in which it operates to establish independent procedures (A) for the receipt, retention and treatment of complaints received by the Company or any affiliate thereof regarding accounting, internal accounting controls or auditing matters, and (B) for the confidential communication of anonymous submissions to the Company or any affiliate thereof and a member of the Committee of concerns regarding questionable accounting or auditing matters from employees including the submission of those complaints and concerns by logging into www.justenergy.ethicspoint.com, selecting the Just Energy Group or JEG as the company and following the prompts which are available. This service is interactive and anonymous;

 

(k)as and when required by Applicable Legislation, to be satisfied that disclosure controls and procedures are in place to ensure that material information required to be disclosed by Applicable Legislation is recorded, processed and summarized and reported within the time periods specified in Applicable Legislation;
 37 

 

(l)to ensure that the external auditors report annually on matters of independence;

 

(m)to ensure that the external and internal auditors prepare an external audit plan which, with any changes thereto, is reviewed by and acceptable to the Committee;

 

(n)to review and approve the hiring policies of the Company and any affiliate thereof regarding partners and employees (past or current) of the present and former external auditors of the Company;

 

(o)to review semi-annually all expenses relating to consulting and professional services including legal and audit;

 

(p)to review semi-annually executive business expenses;

 

(q)to review, analyse and implement all necessary procedures, controls and other similar requirements relating to financial matters arising from proposals to amend or introduce Applicable Legislation and the implementation or promulgation thereof;

 

(r)once or more annually, as the Corporate Governance and Nominating Committee (CGN Committee) decides, to receive for consideration that Committee’s evaluation of this Mandate and any recommended changes. Review and assess the CGN Committee’s recommended changes and make recommendations to the Board for consideration.

 

(s)to carry out any other appropriate duties and responsibilities assigned to the Committee by the Board;

 

(t)to honour the spirit and intent of Applicable Legislation as it evolves, authority to make minor technical amendments to this Mandate is delegated to the Corporate Secretary, who will report any amendments to the CGN Committee at its next meeting;

 

(u)to ensure that the Terms of Reference for the Committee are published on the Company’s website; and

 

(v)to discuss the Company’s major financial risk exposure and the steps management has taken to monitor and control such exposures and to ensure that the mandate for the Risk Committee addresses each of these matters.

 

The Chair of the CGN Committee, in consultation with the Chair of the Committee, will periodically review the effectiveness of the Committee and the performance of each Committee member and report to the Board on their conclusions.

 

(Approved as amended by the Board of Directors of the Company on February 9, 2012).

 

 

 

 

 

 38 

 

SCHEDULE “C” - GLOSSARY

 

All capitalized terms not otherwise defined in the body of this Annual Information Form, shall have the meanings ascribed to them below.

 

$100 Million Convertible Debentures” means the $100 million aggregate principal amount of 5.75% extendible unsecured subordinated debentures of the Company issued on September 22, 2011, pursuant to the $100 Million Supplemental Debenture Indenture.

 

$150 Million Convertible Bonds” means the US$150 million aggregate principal amount of the 6.5% convertible bonds issued on January 29, 2014, pursuant to the $150 Million Convertible Bonds Trust Deed.

 

$150 Million Convertible Bonds Trust Deed” means the trust deed dated as of January 29, 2014, between the Company, US Bank Trustees Limited and Elavon Financial Services Limited, UK Branch.

 

US$250 Million Term Financing” means the US$250 Million non-revolving multi-draw senior unsecured term loan facility with Sagard Credit Partners, LP and certain funds managed by a leading US-based global fixed income asset manager, pursuant to the US$250 Million Term Financing Loan Agreement.

 

US$250 Million Term Financing Loan Agreement” means the loan agreement dated as of September 12, 2018, between the Company, National Bank of Canada, and Sagard Credit Partners, LP.

 

Board” and “Board of Directors” means the board of directors of the Company.

 

BP” means collectively BP Energy Company, BP Canada Energy Marketing Corp., BP Canada Energy Group ULC and BP Corporation North America Inc. and any other related affiliate with which Just Energy contracts.

 

Bruce Power” means Bruce Power L.P.

 

CBCA” means the Canada Business Corporations Act, as amended from time to time, including the regulations promulgated thereunder.

 

CIBC” means Canadian Imperial Bank of Commerce, a Canadian chartered bank.

 

Commodity Suppliers” means Gas Suppliers and Electricity Suppliers.

 

Common Shares” means the common shares in the capital of the Company.

 

Company” means Just Energy Group Inc., a corporation created by a certificate of arrangement issued under the CBCA on January 1, 2011.

 

Computershare” means Computershare Trust Company of Canada.

 

Declaration of Trust” means the amended and restated declaration of trust for the Fund dated April 30, 2001, as amended and restated from time to time and terminated on December 31, 2010.

 

DSGs” means deferred share grants (formerly DUGs – deferred unit grants), issued to Directors pursuant to the DSG Plan as a component of compensation paid to Directors in lieu of fees payable in cash and which are exchangeable into Common Shares on a 1:1 basis.

 

DSG Plan” means the 2010 Directors’ Compensation Plan (formerly the Directors Deferred Unit Grant Plan) of the Company as amended from time to time.

 

Electricity Supplier” means a person who is an electricity producer or an electricity supply aggregator.

 

Exelon” means Exelon Generation Company, LLC, or any other related affiliate with which Just Energy contracts.

 39 

 

Financial Statements” means the audited comparative consolidated financial statements of the Company as at and for the years ended March 31, 2020, and 2019, together with the notes thereto and the auditor’s report thereon.

 

Fund” means Just Energy Income Fund, a trust established under the laws of the Province of Ontario on April 30, 2001, governed by the Declaration of Trust and wound up on December 31, 2010.

 

Gas Supplier” means a person who is a natural gas producer or natural gas supply aggregator.

 

Independent Broker” means a person who serves in the capacity of an independent broker to solicit Energy Contracts using among other things, a web-based sales portal, to small to mid-size commercial and small industrial customers primarily associated with Hudson.

 

Independent Contractor” means a person who serves in the capacity of an independent contractor to solicit energy contracts (including JustGreen and JustClean products), to residential and small commercial customers.

 

Intercreditor Agreement” means the sixth amended and restated intercreditor agreement made as of September 1, 2015, between the Company, certain of the Company’s Subsidiaries, CIBC, as Collateral Agent, Shell, BP, Exelon, Bruce Power, EDF Trading North America, LLC, National Bank of Canada, Nextera Energy Power Marketing, LLC and Macquarie, as amended and supplemented from time to time.

 

JEC” means Just Energy Corp., a corporation incorporated under the laws of Ontario and the former administrator of the Fund.

 

Just Energy” means all or any one or more of the Company and the Subsidiaries thereof as the context implies or may require.

 

LDC” means local distribution company, the natural gas or electricity distributor for a geographic franchise area.

 

Liquidation Preference” means US$25.00 per Series A Preferred Share.

 

Mid Market Swap Rate” means on the second business day in New York immediately preceding the first day of each relevant dividend period for the Series A Preferred Shares, the applicable semi-annual 5-year U.S. dollar mid market swap rate (the “5-year Mid Swap Rate”) displayed at 5:00 p.m. (New York time) as reported by Bloomberg L.P. on the IRSB page (or such other page as may replace that page as reported by Bloomberg L.P., or such other service as may be nominated by the person providing or sponsoring the information appearing there for the purposes of displaying comparable rates) on such date of determination; provided that if the 5-year Mid Swap Rate does not appear on that page, it shall be determined by a U.S. or Canadian investment banking firm selected by the Company on the basis of (i) quotations provided by the principal office of each of four major banks in the U.S. dollar swap market of the rates at which swaps for a 5 year period in U.S. dollars are offered by it at approximately 5:00 p.m. (New York time) on such date of determination to participants in the U.S. dollar swap market, and (ii) the arithmetic mean rounded, if necessary, to the nearest 0.00001 (0.000005 being rounded upwards) of such quotations.

 

Macquarie” means Macquarie Bank Limited, Macquarie Energy Canada Ltd., Macquarie Energy LLC and any other related affiliate with which Just Energy contracts

 

NYSE” means the New York Stock Exchange.

 

person” includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporate, unincorporated association or organization, governmental entity, syndicate or other entity, whether or not having legal status.

 

Preferred Shares” means the preferred shares of the Company.

 

RCE” means a residential customer equivalent which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJ’s) of natural gas on an annual basis and, as regards electricity, 10,000 kWh of electricity on an annual basis, which represents, respectively, the approximate amount of gas and electricity used by a typical household in Ontario.

 40 

 

PBGs” means the performance bonus grants of the Company granted pursuant to the Company’s 2013 Performance Bonus Incentive Plan, as amended from time to time.

 

RSGs” means restricted share grants of the Company granted pursuant to the Company’s 2010 Restricted Share Grant Plan, as amended from time to time (formerly known as unit appreciation rights (UARs) of the Fund granted pursuant to the Fund’s 2004 Unit Appreciation Right Plan, as amended from time to time).

 

Shareholders” means the holders from time to time of Common Shares and/or Preferred Shares, and includes the beneficial owners of such shares.

 

Shell” means Shell Energy North America (Canada) Inc., Shell Energy North America (U.S.) L.P., and any other related affiliate with which Just Energy contracts.

 

Subsidiary” has the meaning ascribed thereto in the CBCA and includes all limited partnerships directly or indirectly controlled by the Company.

 

TSX” means the Toronto Stock Exchange.

 

Words importing the singular include the plural and vice versa and words importing any gender include all genders.

 

Unless otherwise stated, all dollar amounts herein are in Canadian dollars.

 

 

 

 

 

 

 

41

 

Exhibit 1.2

 

Management’s discussion and analysis
– July 8, 2020

 

The following management’s discussion and analysis (“MD&A”) is a review of the financial condition and operating results of Just Energy Group Inc. (“Just Energy” or the “Company”) for the year ended March 31, 2020. This MD&A has been prepared with all information available up to and including July 8, 2020. This MD&A should be read in conjunction with Just Energy’s audited consolidated financial statements for the year ended March 31, 2020.The MD&A and financial statements have been restated for comparative purposes to reflect the differences that were identified between amounts recorded in the general ledger and balances based on external information as further described below and in Note 5 of the consolidated financial statements for the year ended March 31, 2020. In addition, results for the year ended March 31, 2019 have been restated to reflect the effects of the Company’s U.K. discontinued operations and ultimate disposal as further described in Note 24 of the consolidated financial statements for the year ended March 31, 2020. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). All dollar amounts are expressed in Canadian dollars unless otherwise noted. Quarterly reports, the annual report and supplementary information can be found on Just Energy’s corporate website at www.justenergygroup.com. Additional information can be found on SEDAR at www.sedar.com or on the U.S. Securities and Exchange Commission’s (“SEC”) website at www.sec.gov.

 

COVID-19 CONSIDERATIONS

 

The rapid outbreak of the novel strain of the coronavirus, specifically identified as the COVID-19 pandemic, has caused governments worldwide to enact emergency measures and restrictions to combat the spread of the virus. These measures and restrictions, which include the implementation of travel bans, mandated and voluntary business closures, self-imposed and mandatory quarantine periods, isolation orders and social distancing, have caused material disruption to the businesses globally resulting in economic slowdown. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The future impact of the COVID-19 pandemic on liquidity, volatility, credit availability and market and financial conditions generally could change at any time. The duration and impact of the COVID-19 outbreak on the economy are unknown at this time, and, as a result, it is difficult to estimate the longer-term impact on our operations and the markets for our products.

 

RECAPITALIZATION

 

On July 8, 2020, the Company announced a comprehensive plan to strengthen and de-risk the business, positioning the Company for sustainable growth as an independent industry leader (the “Recapitalization”). The Recapitalization will be undertaken through a plan of arrangement under the Canada Business Corporation Act (“CBCA”) and includes:

 

·Exchange of $100 million 6.75% subordinated convertible debentures due March 31, 2023 (TSX: JE.DB.D) and $160 million 6.75% subordinated convertible debentures due December 31, 2021 (TSX: JE.DB.C) (the “Subordinated Convertible Debentures”) for new common equity;
·Extension of $335 million credit facilities by three years to December 2023, with revised covenants and a schedule of commitment reductions throughout the term;
·Existing senior unsecured term loan due September 12, 2023 (the “Existing Term Loan”) and the remaining convertible bonds due December 31, 2020 (the “Eurobond”) shall be exchanged for a new term loan due March 2024, with interest to be paid-in-kind and new common equity;
·Exchange of all 8.50%, fixed-to-floating rate, cumulative, redeemable, perpetual preferred shares (JE.PR.U) (the “Preferred Shares”) into new common equity;
·New cash equity investment commitment of $100 million;
·Initial reduction of annual cash interest expense by approximately $45 million; and
·Business as usual for employees, customers and suppliers enhanced by the relationship with a financially stronger Just Energy – they will not be affected by the Recapitalization.

 

The implementation of the Recapitalization is expected in September 2020, pending court and securityholder approvals required under the CBCA, as well as applicable approvals by the Toronto Stock Exchange. The Recapitalization has been approved by Just Energy’s Board of Directors. Just Energy’s financial advisor, BMO Capital Markets, has provided an opinion to Just Energy’s Board of Directors that the terms of the Recapitalization, if implemented, are fair from a financial point of view to of the holders of the existing Eurobond Subordinated Convertible Debentures, preferred shares and common shares.

 

The Company has obtained a preliminary interim order from the Ontario Superior Court of Justice which, among other things, grants a limited stay of proceedings and establishes the record date for voting of securityholders with respect to the plan of arrangement as July 8, 2020. The Company will be seeking an interim order in the very near term.

 

The Company’s ability to continue as a going concern for the next 12 months is dependent on the continued availability of its credit facilities; the Company’s ability to obtain waivers from its lenders for potential instances of non-compliance with covenants, if necessary; the ability to refinance, or secure additional sources of financing, if necessary, or the completion of this Recapitalization transaction; the liquidation of available investments; and the continued support of the Company’s lenders and suppliers. These conditions indicate the existence of material uncertainties that raise substantial doubt about the Company’s ability to continue as a going concern and, accordingly, the ultimate appropriateness of the use of accounting principles applicable to a going concern. There can be no assurance that the Company will be successful in these initiatives, that lenders will provide further financing or relief for covenants, or that the Company can refinance or repay credit facilities from new sources of financing.

 

 1.

 

 

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE CORRECTION OF AN UNDERSTATEMENT OF COMMODITY LIABILITIES AND OTHER RECLASSIFICATIONS

 

In connection with the preparation of the Company’s consolidated financial statements for the year ended March 31, 2020, differences were identified between amounts recorded in the general ledger and balances based on external information for commodity suppliers’ accruals and payables recorded in trade and other payables. The Company also identified certain reclassifications related to balances due from independent system operators and local distribution companies, and assets and liabilities related to green provisions and certificates. The Company assessed the materiality of the differences and determined the adjustments were material to the consolidated financial statements.

 

Refer to Note 5 of the consolidated financial statements at March 31, 2020 for the effects of the reclassifications and restatement. The discussion and analysis included herein is based on the restated financial results for the year ended March 31, 2019 and other comparative periods as indicated.

 

Consequently, the Company concluded that material weaknesses in its internal controls over financial reporting exist for the year ended March 31, 2020 as disclosed within the Disclosure Controls and Procedures section within this MD&A.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

 

Forward-looking information

 

This MD&A may contain forward-looking statements and information, including statements and information regarding, guidance for Base EBITDA for the fiscal year ended March 31, 2021; the ability of the Company to reduce selling, marketing and general and administrative expenses and the quantum of such reductions and the impact thereof on the Company’s current fiscal year; the Company’s ability to identify further opportunities to improve its cost structure; discussions with lenders, the impact of COVID-19; the Company’s transition from an RCE (defined in the Key Terms below) growth focus; improvement in the Company’s expected credit loss experience; the Company’s ability to attract and retain strong-fit customers and the impact thereof on the achievement by the Company of greater profitability; and the impact of the actions and remediation efforts taken or implemented by the Company in remediating the material weaknesses in the Company’s internal controls over financial reporting. These statements are based on current expectations that involve several risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, the impact of the evolving COVID-19 pandemic on the Company’s business, operations and sales, including risks associated with reliance on suppliers, uncertainties relating to the ultimate spread, severity and duration of COVID-19 and related adverse effects on the economies and financial markets of countries in which the Company operates, the ability of the Company to successfully implement its business continuity plans with respect to the COVID-19 pandemic, the Company’s ability to access sufficient capital to provide liquidity to manage its cash flow requirements, general economic, business and market conditions, the ability of management to execute its business plan, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, customer credit risk, rates of customer attrition, fluctuations in natural gas and electricity prices, interest and exchange rates, actions taken by governmental authorities including energy marketing regulation, increases in taxes and changes in government regulations and incentive programs, changes in regulatory regimes, results of litigation and decisions by regulatory authorities, competition, the performance of acquired companies and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations, financial results or dividend levels is included in Just Energy’s Annual Information Form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or by visiting EDGAR on the SEC’s website at www.sec.gov.

 

Company overview

 

Just Energy is a retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions and renewable energy options to customers. Currently operating in the United States (“U.S.”) and Canada, Just Energy serves both residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, Filter Group Inc. (“Filter Group”), Hudson Energy, Interactive Energy Group, Tara Energy and TerraPass.

 

 

 2.

 

 

Continuing operations overview

 

CONSUMER SEGMENT

 

The sale of gas and electricity to customers with annual consumption equivalent to 15 RCEs or less is undertaken by the Consumer segment. Marketing of the energy products of this segment is primarily done through retail, online, tele-sales and door-to-door marketing. Consumer customers make up 35% of Just Energy’s RCE base, which is currently focused on longer-term price-protected, flat-bill and variable rate product offerings, as well as JustGreen products. To the extent that certain markets are better served by shorter-term or enhanced variable rate products, the Consumer segment’s sales channels also offer these products.

 

In fiscal 2019, Just Energy added home water filtration systems to its line of consumer product and service offerings through the acquisition of Filter Group. The Company is currently re-evaluating the overall strategy and considering appropriate refinements to its value-added product offerings.

 

COMMERCIAL SEGMENT

 

Customers with annual consumption equivalent to over 15 RCEs are served by the Commercial segment. These sales are made through three main channels: brokers, door-to-door commercial independent contractors and inside commercial sales representatives. Commercial customers make up 65% of Just Energy’s RCE base. Products offered to Commercial customers range from standard fixed-price offerings to “one off” offerings, tailored to meet the customer’s specific needs. These products can be fixed or floating rate or a blend of the two, and normally have a term of less than five years. Gross margin per RCE for this segment is lower than it is for the Consumer segment, but customer acquisition costs and ongoing customer care costs per RCE are lower as well. Commercial customers also have significantly lower attrition rates than Consumer customers.

 

ABOUT THE ENERGY MARKETS

 

Just Energy offers products and services to address customers’ essential needs, including electricity and natural gas commodities, health and well-being products such as water quality and filtration devices, and utility conservation products which bring energy efficient solutions and renewable energy options to customers.

 

Natural gas

 

Just Energy offers natural gas customers a variety of products ranging from month-to-month variable-price contracts to five-year fixed-price contracts. Gas supply is purchased from market counterparties based on forecasted Consumer and small Commercial RCEs. For larger Commercial customers, gas supply is generally purchased concurrently with the execution of a contract. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Flat-bill products offer customers the ability to pay a fixed amount per period regardless of usage or changes in the price of the commodity.

 

The LDCs provide historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Just Energy mitigates exposure to weather variations through active management of the gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal. To the extent that balancing requirements are outside the forecasted purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy’s realized customer gross margin may increase or decrease depending upon market conditions at the time of balancing.

 

 3.

 

 

Territory Gas delivery method
Manitoba, Ontario, Quebec and Michigan The volumes delivered for a customer typically remain constant throughout the year. Sales are not recognized until the customer consumes the gas. During the winter months, gas is consumed at a rate that is greater than delivery, resulting in accrued gas receivables, and, in the summer months, deliveries to LDCs exceed customer consumption, resulting in gas delivered in excess of consumption. Just Energy receives cash from the LDCs as the gas is delivered.
Alberta, British Columbia, Saskatchewan, California, Illinois, Indiana, Maryland, New Jersey, New York, Ohio and Pennsylvania The volume of gas delivered is based on the estimated consumption and storage requirements for each month. Therefore, the amount of gas delivered in the winter months is higher than in the spring and summer months. Consequently, cash flow received from most of these markets is greatest during the third and fourth (winter) quarters, as cash is normally received from the LDCs in the same period as customer consumption.

 

Electricity

 

Just Energy services various territories in Canada and the U.S. with electricity. A variety of electricity solutions are offered, including fixed-price, flat-bill and variable-price products on both short-term and longer-term contracts. Some of these products provide customers with price-protection programs for the majority of their electricity requirements. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions. Flat-bill products offer a consistent price regardless of usage.

 

Just Energy purchases power supply from market counterparties for residential and small Commercial customers based on forecasted customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger Commercial customers. Historical customer usage is obtained from LDCs, which, when normalized to average weather, provides Just Energy with expected normal customer consumption. Similar to gas, Just Energy mitigates exposure to weather variations through active management of the power portfolio and the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal. To the extent that balancing power purchases are outside the acceptable forecast, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. Any supply balancing not fully covered through customer pass-throughs, active management or the options employed may impact Just Energy’s gross margin depending upon market conditions at the time of balancing.

 

JustGreen

 

Customers also have the ability to choose an appropriate JustGreen program to supplement their natural gas and electricity contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.

 

JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects. JustGreen’s electricity product offers customers the option of having all or a portion of the volume of their electricity usage sourced from renewable green sources such as wind, solar, hydropower or biomass, via power purchase agreements and renewable energy certificates. Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.

 

Just Energy currently sells JustGreen gas and electricity in eligible markets across North America. Of all Consumer customers who contracted with Just Energy in the past year, 58% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 88% of their consumption as green supply. For comparison, as reported for the year ended March 31, 2019, 44% of Consumer customers who contracted with Just Energy chose to include JustGreen for an average of 79% of their consumption. As at March 31, 2020, JustGreen makes up 15% of the Consumer gas portfolio, compared to 7% a year ago. JustGreen makes up 20% of the Consumer electricity portfolio, compared to 14% in the prior comparable period.

 

 4.

 

 

TerraPass

 

Through TerraPass, customers can offset their environmental impact by purchasing high quality environmental products. TerrraPass supports projects throughout North America that destroy greenhouse gases, produce renewable energy and restore freshwater ecosystems. Each project is made possible through the purchase of renewable energy credits and carbon offsets. TerraPass offers various purchase options for residential or commercial customers, depending on the impact the customer wishes to make.

 

Key terms

 

“6.5% convertible bonds” refers to the US$150 million in convertible bonds issued in January 2014, which mature on December 31, 2020. In fiscal 2020, US$127.6 million was repurchased by the Company. A further US$13.2 million was repurchased in July 2019, resulting in a balance of US$9.2 million outstanding as at March 31, 2020.

 

“6.75% $160M convertible debentures” refers to the $160 million in convertible debentures issued in October 2016, which have a maturity date of December 31, 2021.

 

“6.75% $100M convertible debentures” refers to the $100 million in convertible debentures issued in February 2018, which have a maturity date of March 31, 2023.

 

“8.75% loan” refers to the US$250 million non-revolving multi-draw senior unsecured term loan facility entered into on September 12, 2018, which has a maturity date of September 12, 2023. US$14.0 million was drawn in fiscal 2020, resulting in an outstanding balance at March 31, 2020 of US$207.0 million.

 

“Base gross margin per RCE” refers to the energy Base gross margin realized on Just Energy’s RCE customer base, including gains (losses) from the sale of excess commodity supply.

 

“Commodity RCE attrition” refers to the percentage of energy customers whose contracts were terminated prior to the end of the term either at the option of the customer or by Just Energy.

 

“Customer count” refers to the number of customers with a distinct address rather than RCEs (see key term below).

 

“Failed to renew” means customers who did not renew expiring contracts at the end of their term.

 

“Filter Group financing” refers to the outstanding loan balance between Home Trust Company (“HTC”) and Filter Group, which was acquired by the Company on October 1, 2018. The loan bears an annual interest rate of 8.99%.

 

“LDC” means a local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area.

 

“Maintenance capital expenditures” means the necessary property and equipment and intangible asset capital expenditures required to maintain existing operations at functional levels.

 

“Preferred shares” refers to the 8.50%, fixed-to-floating rate, cumulative, redeemable, perpetual preferred shares that were initially issued at a price of US$25.00 per preferred share in February 2017. The cumulative feature means that preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price, as and if declared by the Board of Directors.

 

“RCE” means residential customer equivalent, which is a unit of measurement equivalent to a customer using 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis or 10 MWh (or 10,000 kWh) of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario, Canada.

 

“Selling commission expenses” means customer acquisition costs amortized under IFRS 15 or directly expensed within the current period and consist of commissions paid to independent sales contractors, brokers and sales agents. “Selling non-commission and marketing expenses” means the cost of selling overhead, including marketing costs not directly associated with the costs of direct customer acquisition costs within the current period. The total of these selling commission expenses and selling non-commission and marketing expenses is reflected on the statement of loss as selling and marketing expenses.

 

 5.

 

“Strategic Review” means the Company’s formal review announced on June 6, 2019 to evaluate strategic alternatives available to the Company. The Company is no longer in active discussions regarding a specific transaction at this time but is continuing to explore and evaluate alternatives under the Strategic Review process, including additional cost reduction and optimization strategies, improving efficiencies and eliminating redundancies, sales of certain assets, improvements to liquidity and leverage, refinancings and the sale of the entire business.

 

Non-IFRS financial measures

 

Just Energy’s audited consolidated financial statements are prepared in accordance with IFRS. The financial measures that are defined below do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. These financial measures should not be considered as an alternative to, or more meaningful than, net income (loss), cash flow from operating activities and other measures of financial performance as determined in accordance with IFRS; however, the Company believes that these measures are useful in providing relative operational profitability of the Company’s business.

 

BASE GROSS MARGIN

 

Base gross margin represents gross margin adjusted to include the effect of the adoption of IFRIC 11 for realized gains (losses) on derivative instruments and other. Base gross margin is a key measure of earnings used by management to assess performance and allocate resources. Management believes that these realized gains (losses) on derivative instruments do not impact the long-term financial performance of Just Energy and thus have included them in the Base gross margin calculation.

 

EBITDA

 

“EBITDA” refers to earnings before finance costs, income taxes, depreciation and amortization with an adjustment for discontinued operations. EBITDA is a non-IFRS measure that reflects the operational profitability of the business.

 

Base EBITDA

 

“Base EBITDA” refers to EBITDA adjusted to exclude the impact of unrealized and realized mark to market gains (losses) arising from IFRS requirements for derivative financial instruments, Texas residential enrolment and collections impairment, Strategic Review costs, impairment of goodwill and intangible assets, discontinued operations and restructuring as well as adjustments reflecting share-based compensation, non-controlling interest and amortization of sales commissions with respect to Filter Group Inc. This measure reflects operational profitability as the non-cash share-based compensation expense is treated as an equity issuance for the purposes of this calculation, since it will be settled in common shares; the mark to market gains (losses) are associated with supply already sold in the future at fixed prices; and the mark to market gains (losses) of weather derivatives are not yet realized. The Texas residential enrolment and collections impairment, Strategic Review costs, restructuring and discontinued operations are one-time, non-recurring events. Management has isolated the impact of the incremental Texas residential enrolment and collections recorded as at June 30, 2019, as presented in Base EBITDA. All other bad debt charges, including any residual bad debt from the Texas enrolment and collection issues, are included in Base EBITDA from July 1, 2019 onward.

 

Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under IFRS, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts. This creates unrealized and realized gains (losses) depending upon current supply pricing. Management believes that these short-term mark to market gains (losses) do not impact the long-term financial performance of Just Energy and has excluded them from the Base EBITDA calculation.

 

 6.

 

Included in Base EBITDA are gains (losses) from the Company’s portfolio of equity investments and acquisitions which are presented in the Company’s audited consolidated financial statements. The impact from fair value adjustments of contingent consideration liabilities that are related solely to performance is included in Base EBITDA, while any impact from fair value adjustments of contingent consideration liabilities relating to changes in Just Energy’s share price is excluded from Base EBITDA. Management believes that volatility in share price does not impact the financial performance of Just Energy as the contingent consideration is settled in shares.

 

Just Energy recognizes the incremental acquisition costs of obtaining a customer contract as an asset since these costs would not have been incurred if the contract was not obtained and are recovered through the consideration collected from the contract. Commissions and incentives paid for commodity contracts and value-added products contracts are capitalized and amortized over the term of the contract. Amortization of these costs with respect to commodity contracts is included in the calculation of Base EBITDA (as selling and marketing expenses). Amortization of incremental acquisition costs on value-added product contracts is excluded from the Base EBITDA calculation as value-added products are considered to be a lease asset akin to a fixed asset whereby amortization or depreciation expenses are excluded from Base EBITDA.

 

fREE CASH FLOW (“FCF”)

 

Free cash flow represents cash flow from operations less maintenance capital expenditures.

 

Embedded gross margin (“EGM”)

 

EGM is a rolling five-year measure of management’s estimate of future contracted energy and product gross margin. The commodity embedded gross margin is the difference between existing energy customer contract prices and the cost of supply for the remainder of the term, with appropriate assumptions for commodity RCE attrition and renewals. The product gross margin is the difference between existing value-added product customer contract prices and the cost of goods sold on a five-year or ten-year undiscounted basis for such customer contracts, with appropriate assumptions for value-added product attrition and renewals. It is assumed that expiring contracts will be renewed at target margin renewal rates.

 

EGM indicates the margin expected to be realized from existing customers. It is intended only as a directional measure for future gross margin. It is not discounted to present value nor is it intended to consider administrative and other costs necessary to realize this margin.

 

EGM indicates the gross margin expected to be realized over the next five years from existing customers. It is intended only as a directional measure for future gross margin. It is not discounted to present value nor is it intended to consider administrative and other costs necessary to realize this margin. As the mix of customers continues to reflect a higher proportion of Commercial volume, the EGM may, depending on currency rates, grow at a slower pace than customer growth; however, the underlying costs necessary to realize this margin will also decline.

 

 7.

 

Financial and operating highlights
For the years ended March 31   
(thousands of dollars, except where indicated and per share amounts)
          
          
    Fiscal 2020    % increase    Fiscal 2019 
         (decrease)    (Restated) 
Sales  $2,772,809    (9)%  $3,038,438 
Cost of goods sold   2,136,456    (9)%   2,359,867 
Gross margin   636,353    (6)%   678,571 
Realized loss of derivative instruments and other   (25,773)   (69)%   (83,776)
Base gross margin2   610,580    3%   594,795 
Administrative expenses4   167,936    2%   165,328 
Selling commission expenses   142,682    18%   120,960 
Selling non-commission and marketing expenses   78,138    (14)%   90,778 
Restructuring costs   -    -   14,844 
Finance costs   106,945    22%   87,779 
Impairment of goodwill, intangible assets and other   92,401    NMF  3   - 
Loss from continuing operations   (298,233)   116%   (138,272)
Loss from discontinued operations   (11,426)   (91)%   (128,259)
Loss for the year1   (309,659)   16%   (266,531)
Loss per share from continuing operations available to shareholders – basic   (2.05)        (1.00)
Loss per share from continuing operations available to shareholders – diluted   (2.05)        (1.00)
Dividends and distributions   26,195    (70)%   88,030 
Base EBITDA from continuing operations2   185,836    16%   160,758 
Free cash flow2   24,596    128%   (88,037)
Embedded gross margin2   1,807,832    (14)%   2,097,800 
Total customers (RCEs)   3,396,000    (7)%   3,638,000 
Total gross customer (RCE) additions   716,000    (29)%   1,011,000 
Total net customer (RCE) additions   (242,000)   NMF  3   (28,000)

1 Loss includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.

2 See “Non-IFRS financial measures” on page 6.

3 Not a meaningful figure.

4 Includes $13.9 million of Strategic Review costs for fiscal 2020.

 

For the year ended March 31, 2020, sales decreased 9% from $3.0 billion to $2.8 billion. The decline in the sales is primarily due to the 7% decline in the overall RCE customer base resulting from the shift in focus to the Company’s strategy to increase the credit quality of customers and to onboard higher quality customers through alternative channels, management’s decision to exit the Georgia gas market, a reduction in the Company’s Canadian customer base due to regulatory restrictions in Alberta and Ontario, as well as competitive pressures on pricing in the U.S. market. The Company’s gross margin decreased by 6% driven by changes in the market pricing of natural gas and electricity.

 

The improvement in Base EBITDA of 16% is primarily driven by the higher Base gross margin, derived from margin improvement initiatives, supply management activities driving lower costs, administrative expenses and selling non-commission and marketing expenses cost reductions, and an increase in other income during the fiscal year from the $22.0 million reduction in the Filter Group contingent consideration, partially offset by the decline in the RCE customer base.

 

 8.

 

 

Discontinued operations

 

In March 2019, Just Energy formally approved and commenced the process to dispose of its businesses in Germany, Ireland and Japan. In June 2019, as part of the Company’s Strategic Review, the United Kingdom (“U.K.”) was added to the disposal group. The decision was part of a strategic transition to focus on the core business in North America.

 

On November 29, 2019, the Company closed its sale of the U.K. operations to Shell Energy Retail Limited for proceeds of £1.5 million ($2.5 million) of cash received on closing. The Company may also receive consideration of an amount up to £8.5 million ($14.2 million) related to the reinstatement of the U.K. capacity market payments, which is expected to be determined within 12 months of the closing date. The Company recorded a gain on the sale of the U.K. operations of $43.6 million.

 

On November 6, 2019, the Company entered into an agreement to sell substantially all the assets of its wholly owned subsidiary Just Energy Ireland Limited to Flogas Natural Gas Limited (“Flogas”) for up to €0.6 million ($1.0 million). The transaction closed in December 2019. The Company received €0.4 million ($0.7 million) representing 75% of the purchase price in cash at closing and received an additional €0.2 million ($0.3 million) representing 25% of the purchase price five months after closing. The Company recorded a gain on the sale of the assets of the Irish subsidiary of $1.6 million in its results from discontinued operations.

 

On April 10, 2020, the Company announced that it has sold all the shares of Just Energy Japan KK (“Just Energy Japan”) to Astmax Trading, Inc. The purchase price was nominal and resulted in a nominal gain on the sale, which will be reported in the profit (loss) from discontinued operations.

 

For a detailed breakdown of the discontinued operations, refer to Note 24 of the Company’s consolidated financial statements for the year ended March 31, 2020.

 

Base gross margin                        
For the year ended March 31        
(thousands of dollars)                                
    Fiscal 2020                       Fiscal 2019  
                                            (Restated)  
  Consumer     Commercial     Total     Consumer     Commercial       Total  
Gas $ 120,627     $ 22,213     $ 142,840     $ 134,254     $ 25,446     $ 159,700  
Electricity   346,486       121,254       467,740       313,811       121,284       435,095  
  $ 467,113     $ 143,467     $  610,580 1   $ 448,065     $ 146,730     $  594,795 1
Increase (decrease)   4 %     (2 )%     3 %                      

1 Total fiscal 2020 gross margin per consolidated financial statements of $636,353 is comprised of Base gross margin of $610,580 plus realized loss from derivative instruments and other of $25,773; comparable fiscal 2019 figures are gross margin of $678,571, Base gross margin of $594,795, and realized loss from derivative instruments and other of $83,776.

 

CONSUMER

Base gross margin for the year ended March 31, 2020 for the Consumer segment was $467.1 million, an increase of 4% from $448.1 million recorded in fiscal 2019. Gas Base gross margin decreased by 10% while the electricity Base gross margin increased 10%.

 

Average realized Base gross margin for the Consumer segment for the year ended March 31, 2020 was $348/RCE, representing a 24% increase from $280/RCE reported in the prior year. This increase is primarily attributable to the margin improvement initiatives, and favourable foreign exchange fluctuations from the U.S. operations. The prior year’s Base gross margin per RCE has been adjusted to reflect the differences that were identified as described in Note 5 of the Company’s March 31, 2020 consolidated financial statements.

 

 9.

 

 

Gas

 

Base gross margin from gas customers in the Consumer segment was $120.6 million for the year ended March 31, 2020, a decrease of 10% from $134.3 million recorded in the prior year. The decrease is primarily a result of the 20% decline in the residential gas customer base, primarily in Canada and California.

 

Electricity

 

Base gross margin from electricity customers in the Consumer segment was $346.5 million for the year ended March 31, 2020, an increase of 10% from $313.8 million recorded in fiscal 2019. The increase in Base gross margin was primarily due to margin improvement initiatives and supply management activities driving lower costs, partially offset by the decline in the customer base.

 

COMMERCIAL

 

Base gross margin for the Commercial segment was $143.5 million for the year ended March 31, 2020, a decrease of 2% from $146.7 million recorded in the prior year.

 

Average realized Base gross margin for the year ended March 31, 2020 was $92/RCE, an increase of 10% from $84/RCE a year ago as a result of the margin improvement initiatives. The prior year’s Base gross margin/RCE has been adjusted to reflect the differences that were identified as described in Note 5 of the Company’s March 31, 2020 consolidated financial statements.

 

Gas

 

Base gas gross margin for the Commercial segment was $22.2 million, a decrease of 13% from $25.4 million recorded in fiscal 2019, driven by higher costs in certain U.S. gas markets.

 

Electricity

 

Electricity Base gross margin for the Commercial segment was $121.3 million, consistent with the prior year.

 

 10.

 

 

Base EBITDA from continuing operations
For the years ended March 31
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
         (Restated) 
Reconciliation to consolidated financial statements          
Loss for the year  $(309,659)  $(266,531)
Add:          
Finance costs   106,945    87,779 
Provision for income taxes   7,393    11,832 
Loss from discontinued operations   11,426    128,259 
Amortization and depreciation   41,242    29,861 
EBITDA  $(142,653)  $(8,800)
Add (subtract):          
Unrealized loss of derivative instruments and other   213,417    87,459 
Realized loss included in cost of goods sold   (1,387)    
Impairment of goodwill, intangible assets and other   92,401     
Texas residential enrollment and collections impairment   4,900    53,700 
Contingent consideration revaluation   (7,091)   7,447 
Strategic Review costs   13,926     
Restructuring costs       14,844 
Share-based compensation   12,250    5,916 
Loss attributable to non-controlling interest   73    192 
Base EBITDA from continuing operations  $185,836   $160,758 
           
Gross margin  $636,353   $678,571 
Realized loss of derivative instruments and other   (25,773)   (83,776)
Base gross margin   610,580    594,795 
Add (subtract):          
Administrative expenses   (167,936)   (165,328)
Selling commission expenses   (142,682)   (120,960)
Selling non-commission and marketing expenses   (78,138)   (90,778)
Bad debt expense   (80,050)   (123,288)
Texas residential enrollment and collections impairment   4,900    53,700 
Amortization included in cost of goods sold   (406)   2,666 
Other income   25,569    9,759 
Strategic Review costs   13,926     
Loss attributable to non-controlling interest   73    192 
Base EBITDA from continuing operations  $185,836   $160,758 

 

Base EBITDA amounted to $185.8 million for the year ended March 31, 2020, an increase of 16% from $160.8 million in the prior year. The higher Base EBITDA is attributable to higher Base gross margin derived from margin improvement initiatives, supply management activities driving lower costs, administrative and selling non-commission cost reductions driven by operational efficiencies, prior year restructuring actions and an increase in other income from the $22.0 million reduction in the Filter Group contingent consideration, partially offset by the decline in the customer base.

 

The decline in the Company’s customer base is primarily a result of a shift in focus to the Company’s strategy to increase the credit quality of customers and to onboard higher quality customers through alternative channels, management’s decision to exit the Georgia gas market, a reduction in the Company’s Canadian customer base due to regulatory restrictions in Alberta and Ontario, as well as competitive pressures on pricing in the U.S. market.

 

 11.

 

 

Base gross margin increased 3% for the year ended March 31, 2020 due to margin improvement initiatives, supply management activities driving lower costs and the stronger U.S. dollar, partially offset by the decline in the customer base.

 

Administrative expenses increased by 2% from $165.3 million to $167.9 million. The increase over the prior year was primarily attributable to the additional expenses relating to the Strategic Review. Excluding the impact of the Strategic Review costs of $13.9 million in the fiscal year, administrative expenses decreased 7% due to savings realized from the restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives that took effect during the 2020 fiscal year, partially offset by unfavourable foreign exchange fluctuations from the U.S. business.

 

Selling commission expenses were $142.7 million in fiscal 2020, an increase of 18% from the $121.0 million recorded in fiscal 2019 as a result of increased residential commissions costs to acquire new customers in certain channels as well as the ramp-up on amortization of previously capitalized customer acquisition costs. Selling non-commission and marketing expenses declined 14% from $90.8 million in fiscal 2019 to $78.1 million in fiscal 2020 as a result of reduced sales related corporate and marketing costs.

 

Bad debt expense was $80.1 million for the year ended March 31, 2020, a decrease of 35% from $123.3 million recorded for the prior year. The significant decrease in bad debt during fiscal 2020 was a result of improving controls and operational processes, including the Company’s criteria for assessing customer creditworthiness, associated with the Texas residential enrolment and collections. The Company continues to see improvement in its expected credit loss experience since identifying and closing certain enrolment control gaps previously disclosed by the Company. In Alberta, Texas, Illinois, California, Delaware and Ohio, Just Energy assumes the credit risk associated with the collection of customer accounts. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above-noted markets.

 

Finance costs for the year ended March 31, 2020 amounted to $106.9 million, an increase of 22% from $87.8 million recorded during fiscal 2019. The increase in finance costs was primarily driven by the premium and fees associated with the 8.75% loan, commodity supplier extended payment terms and interest expense from the increased utilization of the credit facility at higher interest rates.

 

The Company’s continuing operating results have been adjusted to exclude the loss from the discontinued operations totalling $11.4 million in fiscal 2020. Base EBITDA also excludes non-recurring charges for Strategic Review costs amounting to $13.9 million, impairment of goodwill, intangible assets and other of $92.4 million, revaluation gain of the Filter Group contingent consideration of $7.1 million and Texas residential enrolment and collections impairment totalling $4.9 million in the first quarter of fiscal 2020. Similarly, fiscal 2019 Base EBITDA excludes $14.8 million for restructuring, $7.4 million as the revaluation loss of the Filter Group contingent consideration and $53.7 million relating to the Texas residential enrollment and collections impairment as non-recurring charges.

 

Impairment of goodwill, intangible assets and other during the fiscal year ended March 31, 2020 amounted to $92.4 million. The impairment of intangible assets and goodwill was driven by a reduction in customers in the Company’s Commercial segment and lower unit margins driven by competitive market pressure. Impairment was also taken on the Filter Group, EdgePower and specific IT projects, driven by lower sales and customer additions as well as the shift in focus of the Company’s strategy.

 

As at March 31, 2020, the Company has recognized no amount related to the potential earn-out payments over the next three years relating to the Filter Group acquisition. The change in fair value of the contingent consideration from $29.1 million at March 31, 2019 to $nil at March 31, 2020 results in a gain of $29.1 million for the year ended March 31, 2020, reported in other income (expenses) in the consolidated statement of loss. The impact from fair value adjustments of contingent consideration liabilities that are related solely to performance is included in Base EBITDA, while any impact from fair value adjustments of contingent consideration liabilities relating to changes in Just Energy’s share price is excluded from Base EBITDA. The reduction in the Filter Group contingent consideration at March 31, 2020 was a result of the business not achieving its EBITDA earn-out target for the fiscal period ended September 30, 2019, coupled with a reduced forecasted EBITDA, a reduction in the trading price of the shares of Just Energy.

 

 12.

 

 

For more information on the changes in the results from operations by segment, refer to pages 21 through 22 below.

 

Selected consolidated financial data from continuing operations
For the years ended March 31      
(thousands of dollars, except per share amounts)      
       
Statement of operations      
    Fiscal 2020    Fiscal 2019 
         (Restated) 
Sales  $2,772,809   $3,038,438 
Cost of goods sold   2,136,456    2,359,867 
Gross margin   636,353    678,571 
Realized loss of derivative instruments and other   (25,773)   (83,776)
Base gross margin   610,580    594,795 
Loss from continuing operations   (298,233)   (138,272)
Loss from continuing operations per share – basic   (2.05)   (1.00)
Loss from continuing operations per share – diluted   (2.05)   (1.00)
Dividends/distributions paid   26,195    88,030 

 

Balance sheet data      
As at March 31      
    Fiscal 2020    Fiscal 2019 
         (Restated) 
Assets:          
Cash  $26,093   $9,888 
Trade and other receivables   403,907    705,221 
Total fair value of derivative financial assets   65,145    153,767 
Other current assets   203,270    206,425 
Total assets   1,215,833    1,699,401 
           
Liabilities:          
Trade and other payables   685,665    870,083 
Total fair value of derivative financial liabilities   189,706    143,045 
Total debt   782,003    725,372 
Total liabilities   1,711,121    1,871,491 

 

2020 COMPARED WITH 2019

 

For the year ended March 31, 2020, sales decreased by 9% to $2.8 billion in fiscal 2020, compared with $3.0 billion in the prior fiscal year, resulting from the 7% decline in the RCE customer base driven by a shift in focus to the Company’s strategy to increase the credit quality of customers and to onboard higher quality customers through alternative channels, management’s decision to exit the Georgia gas market, a reduction in the Company’s Canadian customer base due to regulatory restrictions in Alberta and Ontario as well as competitive pressures on pricing in the U.S. market.

 

 13.

 

 

Base gross margin increased by 3% to $610.6 million from $594.8 million reported in fiscal 2019 due to margin improvement initiatives, supply management activities driving lower costs and the stronger U.S. dollar, partially offset by the decline in the customer base.

 

The loss from continuing operations for fiscal 2020 amounted to $298.2 million, compared to a loss of $138.3 million in fiscal 2019, primarily due to the unrealized change in fair value of the derivative instruments which resulted in a loss of $237.8 million, up $66.6 million compared to a loss of $171.2 million in fiscal 2019, as well as the effects from the adoption of IFRIC 11. Refer to Note 7 of the consolidated financial statements for the year ended March 31, 2020 for further details on the adoption of IFRIC 11. Under IFRS, there is a requirement to mark to market the future supply contracts, creating unrealized non-cash gains or losses depending on the supply pricing, but the related future customer revenues are not marked to market (which would create an offsetting gain or loss to the supply gain or loss). Additionally, the loss from continuing operations is a result of the $92.4 million impairment charge from goodwill and intangible assets, offset by a $29.1 million gain relating to the change in fair value of the Filter Group contingent consideration.

 

Total assets decreased by 28% to $1,215.8 million in fiscal 2020 due to the disposition of the Company’s U.K. operations. Excluding the impact of the U.K. operations, total assets were down 7% because of the decrease in the asset position of the Company’s derivative financial instruments. Total liabilities as at March 31, 2020 were $1,711.1 million, lower than the $1,871.5 as at March 31, 2019. The decrease in total liabilities is primarily due to the inclusion of liabilities relating to the U.K. operations in fiscal 2019 which amounted to $272.8 million. Excluding the U.K. impact, total liabilities increased 7% in fiscal 2020 due to additional draws on the credit facility and the 8.75% loan, as well as strategic utilization of supplier credit term extensions on commodity accounts payable, partially offset by the partial redemption of the 6.5% convertible debentures as well as strategic utilization of supplier credit term extensions on accounts payable.

 

Total cash increased from $9.9 million as at March 31, 2019 to $26.1 million as at March 31, 2020. The increase in cash is primarily attributable to the cash savings from the restructuring actions that occurred in fiscal 2019 and improved cash management initiatives.

 

As at March 31, 2020, trade receivables and other and unbilled revenue amounted to $281.9 million and $122.0 million, respectively, compared to March 31, 2019, when the trade receivables and other and unbilled revenue amounted to $435.1 million and $270.1 million, respectively.

 

Trade payables and other decreased from $870.1 million to $685.7 million during the year ended March 31, 2020, as a result of the sale of the U.K. operations.

 

Fair value of derivative financial assets and fair value of financial liabilities relate entirely to the financial derivatives. The mark to market gains and losses can result in significant changes in the current year’s reported profit and, accordingly, shareholders’ equity from year-to-year due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these changes do not impact the long-term financial performance of Just Energy.

 

Total debt increased 8% from $725.4 million as at March 31, 2019 to $782.0 million as at March 31, 2020, driven by additional draws on the credit facility and the 8.75% loan, partially offset by the partial redemption of the 6.5% convertible debentures and monthly payments on the Filter Group financing.

 

Just Energy’s results reflect seasonality, as electricity consumption is slightly greater in the first and second quarters (summer quarters) and gas consumption is significantly greater during the third and fourth quarters (winter quarters). Electricity and gas customers currently represent 78% and 22%, of the commodity customer base, respectively. Since consumption for each commodity is influenced by weather, Just Energy believes the annual quarter over quarter comparisons are more relevant than sequential quarter comparisons.

 

 14.

 

 

Fourth quarter financial and operating highlights
For the three months ended March 31   
(thousands of dollars, except where indicated and per share amounts)   
          
          
         % increase     
    Fiscal 2020    (decrease)   Fiscal 2019 
Sales  $675,683    (15)%  $797,409 
Cost of goods sold   388,174    (32)%   574,543 
Gross margin   287,509    29%   222,866 
Realized loss of derivative instruments and other   (107,089)   112%   (50,435)
Base gross margin2   180,420    5%   172,431 
Administrative expenses4   46,051    18%   38,998 
Selling commission expenses   36,983    (6)%   39,480 
Selling non-commission and marketing expenses   16,584    (30)%   23,861 
Restructuring costs       NMF  3   8,862 
Finance costs   26,770    (6)%   28,581 
Impairment of goodwill, intangible assets and other   92,401    NMF  3    
Loss from continuing operations   (138,210)   NMF  3   (25,817)
Loss from discontinued operations   (2,721)   (97)%   (93,593)
Loss1   (140,931)   18%   (119,410)
Loss per share from continuing operations available to shareholders – basic   (0.93)        (0.23)
Loss per share from continuing operations available to shareholders – diluted   (0.93)        (0.23)
Dividends/distributions       NMF  3   22,004 
Base EBITDA from continuing operations2   74,632    25%   59,479 
Total gross customer (RCE) additions   245,000    12%   219,000 
Total net customer (RCE) additions2   (44,000)   (13)%   (39,000)

1 Loss includes the impact of unrealized gains (losses), which represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.

2 See “Non-IFRS financial measures” on page 6.

3 Not a meaningful figure.

4 Includes $6.1 million of Strategic Review costs for the fourth quarter of fiscal 2020.

 

 15.

 

 

Base EBITDA from Continuing Operations
For the three months ended March 31
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
Reconciliation to consolidated statements of income          
Loss for the period from continuing operations  $(140,931)  $(119,409)
Add (subtract):          
Finance costs   26,770    28,581 
Provision for income taxes   3,789    5,552 
Loss from discontinued operations   2,721    93,593 
Amortization and depreciation   12,422    8,817 
EBITDA  $(95,229)  $17,134 
Add (subtract):          
Unrealized loss of derivative instruments and other   73,870    19,480 
Realized loss included in cost of good sold   (4,354)   (8,651)
Impairment of goodwill, intangible assets and other   92,401     
Texas residential enrolment and collections impairment       19,200 
Contingent consideration revaluation       1,985 
Strategic Review costs   6,135     
Restructuring costs       8,862 
Share-based compensation   1,783    1,422 
Loss attributable to non-controlling interest   26    47 
Base EBITDA  $74,632   $59,479 
           
Gross margin  $287,509   $222,866 
Realized loss of derivative instruments and other   (107,089)   (50,435)
Base gross margin   180,420    172,431 
Add (subtract):          
Administrative expenses   (46,051)   (38,998)
Selling commission expenses   (36,983)   (39,480)
Selling non-commission and marketing expenses   (16,584)   (23,861)
Bad debt expense   (13,197)   (35,012)
Texas residential enrolment and collections impairment       19,200 
Amortization included in cost of goods sold   (2,060)   563 
Strategic Review costs   6,135     
Other income   2,926    4,589 
Loss attributable to non-controlling interest   26    47 
Base EBITDA  $74,632   $59,479 

 

Analysis of the fourth quarter

 

Sales decreased 15% to $675.7 million for the three months ended March 31, 2020 from $797.4 million recorded in the fourth quarter of fiscal 2019. The Base gross margin increased 5% from $172.4 million to $180.4 million for the three months ended March 31, 2020, primarily due to margin improvements initiatives, supply cost management driving lower costs, partially offset by the decline in the customer base.

 

Administrative expenses increased 18% from the prior comparable quarter. Excluding the impact of the Strategic Review costs of $6.1 million in the quarter, administrative expenses increased 2% due to higher professional fees and performance-based expenses and the stronger U.S. dollar almost completely offset by savings from operational efficiencies and prior year restructuring actions.

 

Selling commission expenses decreased 6% from the prior comparable quarter as a result of the lower customer additions in the fourth quarter of fiscal 2020. Selling non-cash commission and marketing expenses decreased 30% for the three months ended March 31, 2020 to $16.6 million as the result of cost reductions in the door-to-door channel and prior year restructuring actions.

 

 16.

 

 

Bad debt expense for the quarter ended March 31, 2020 was $13.2 million, a decrease of 62% from $35.0 million recorded for the prior comparable quarter. The decrease in bad debt during fiscal 2020 was a result of improving controls and operational processes, including the Company’s criteria for assessing customer creditworthiness, associated with the Texas residential enrolment and collections. The Company continues to see significant improvement in its expected credit loss experience since identifying and closing certain enrolment control gaps previously disclosed by the Company.

 

Finance costs for the three months ended March 31, 2020 amounted to $26.8 million, a decrease of 6% from $28.6 million reported for the three months ended March 31, 2019, primarily driven by interest saved on the partial redemption of the 6.5% convertible bonds, and less interest on collateral management costs as interest rates were lowered in March 2020 due to economic constraints from COVID-19.

 

The change in fair value of derivative instruments and other resulted in a loss of $73.9 million for the three months ended March 31, 2020, compared to a loss of $19.5 million in the prior comparable quarter, as market prices relative to Just Energy’s future electricity supply contracts decreased by an average of $1.54/MWh while the future gas contracts decreased by an average of $0.01/GJ. Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under IFRS, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts.

 

Loss from continuing operations for the three months ended March 31, 2020 was $138.2 million, representing a loss per share of $0.93 on a basic and diluted basis. For the prior comparable quarter, the loss was $25.8 million, representing a loss per share of $0.23 on a basic and diluted basis.

 

Base EBITDA from continuing operations was $74.6 million, an increase of 25% compared to the $59.5 million in the prior comparable quarter, primarily due to the increase in Base gross margin and the decrease in selling non-commission and marketing expenses and bad debt expense. The current quarter’s Base EBITDA excludes non-recurring charges for Strategic Review costs of $6.1 million. Base EBITDA for the three months ended March 31, 2019 excludes restructuring costs recorded in the quarter and the impact from the Texas residential enrolment and collections impairment.

 

Just Energy’s results for the comparative fiscal period have been adjusted to reflect the sale of the U.K. operations and other disposals as described in Note 24 of the consolidated financial statements for the year ended March 31, 2020.

 

 

 

 

 

 

 17.

 

 

Summary of quarterly results for continuing operations
(thousands of dollars, except per share amounts)   
    Q4    Q3    Q2    Q1 
    Fiscal 2020    Fiscal 2020    Fiscal 2020    Fiscal 2020 
Sales  $675,683   $658,521   $768,440   $670,165 
Cost of goods sold   388,174    446,552    843,788    457,941 
Gross margin   287,509    211,969    (75,348)   212,224 
Realized gain (loss) of derivative instruments and other   (107,089)   (69,485)   230,732    (79,932)
Base gross margin   180,420    142,484    155,384    132,292 
Administrative expenses   46,051    39,616    41,466    40,803 
Selling commission expenses   36,983    36,698    33,499    35,502 
Selling non-commission and marketing expenses   16,584    14,572    20,780    26,202 
Finance costs   26,770    28,178    28,451    23,546 
Profit (loss) for the period from continuing operations   (138,210)   20,600    89,349    (269,971)
Profit (loss) for the period from discontinued operations, net   (2,721)   6,293    (9,809)   (5,189)
Profit (loss) for the period   (140,931)   26,893    79,540    (275,160)
Earnings (loss) for the period from continuing operations per share – basic   (0.93)   0.18    0.55    (1.82)
Earnings (loss) for the period from continuing operations per share – diluted   (0.93)   0.16    0.45    (1.82)
Base EBITDA from continuing operations   74,632    37,949    49,069    24,185 

 

    Q4    Q3    Q2    Q1 
    Fiscal 2019    Fiscal 2019    Fiscal 2019    Fiscal 2019 
                   (Restated) 
Sales  $797,409   $734,205   $804,309   $702,515 
Cost of goods sold   574,543    584,136    648,311    552,877 
Gross margin   222,866    150,069    155,998    149,638 
Realized gain (loss) of derivative instruments and other   (50,435)   14,392    (6,976)   (40,757)
Base gross margin   172,431    164,461    149,022    108,881 
Administrative expenses   38,998    41,921    44,478    39,931 
Selling commission expenses   39,480    28,973    26,326    26,181 
Selling non-commission and marketing expenses   23,861    22,733    24,101    20,084 
Restructuring costs   8,862    2,746    1,319    1,917 
Finance costs   28,581    22,762    20,123    16,313 
Profit (loss) for the period from continuing operations   (25,817)   35,890    (56,305)   (92,041)
Profit (loss) for the period from discontinued operations, net   (93,593)   (90,156)   32,885    22,605 
Loss for the period   (119,410)   (54,266)   (23,420)   (69,436)
Earnings (loss) for the period from continuing operations per share – basic   (0.23)   0.27    (0.38)   (0.45)
Earnings (loss) for the period from continuing operations per share – diluted   (0.23)   0.25    (0.38)   (0.45)
Dividends/distributions paid   22,004    21,434    22,330    22,261 
Base EBITDA from continuing operations   59,479    57,105    37,380    6,795 

 

Just Energy’s results reflect seasonality, as electricity consumption is slightly greater in the first and second quarters (summer quarters) and gas consumption is significantly greater during the third and fourth quarters (winter quarters). Electricity and gas customers currently represent 78% and 22%, of the commodity customer base, respectively. Since consumption for each commodity is influenced by weather, Just Energy believes the annual quarter over quarter comparisons are more relevant than sequential quarter comparisons.

 

 18.

 

 

Segmented reporting1            
For the year ended March 31
(thousands of dollars)
         Fiscal 2020  
    Consumer    Commercial    Corporate
and shared
services
    Consolidated  
Sales  $1,670,775   $1,102,034   $   $2,772,809  
Cost of goods sold   (1,198,653)   (937,803)       (2,136,456 )
Gross margin   

472,122

    

164,231

        

636,353

 
Realized loss of derivative instruments and other   

(5,009

)   

(20,764

)        (25,773 )
Base gross margin   467,113    143,467        610,580  
Add (subtract):                     
Administrative expenses   (36,423)   (24,391)   (107,122)   (167,936 )
Selling commission expenses   (74,167)   (68,515)       (142,682 )
Selling non-commission and marketing expenses   (69,020)   (9,118)       (78,138 )
Texas residential enrollment and collections impairment   4,900            4,900  
Bad debt expense   (72,365)   (7,685)       (80,050 )
Amortization included in cost of goods sold   (406)           (406 )
Strategic Review costs           13,926    13,926  
Other income, net   25,569            25,569  
Loss attributable to non-controlling interest   73            73  
Base EBITDA from continuing operations  $245,274   $33,758   $(93,196)  $185,836  

 

 19.

 

 

         Fiscal 2019 
         (Restated) 
    Consumer    Commercial    Corporate
and shared
services
    Consolidated 
Sales  $1,906,473   $1,131,965   $   $3,038,438 
Cost of goods sold   (1,419,509)   (940,358)       (2,359,867)
Gross margin   

486,964

    

191,607

        

678,571

Realized loss of derivative instruments and other   

(38,899

)   

(44,877

)       

(83,776

)
Base gross margin   448,065    146,730        594,795 
Add (subtract):                    
Administrative expenses   (42,573)   (32,377)   (90,378)   (165,328)
Selling commission expenses   (62,072)   (58,888)       (120,960)
Selling non-commission and marketing expenses   (80,488)   (10,290)       (90,778)
Bad debt expense   (117,672)   (5,616)       (123,288)
Texas residential enrolment and collections impairment   53,700            53,700 
Amortization included in cost of goods sold   2,666            2,666 
Other income, net   9,759            9,759 
Loss attributable to non-controlling interest   192            192 
Base EBITDA from continuing operations  $211,577   $39,559   $(90,378)  $160,758 

1 The segment definitions are provided on page 3.

 

Consumer contributed $245.3 million to Base EBITDA for the year ended March 31, 2020, an increase of 16% from $211.6 million in fiscal 2019. Consumer Base gross margin increased 4% due to margin improvement initiatives and supply cost activities driving lower costs, partially offset by the decline in the customer base. Consumer administrative costs decreased by 14%, attributable to savings from prior year restructuring actions. Consumer selling commission expenses were up by 19% resulting from increased commission costs to acquire new customers as well as the ramp-up on amortization of previous capitalized customer acquisition costs. Selling non-commission and marketing expenses were down 14% in fiscal 2020 compared to fiscal 2019 due to cost savings from restructuring of the sales function, including the door-to-door channel.

 

Commercial contributed $33.8 million to Base EBITDA, a decrease of 15% from the year ended March 31, 2019, when the segment contributed $39.6 million. The decrease in gross margin is due to higher costs in certain U.S gas markets. Commercial administrative expense decreased 25% over the prior comparable year, while selling commission expenses increased 16%. The decrease in Commercial administrative expenses is driven by savings realized from the restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives beginning to take effect; while the increase in Commercial selling commission expenses reflects results from increased commission costs to acquire new customers as well as increased amortization of certain upfront incremental customer acquisition costs in accordance with IFRS 15.

 

Administrative expenses increased by 2% from $165.3 million to $167.9 million in the year ended March 31, 2020 as compared to fiscal 2019. The increase over prior year was primarily attributable to the additional expenses related to the Strategic Review. Excluding the impact of the $13.9 million of Strategic Review costs in fiscal 2020, administrative expenses decreased 7% due to savings realized from the restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives that took effect during the 2020 fiscal year. The Consumer segment’s administrative expenses were $36.4 million for the year ended March 31, 2020, a decrease from $42.6 million recorded in fiscal 2019. The Commercial segment’s administrative expenses were $24.4 million for fiscal 2020, a decrease from fiscal 2019 of 25%. The decrease in Consumer and Commercial administrative expenses over the prior comparable year was attributable to savings realized from the restructuring actions that occurred in fiscal 2019 and the impact of additional cost cutting initiatives that took effect during the fiscal year, partially offset by unfavourable foreign exchange fluctuations from the U.S. business.

 

 20.

 

 

Just Energy’s results for the 2019 fiscal year reported below have been adjusted to remove the effects of discontinued operations.

 

Selling commission expenses, which consist of commissions paid to independent sales contractors, brokers and sales agents were $142.7 million, an increase of 18% from $121.0 million recorded in the prior comparable period as a result of the increased residential commission costs to acquire new customers in certain channels as well as the ramp-up on amortization of previously capitalized customer acquisition costs. Selling non-commission expenses declined 14% from $90.8 million in fiscal 2019 to $78.1 million in fiscal 2020 as a result of reduced sales-related corporate and marketing costs.

 

The selling commission expenses for the Consumer segment were $74.2 million for the year ended March 31, 2020, a 19% increase from $62.1 million recorded in fiscal 2019 due to the increased commission costs to acquire new customers in certain channels, as well as the ramp-up of amortization expense of previously capitalized customer acquisition costs. Consumer selling non-commission and marketing expenses decreased 14% from $80.5 million in fiscal 2019 to $69.0 million in fiscal 2020 as the result of cost savings from restructuring of the sales function, including the door-to-door channel.

 

The selling commission expenses for the Commercial segment increased 16% to $68.5 million in fiscal 2020 from the $58.9 million in fiscal 2019 resulting from increased commission costs to acquire new customers as well as increased amortization of certain upfront incremental customer acquisition costs in accordance with IFRS 15. Selling non-commission and marketing expenses from the Commercial segment decreased 11% from $10.3 million in fiscal 2019 to $9.1 million in fiscal 2020 as the result of cost savings from restructuring efforts.

 

The acquisition costs per customer for the last 12 months for Consumer and Commercial customers were as follows:

 

    Fiscal 2020    Fiscal 2019 
Consumer  $265/RCE   $218/RCE 
Commercial  $55/RCE   $51/RCE 

 

The average acquisition cost for the Consumer segment was $265/RCE for the year ended March 31, 2020, an increase of 22% from the $218/RCE reported in fiscal 2019, primarily related to the increased commission costs to acquire new customers driven by the change in sales channel mix to higher cost acquisition channels, including retail, aimed at acquiring higher quality customers.

 

The $55/RCE average acquisition cost for Commercial RCEs was 8% higher than the prior comparable period due to increased commission costs. As at March 31, 2019, the average aggregation cost for commercial brokers was $51/RCE.

 

For more information on the operating segments as per IFRS, reference Note 17 of the Company’s 2020 consolidated financial statements.

 

 21.

 

 

PROVISION FOR INCOME TAX
For the years ended March 31      
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
Current income tax expense  $7,047   $7,622 
Deferred income tax expense   346    4,210 
Provision for income tax  $7,393   $11,832 

 

Just Energy recorded a current income tax expense of $7.0 million for the year ended March 31, 2020, compared to $7.6 million in fiscal 2019. Despite high financing fees, Just Energy continues to have current tax expense from profitability in taxable jurisdictions. A recovery on the current year loss is carried forward to future periods.

 

For the year ended March 31, 2020, a deferred tax expense of $0.3 million was recorded as compared to a deferred tax expense of $4.2 million in the prior year. This decrease is due to the partial recognition of the tax benefit of current year losses carried forward.

 

Customer count
          
CUSTOMER SUMMARY         
          
    As at    As at      
    March 31, 2020    March 31, 2019    % decrease 
                
Consumer   988,000    1,159,000    (15)%
Commercial   119,000    120,000    (1)%
Total customer count   1,107,000    1,279,000    (13)%

 

As at March 31, 2020, the total customer count decreased 13% to 1,107,000 compared to the prior year, excluding discontinued operations. The decline in customers is a result of the Company’s focus on renewing and signing higher quality and long-lasting customers as well as the natural attrition of the customer base. The customer count captures customers with a distinct service address.

 

COMMODITY RCE SUMMARY      
                   
    April 1,              Failed to    March 31,       
    2019    Additions    Attrition    renew    2020    % decrease 
Consumer                              
Gas   406,000    37,000    (92,000)   (26,000)   325,000    (20)%
Electricity   993,000    209,000    (259,000)   (67,000)   876,000    (12)%
Total Consumer RCEs   1,399,000    246,000    (351,000)   (93,000)   1,201,000    (14)%
Commercial                              
Gas   436,000    88,000    (72,000)   (23,000)   429,000    (2)%
Electricity   1,803,000    382,000    (190,000)   (229,000)   1,766,000    (2)%
Total Commercial RCEs   2,239,000    470,000    (262,000)   (252,000)   2,195,000    (2)%
Total RCEs   3,638,000    716,000    (613,000)   (345,000)   3,396,000    (7)%

 

Just Energy’s total RCE base at March 31, 2020 is 3.4 million. Gross RCE additions for the year ended March 31, 2020 were 716,000, compared to 1,011,000 for the prior year, reflecting the transition from a purely RCE driven focus to a greater focus on attracting and retaining strong-fit customers that will drive greater profitability. Net additions were negative 242,000 for fiscal 2020, compared with a negative 28,000 net RCE additions in fiscal 2019.

 

 22.

 

 

Consumer RCE additions amounted to 246,000 for the year ended March 31, 2020, a 48% decrease from the corresponding year ended March 31, 2019, primarily driven by a greater emphasis on attracting and retaining strong-fit customers that will drive greater profitability and the natural attrition in response to the pricing actions implemented in fiscal 2020. Consumer failed-to-renew RCEs for the year ended March 31, 2020 decreased 36% to 93,000 RCEs due to improved retention offerings. As at March 31, 2020, the U.S. and Canadian operations accounted for 81% and 19% of the Consumer RCE base, respectively.

 

Commercial RCE additions were 470,000 for the year ended March 31, 2020, a 13% decrease over the prior comparable period of fiscal 2019 due to competitive pressures on pricing in the U.S. market. Commercial failed-to-renew RCEs for the year ended March 31, 2020 of 252,000 RCEs decreased 13% from the corresponding period in fiscal 2019. As at March 31, 2020, the U.S. and Canadian operations accounted for 73% and 27% of the Commercial RCE base, respectively.

 

Overall, as at March 31, 2020, the U.S. and Canadian operations accounted for 76% and 24% of the RCE base, respectively, compared to 77% and 23%, respectively, as at March 31, 2019.

 

COMMODITY RCE ATTRITION      
       
    Fiscal 2020    Fiscal 2019 
           
Consumer   26%   21%
Commercial   9%   7%

 

The increase in the attrition rates is primarily a result of the drop of customers from the portfolio that were historically able to exploit the Company’s enrolment controls. The increase also reflects a competitive market for renewals with competitors pricing aggressively, and Just Energy’s focus on improving retained customers’ profitability. The Company expects the attrition rates to subside and be in line with historical lower levels during early fiscal 2021.

 

COMMODITY RCE RENEWALS      
       
    Fiscal 2020    Fiscal 2019 
           
Consumer   77%   69%
Commercial   50%   51%

 

The Consumer renewal rate increased eight percentage points to 77%, and the Commercial renewal rate decreased by one percentage point to 50% as compared to the prior year. The increase in the Consumer renewal rate was driven by improved retention offerings, offset by attrition while the decline in the Commercial renewal rate reflected a very competitive market for Commercial renewals with competitors pricing aggressively and Just Energy’s focus on improving retained customers’ profitability rather than pursuing low margin growth.

 

 23.

 

 

ANNUAL GROSS MARGIN PER RCE

 

The table below depicts the annual design margins on new and renewed contracts signed during the year, which does not include ancillary revenues. This table reflects the gross margin (sales price less costs of associated supply) earned on new additions and renewals, for standard (non-green) commodities.

 

    Fiscal    Number of    Fiscal    Number of 
    2020    RCEs    2019    RCEs 
                     
Consumer customers added or renewed  $386    526,000   $300    880,000 
Commercial customers added or renewed1   92    682,000    76    742,000 

1Annual gross margin per RCE excludes margins from Interactive Energy Group and large Commercial and Industrial customers.

 

For the year ended March 31, 2020, the average gross margin per RCE for the customers added or renewed by the Consumer segment was $386/RCE, an increase of 29% from $300/RCE in the prior year. The increase in gross margin on Consumer customers added and renewed is a result of the improved pricing power.

 

For the Commercial segment, the average gross margin per RCE for the customers signed during the year ended March 31, 2020 was $92/RCE, an increase of 21% from $76/RCE in the prior year.

 

Just Energy’s results for the 2019 fiscal year reported below have been adjusted to remove the effects of discontinued operations.

 

Liquidity and capital resources from continuing operations   
       
SUMMARY OF CASH FLOWS      
For the years ended March 31      
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
         (Restated) 
Operating activities from continuing operations  $41,137   $(44,495)
Investing activities from continuing operations   (20,882)   (47,823)
Financing activities from continuing operations, excluding dividends   21,096    141,301 
Effect of foreign currency translation   1,026    3 
Increase in cash before dividends   42,377    48,986 
Dividends (cash payments)   (26,172)   (87,959)
Increase (decrease) in cash   16,205    (38,973)
Cash and cash equivalents – beginning of period   9,888    48,861 
Cash and cash equivalents – end of period  $26,093   $9,888 

 

The Company’s total available liquidity at March 31, 2020 was $87.2 million consisting of $26.1 million of cash on hand and $61.1 million available under the Company’s credit facility. Comparable total availability at March 31, 2019 was $56.9 million consisting of $9.9 million of cash on hand and $47.0 million available under the Company’s credit facility.

 

OPERATING ACTIVITIES FROM CONTINUING OPERATIONS

 

Cash flow from continuing operating activities for the year ended March 31, 2020 was an inflow of $41.1 million, compared to an outflow of $44.5 million in the prior comparable year. Cash flow from operations was higher in the current period due to a reduction in cash disbursements as a result of the overhead cost savings realized from the restructuring actions implemented in fiscal 2019 as well as other fiscal year 2020 operational efficiencies, the improvement in residential customer collections due to the implementation of enrolment controls in the Texas market, the decrease in the funding required by discontinued operations and lower cash taxes, partially offset by higher cash commissions and cash financing costs.

 

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

 

Investing activities for the year ended March 31, 2020 included purchases of capital and intangible assets totalling $2.2 million and $14.4 million, respectively, compared with $5.2 million and $38.4 million, respectively, in fiscal 2019. Just Energy’s capital spending related primarily to information technology-related purchases for process improvement initiatives. Additionally, investing activities included a $12.0 million expenditure in fiscal 2020 related to the Filter Group acquisition, compared to $4.2 million in fiscal 2019, partially offset by proceeds on the sale of discontinued operations in fiscal 2020 of $7.7 million.

 

 24.

 

 

FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

 

Financing activities, excluding dividends, relate primarily to the issuance and repayment of long-term financing. During the year ended March 31, 2020, Just Energy withdrew an additional $34.8 million on the credit facility and $17.2 million on the 8.75% loan. This inflow was offset by the repayment of $25.3 million on the partial redemption of the 6.5% convertible bonds and on the Filter Group financing as well as leased asset payments of $5.8 million. This is compared to the 8.75% loan issuance of $253.4 million, credit facility withdrawals of $79.5 million and preferred shares issuance of $10.4 million in fiscal 2019, offset by redemptions on debt of $173.4 million along with debt issuance costs of $18.1 million. Fiscal 2019 also included a payout of $10.0 million for the share swap agreement.

 

Just Energy’s liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. The elapsed period between the time a customer is signed and receipt of the first payment from the customer varies with each market. The time delays per market are approximately two to nine months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Just Energy. In Alberta and Texas and for commercial direct-billed customers, Just Energy receives payment directly.

 

DIVIDENDS AND DISTRIBUTIONS

 

During the year ended March 31, 2020, Just Energy paid cash dividends to its shareholders and distributions to holders of share-based awards in the amount of $26.2 million, compared to $88.0 million paid in the prior comparable year, a 70% decrease reflecting the dividend suspension on common and preferred shares during fiscal 2020.

 

Preferred shareholders are entitled to receive dividends at a rate of 8.50% on the initial offer price of US$25.00 per preferred share when, as and if declared by the Board of Directors, out of funds legally available for the payments of dividends, on the applicable dividend payment date. As the preferred shares are cumulative, dividends on preferred shares will accrue even if they are not paid. Common shareholders will not receive dividends until any preferred share dividends in arrears are paid.

 

Free cash flow1
For the years ended March 31
(thousands of dollars)      
    Fiscal 2020    Fiscal 2019 
         (Restated) 
Cash flows from operating activities  $41,137   $(44,495)
Less: Maintenance capital expenditures   (16,541)   (43,542)
Free cash flow  $24,596   $(88,037)

1 See “Non-IFRS financial measures” on page 6.            

 

For the year ended March 31,2020, free cash flow was $24.6 million compared to negative $88.0 million for the prior fiscal year. The improvement was primarily driven by a reduction in cash disbursements as a result of the overhead cost savings realized from the restructuring actions implemented in fiscal 2019 as well as other fiscal 2020 operational efficiencies, an improvement in residential customer collections due to the implementation of enrolment controls in the Texas market, a decrease in capital expenditures due to a more rigorous investment approval process, a decrease in funding required by discontinued operations and lower cash taxes, partially offset by higher cash commissions and cash financing costs.

 

 25.

 

 

Embedded gross margin1         
          
Management’s estimate of EGM is as follows:
(millions of dollars)         
    Fiscal    Fiscal      
    2020    2019    % decrease 
Total embedded gross margin  $1,807.8   $2,097.8    (14)%

1 See “Non-IFRS financial measures” on page 6.

 

Management’s estimate of the EGM for continuing operations within its customer contracts amounted to $1,807.8 million as at March 31, 2020, a decrease of 14% compared to EGM as at March 31, 2019. The decrease is due to the decline in the North American commodity customer base, partially offset by the stronger U.S. dollar.

 

Contractual obligations

 

In the normal course of business, Just Energy is obligated to make future payments for contracts and other commitments that are known and non-cancellable.

 

PAYMENTS DUE BY PERIOD               
(thousands of dollars)               
    Less than 1 year    1 – 3 years    4 – 5 years    After 5 years    Total 
Trade and other payables  $685,665   $   $   $   $685,665 
Long-term debt   255,129    263,800    308,355        827,284 
Interest payments   44,067    75,911    12,773        132,751 
Gas, electricity and non-commodity contracts   1,463,615    1,200,713    322,590    101,606    3,088,524 
   $2,448,476   $1,540,424   $643,718   $101,606   $4,734,224 

 

On August 1, 2017, Just Energy announced that it reached an agreement with its joint venture partner, Red Ventures LLC, to end the exclusive relationship for online sales of the Just Energy brand in North America. To facilitate the transaction, Just Energy acquired the outstanding 50% interest of each of Just Ventures LLC in the United States and Just Ventures L.P. in Canada. As at March 31, 2020, the current liabilities amount to $18.2 million and long-term liabilities amount to $24.5 million.

 

OTHER OBLIGATIONS

 

In the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included either in its accrued liabilities or in the consolidated financial statements. In the normal course of business, Just Energy could be subject to certain contingent obligations that become payable only if certain events were to occur. The inherent uncertainty surrounding the timing and financial impact of any events prevents any meaningful measurement, which is necessary to assess any material impact on future liquidity. Such obligations include potential judgments, settlements, fines and other penalties resulting from actions, claims or proceedings.

 

Transactions with related parties

 

The acquisition of Filter Group on October 1, 2018 gave rise to a related party transaction as the CEO of Filter Group is the son of the Executive Chair of Just Energy. In April 2019, $10.6 million of a deferred purchase consideration related to the acquisition of Filter Group was paid. Other than this transaction described, Just Energy did not have any other material transactions with any individuals or companies that are not considered independent during the year ended March 31, 2020.

 

Off balance sheet items

 

The Company has issued letters of credit in accordance with its credit facility totaling $72.5 million (March 31, 2019 - $94.0 million) to various counterparties, primarily utilities in the markets where it operates, as well as suppliers.

 

 26.

 

 

Pursuant to separate arrangements with several bond insurance companies, Just Energy has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at March 31, 2020 were $63.4 million (March 31, 2019 - $70.3 million).

 

Just Energy common and preferred shares

 

As at July 8, 2020, there were 151,640,574 common shares and 4,662,165 preferred shares of Just Energy outstanding.

 

In May 2017, Just Energy announced it entered into an at-the-market issuance (“ATM offering”) sales agreement pursuant to which Just Energy may, at its discretion and from time to time, offer and sell in the United States preferred shares having an aggregate offering price of up to US$150 million. As at March 31, 2020, Just Energy has issued a cumulative 4,662,165 preferred shares.

 

In connection with certain credit agreement amendments announced on December 2, 2019, the agreements governing both facilities have been changed to restrict the declaration and payment of dividends on the Company’s 8.50% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Shares (“Series A Preferred Shares”) until the Company’s senior debt to EBITDA ratio is no more than 1.50:1 for two consecutive fiscal quarters. Accordingly, the Company suspended the declaration and payment of dividends on the Series A Preferred Shares until the Company is permitted to declare and pay dividends under the agreements governing its facilities. However, dividends on the Series A Preferred Shares continue to accrue in accordance with the Series A Preferred Share terms during the period in which dividends are suspended. Any dividend payment following the suspended period will be credited against the earliest accumulated but unpaid dividend.

 

Critical accounting estimates and judgments

 

The consolidated financial statements of Just Energy have been prepared in accordance with IFRS. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of goods sold, selling and marketing, and administrative expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.

 

The following assessment of critical accounting estimates is not meant to be exhaustive. Just Energy might realize different results from the application of new accounting standards promulgated, from time to time, by various rule-making bodies.

 

COVID-19 IMPACT

 

As a result of the continued and uncertain economic and business impact of the coronavirus disease 2019 (COVID-19) pandemic, we have reviewed the estimates, judgments and assumptions used in the preparation of our financial statements, including with respect to: the determination of whether indicators of impairment exist for our assets and cash-generating units (“CGU”) and the underlying assumptions used in the measurement of the recoverable amount of such assets or CGU. We have also assessed the impact of COVID-19 on the estimates and judgments used in connection with our measurement of deferred tax assets and the credit risk of our customers.  Although we determined that no significant revisions to such estimates, judgments or assumptions were required for the year ended March 31, 2020, revisions may be required in future periods to the extent that the negative impacts on our business arising from COVID-19 continue or worsen. Any such revision (due to COVID-19 or otherwise) may result in, among other things, write-downs or impairments to our assets or CGU, and/or adjustments to the carrying amount of our accounts receivable, or to the valuation of our deferred tax assets, any of which could have a material impact on our results of operations and financial condition. While we believe the COVID-19 pandemic to be temporary, the situation is dynamic and the impact of COVID-19 on our results of operations and financial condition, including the duration and the impact on overall customer demand, cannot be reasonably estimated at this time.

 

 27.

 

 

FAIR VALUE OF FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

Just Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply and as part of the risk management practice. In addition, Just Energy uses derivative financial instruments to manage foreign exchange, interest rate and other risks.

 

Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation or carbon destruction. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce its exposure to commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed-price commodity supply to cover its estimated fixed-price delivery or green commitment. Certain derivative contracts were purchased to manage Electricity Reliability Council of Texas (“ERCOT”) collateral requirements.

 

Just Energy’s objective is to minimize commodity risk, other than consumption changes, usually attributable to weather. Accordingly, it is Just Energy’s policy to hedge the estimated fixed-price requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Just Energy’s price exposure and serves to fix acquisition costs of gas and electricity to be delivered under the fixed-price or price-protected customer contracts; however, hedge accounting under IFRS 9 is not applied. Just Energy’s policy is not to use derivative instruments for speculative purposes.

 

Just Energy uses a forward interest rate curve along with a volume weighted average share price to value its share swap. The conversion feature on the 6.5% convertible bonds is valued using an option pricing model.

 

Just Energy’s U.S. operations introduce foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows, however, hedge accounting under IFRS 9 is not applied.

 

The consolidated financial statements are in compliance with IAS 32, Financial Instruments: Presentation; IFRS 9, Financial Instruments; and IFRS 7, Financial Instruments: Disclosure. Due to commodity volatility and to the size of Just Energy, the swings in mark to market on these positions will increase the volatility in Just Energy’s earnings.

 

The Company’s financial instruments are valued based on the following fair value (“FV”) hierarchy:

 

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

Level 3 – Inputs that are not based on observable market data.

 

The main cause of changes in the fair value of derivative instruments is changes in the forward curve prices used for the fair value calculations. For a sensitivity analysis of these forward curves, see Note 13 of the consolidated financial statements for the year ended March 31, 2020. Other inputs, including volatility and correlations, are driven off historical settlements.

 

RECEIVABLES AND LIFETIME EXPECTED CREDIT LOSSES

 

The lifetime expected credit loss reflects Just Energy’s best estimate of losses on the accounts receivable and unbilled revenue balances. Just Energy determines the lifetime expected credit loss by using historical loss rates and forward-looking factors if applicable. Just Energy is exposed to customer credit risk on its continuing operations in Alberta, Texas, Illinois (gas), California and Ohio (electricity). Credit review processes have been implemented to perform credit evaluations of customers and manage customer default. In addition, the Company may from time to time change the criteria that it uses to determine the creditworthiness of its customers, including RCEs, and such changes could result in decreased creditworthiness of its customers and/or result in increased customer defaults. If a significant number of customers were to default on their payments, including as a result of any changes to the Company’s credit criteria, it could have a material adverse effect on the operations and cash flows of Just Energy. Management factors default from credit risk in its margin expectations for all of the above markets. Reference the “Risk factors – Customer credit risk” section below for further details.

 

 28.

 

 

Revenues related to the sale of energy are recorded when energy is delivered to customers. The determination of energy sales to individual customers is based on systematic readings of customer meters generally on a monthly basis. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated, and corresponding unbilled revenue is recorded. The measurement of unbilled revenue is affected by the following factors: daily customer usage, losses of energy during delivery to customers and applicable customer rates.

 

Increases in volumes delivered to the utilities’ customers and favourable rate mix due to changes in usage patterns in the period could be significant to the calculation of unbilled revenue. Changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the measurement of unbilled revenue; however, total operating revenues would remain materially unchanged.

 

The measurement of the expected credit loss allowance for accounts receivable requires the use of management judgment in estimation techniques, building models, selecting key inputs and making significant assumptions about future economic conditions and credit behaviour of the customers, including the likelihood of customers defaulting and the resulting losses. The Company’s current significant estimates include the historical collection rates as a percentage of revenue and the use of the Company’s historical rates of recovery across aging buckets. Both of these inputs are sensitive to the number of months or years of history included in the analysis, which is a key input and judgment made by management.

 

IMPAIRMENT OF NON-FINANCIAL ASSETS

 

Just Energy assesses whether there is an indication that an asset may be impaired at each reporting date. If such an indication exists or when annual testing for an asset is required, Just Energy estimates the asset's recoverable amount. The recoverable amounts of goodwill and intangible assets with an indefinite useful life are tested annually. The recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value-in-use. Value-in-use is determined by discounting estimated future pre-tax cash flows using a pre-tax discount rate that reflects the current market assessment of the time value of money and the specific risks of the asset. The recoverable amount of assets that do not generate independent cash flows is determined based on the CGU to which the asset belongs.

 

The recoverable amount of each of the operating segments has been determined based on a discounted cash flow model.

 

DEFERRED TAXES

 

In accordance with IFRS, Just Energy uses the liability method of accounting for income taxes. Under the liability method, deferred income tax assets and liabilities are recognized on the differences between the carrying amounts of assets and liabilities and their respective income tax basis.

 

The tax effects of these differences are reflected in the consolidated statements of financial position as deferred income tax assets and liabilities. An assessment must be made to determine the likelihood that future taxable income will be sufficient to permit the recovery of deferred income tax assets. To the extent that such recovery is not probable, deferred income tax assets must be reduced. The reduction of the deferred income tax asset can be reversed if the estimated future taxable income improves. No assurances can be given as to whether any reversal will occur or as to the amount or timing of any such reversal. Management must exercise judgment in its assessment of continually changing tax interpretations, regulations and legislation to ensure deferred income tax assets and liabilities are complete and fairly presented. Assessments and applications differing from estimates could materially impact the amount recognized for deferred income tax assets and liabilities.

 

Deferred income tax assets of $3.6 million and $4.2 million have been recorded on the consolidated statements of financial position as at March 31, 2020 and March 31, 2019, respectively. When evaluating the future tax position, Just Energy assesses its ability to use deferred tax assets based on expected taxable income in future periods and other taxable temporary differences.

 

 29.

 

 

Deferred income tax liabilities of $2.9 million and $4.1 million have been recorded on the consolidated statements of financial position as at March 31, 2020 and March 31, 2019, respectively. The decrease in the deferred tax liabilities is due to decreases in taxable differences on other assets.

 

On a net basis, as at March 31, 2020, $0.6 million of deferred tax assets were recognized.

 

DISCONTINUED OPERATIONS

 

Management used judgment in concluding on the discontinued operations classification as a major separate geographical area of operations, as part of a single coordinated disposal plan to resell the business in the new fiscal year. There is also a high level of judgment involved in estimating the fair value less cost to sell of the disposal group and the significant carrying amounts of the assets and liabilities related to assets held for sale.

 

New accounting pronouncements adopted in fiscal 2020

 

Adoption of IFRS 16, Leases

 

IFRS 16, Leases (“IFRS 16”), superseded International Accounting Standards (“IAS”) 17, Leases (“IAS 17”), and all related interpretations when it became effective. IFRS 16 establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that lessees and lessors provide relevant information representing those transactions.

 

The adoption of IFRS 16 resulted in:

 

  Explicit definition for a lease where a contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration;
  Measurement direction where the lessee recognizes a right-of-use asset and a lease liability upon lease commencement for leases with a lease term of greater than one year. The right-of-use asset is initially measured at the amount of the lease liability plus any initial direct costs incurred by the lessee. The lease liability is initially measured at the present value of the lease payments payable over the lease term and discounted at the implied lease rate. If the implied lease rate cannot be readily determined, the lessee uses its incremental borrowing rate. Subsequent re-measurement is required under specific circumstances. Previously, the Company classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company; 
  Detailed guidance on determining the lease term when there is an option to extend the lease; and 
  Extensive disclosure requirements, differing from those in the past.

 

Just Energy adopted IFRS 16, as issued by the IASB in January 2016, on April 1, 2019. In accordance with the transitional provisions in IFRS 16, comparative figures have not been restated. The Company adopted IFRS 16 using the modified retrospective method, applying the practical expedient in paragraph C5(c) under which the aggregate effect of all modifications on the date of initial application is reflected.

 

The following table summarizes the transition adjustments required to adopt IFRS 16 as at April 1, 2019:

 

    IAS 17         IFRS 16 
    carrying amount         carrying amount 
    as at    Transition    as at 
(thousands of dollars)   March 31, 2019    adjustment    April 1, 2019 
                
Property and equipment, net  $25,862   $18,525   $44,387 
Other current liabilities       2,942    2,942 
Other non-current liabilities   61,339    15,583    76,922 

 

Adoption of IFRIC Agenda Decision 11, “Physical Settlement of Contracts to Buy or Sell a Non-Financial Item” (“Agenda Decision 11”)

 

The IFRIC reached a decision on Agenda 11 during its meeting on March 5 to 6, 2019. The decision was in respect to a request about how an entity applies IFRS 9 to particular contracts to buy or sell a non-financial item at a fixed price.

 

The Company has reviewed the agenda decision and determined that a change is required in its accounting policy related to contracts to buy or sell a non-financial item that can be settled net in cash or another financial instrument, or by exchanging financial instruments. These are contracts the Company enters into that are accounted for as derivatives at fair value through profit or loss but physically settled by the underlying non-financial item. The IFRIC concluded that IFRS 9 neither permits nor requires an entity to reverse the accumulated gain or loss previously recognized on the derivative and recognize a corresponding adjustment to cost of goods sold or inventory when the contract is physically settled. The presentation of consolidated statements of loss has been amended to comply with the IFRIC agenda decision.

 

The Company has implemented these changes retrospectively. Refer to Note 7 of the consolidated financial statements for the year ended March 31, 2020 for further details on the adoption of IFRIC Agenda Decision 11.

 30.

 

 

Risk factors

 

Described below are the principal risks and uncertainties that Just Energy can foresee. It is not an exhaustive list, as some future risks may be yet unknown and other risks, currently regarded as immaterial, could turn out to be material. If any of the identified risks were to materialize, it could have a material adverse effect on Just Energy’s business, operations, financial condition, operating results, cash flow and liquidity.

 

MARKET RISK

 

Market risk is a potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity.

 

Commodity price risk

 

Just Energy’s cost to serve its retail energy customers is exposed to fluctuations in commodity prices, in particular natural gas and electricity. Although Just Energy enters into commodity derivative instruments with its suppliers to manage the commodity price risks, it is exposed to commodity price risk where estimated customer requirements do not match actual customer requirements or where it is not able to exactly purchase the estimated customer requirements. In such cases, Just Energy may suffer a loss if it is required to sell excess supply in the spot market (compared to its weighted average cost of supply) or to purchase additional supply in the spot market. Such losses could have a material adverse impact on Just Energy’s financial condition, operating results, cash flow and liquidity.

 

A key risk to Just Energy’s business model is a sudden and significant drop in the commodity market price resulting in an increase in customer churn, regulatory pressure and resistance on enforcement of liquidation damages and enactment of provisions to reset the customer price to current market price levels which could have a significant impact on Just Energy’s business.

 

In addition, the COVID-19 pandemic and the resulting emergency measures enacted by governments in Canada, the United States and around the world have caused material disruption to many businesses resulting in a severe slowdown in Canadian, United States and global economies, leading to increased volatility in financial markets worldwide and demand reduction for commodities. These demand effects coincided with decisions by various global producers, including the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”), to increase global production levels, putting severe downward pressure on prices including, in some instances, negative pricing. As a result, prices of crude oil, natural gas, natural gas liquids and other commodities whose prices are highly correlated to crude oil have decreased substantially.

 

Commodity volume balancing risk

 

Depending on several factors, including weather, Just Energy’s customers may use more or less commodity than the volume purchased by Just Energy for delivery to them. Due to shelter-in-place orders, as well as business and government restrictions due to the COVID-19 pandemic, reduced energy consumption by certain customers will also affect the demand for Just Energy’s products. Just Energy bears the financial responsibility, is exposed to market risk and, furthermore, may also be exposed to penalties by the LDCs for balancing customer volume requirements. Although Just Energy manages volume balancing risk through balancing language in some of its retail energy contracts, enters into weather derivative and insurance transactions to mitigate weather and volume balancing risk, and leverages natural gas storage facilities to manage daily delivery requirements, increased costs and/or losses resulting from occurrences of volume imbalance net of Just Energy’s risk management activities could have a material adverse impact on Just Energy’s financial condition, operating results, cash flow and liquidity.

 

Interest rate risk

 

Just Energy is exposed to interest rate risk associated with its working capital facility, supplier payment terms, perpetual preferred shares and refinancing of its debt instruments. Just Energy may enter into derivative instruments to mitigate interest rate risk; however, large fluctuations in interest rates and increases in interest costs net of Just Energy’s risk management activities could have a material adverse impact on Just Energy’s financial condition, operating results, cash flow and liquidity.

 

Foreign exchange rate risk

 

Just Energy is exposed to foreign exchange risk on foreign investment outflow and repatriation of foreign currency denominated income against Canadian dollar denominated expenditures, interest and common share dividends (as applicable). In addition, Just Energy is exposed to translation risk on foreign currency denominated earnings and foreign investments. Just Energy enters into foreign exchange derivative instruments to manage the cash flow risk on foreign investments and repatriation of foreign funds. Currently, Just Energy does not enter into derivative instruments to manage foreign exchange translation risk. Large fluctuations in foreign exchange rates may have a significant impact on Just Energy’s financial condition, operating results, earnings and cash flow. In particular, a significant rise in the relative value of the Canadian dollar to the U.S. dollar could materially reduce the Company’s operating results, earnings and cash flow and could have a material and adverse effect on the Company’s financial condition.

 

LIQUIDITY RISK

 

Just Energy is at risk of not being able to settle its future debt obligations including the Credit Agreement, subordinated debt, convertible debentures and commercial notes. An increase in liquidity risk may require Just Energy to raise additional funds. Liquidity risk may cause Just Energy to cease operations, close down, sell or otherwise dispose of all or part of the business of Just Energy’s subsidiaries.

 

 31.

 

 

Risk factors related to the CBCA proceedings

 

Future liquidity and operations of the Company are dependent on the ability of the Company to realign its capital structure, and such actions may have an adverse effect on the Company's business, financial condition and results of operation.

 

On July 8, 2020, the Company announced a comprehensive Recapitalization plan to strengthen and de-risk the business by improving the Company’s financial flexibility and liquidity. The Recapitalization plan will raise $100 million of committed new equity, reduce overall debt by approximately $275 million, and materially lower annual cash interest payments. As part of the Company’s efforts to realign its capital structure, the Company commenced a court proceeding under the CBCA by obtaining a preliminary interim order (the “CBCA Order”). The CBCA is a Canadian corporate statute that includes provisions that allow Canadian corporations to restructure certain debt obligations, and is not a bankruptcy or insolvency statute.

 

Pursuant to the CBCA Order, applicable parties are stayed from exercising, commencing or proceeding with any rights, remedies or proceedings, including, without limitation, any right to terminate, demand, accelerate, set off, amend, declare in default or take any other action under or in connection with any loan, note, commitment, contract, or other agreement against or in respect of the Company on the terms set out in the CBCA Order. The CBCA Order provides for this stay until August 7, 2020 or such later date as the Court may order. If the Company does not complete the realignment of its capital structure through the CBCA Proceedings, it will be necessary to pursue other restructuring strategies, which may include, among other alternatives, proceedings under the Companies’ Creditors Arrangement Act (“CCAA”).

 

In connection with the Company's efforts to realign its capital structure and as contemplated by the CBCA proceedings, the Company obtained a waiver from the credit facility lenders from its obligation to repay, either on a monthly or quarterly basis as determined in accordance with the terms of the credit agreement, all outstanding advances under the revolving facilities thereunder (other than outstanding letters of credit) until December 1, 2020 or such earlier date that may be determined in accordance with an amendment and consent agreement between the Company and the credit facility lenders. In accordance with the amendment and consent agreement dated as of July 8, 2020, the maturity date of the credit facility has been extended to December 1, 2020 (or such earlier date that may be determined in accordance with the provisions thereof) and the credit facility lenders have agreed to waive defaults that may have been triggered due to the commencement of the CBCA proceedings.

 

In connection with the CBCA proceedings, the Company has obtained a waiver from the term loan lenders of certain covenants contained in the term loan agreement and a waiver of cash interest payments that would otherwise be due and payable by the Company pursuant to the term loan agreement during the CBCA proceedings (provided that such interest shall be paid in kind and capitalized).

 

These waivers are contained in agreements that are conditional upon certain actions that must be taken by the Company in connection with the CBCA proceedings. Any attempt by the Company's debtholders (or any other third parties) to lift, amend or violate this stay, or any order by the Court amending or removing this stay, would pose risks to the Company's liquidity and business operations and its efforts to realign its capital structure, and may require that the Company pursue other restructuring strategies.

 

Future liquidity and operations of the Company are dependent on the ability of the Company to develop, execute, garner sufficient support for, and obtain Court approval of a proposed plan to restructure its debt obligations and to generate sufficient operating cash flows to fund its continued operations. If the Company does not complete the realignment of its capital structure through the CBCA proceedings described above, it may be necessary to pursue other restructuring strategies, which may include, among other alternatives, proceedings under the CCAA. The Company may not be able to restructure and reduce its debt obligations and this results in a material uncertainty that may cast substantial doubt upon the Company’s ability to continue as a going concern. If the Company is unable to continue as a going concern, or if proceedings are commenced under the CCAA, shareholders of the Company may lose their entire investment and certain debtholders may lose some, substantially all or all of their investment.

 

  32.

 

The completion of the Recapitalization may not occur

 

The Company will not complete the Recapitalization unless and until all required conditions precedent to the arrangement are satisfied or waived. Even if the Recapitalization is completed, it may not be completed on the schedule or in the manner proposed by the Company. Accordingly, participating stakeholders in the Recapitalization may receive different treatment under the Recapitalization from that currently contemplated. If the Recapitalization is not completed on the timeline anticipated, the Company may incur additional expenses.

 

In the event that the Company does not complete the Recapitalization, the inability of the Company to secure the additional capital required to service its financial obligations and maintain its asset value will likely have a material adverse effect on the Company.

 

The Recapitalization may not improve Just Energy's financial condition

 

There can be no assurance as to the effect of any proposed Recapitalization transaction on the Company's relationships with its suppliers, customers, purchasers, contractors or lenders, nor can there be any assurance as to the effect on such relationships of any delay in the completion of such transaction, or the effect of whether it is completed under the CBCA or pursuant to another procedure. To the extent that any of these events result in the tightening of payment or credit terms, increases in the price of supplied goods, or the loss of a major supplier, customer, purchaser or contractor, or of multiple other suppliers, customers, purchasers or contractors, this could have a material adverse effect on the Company's business, financial condition, liquidity and results of operations.

 

In addition, the amended and restated credit agreement and term loan agreement contemplated by the Recapitalization each provide for certain amendments under which the Company is required to perform. There can be no assurance that Just Energy will satisfy the conditions, comply with the covenants or not incur an event of default under the credit agreement and term loan agreement, as so amended, when implemented, which could negatively impact the Company and its financial condition.

 

Credit agreement and other debt

 

Just Energy maintains a credit facility of up to $370 million for working capital purposes, which includes a $65 million letter of credit only facility, with various lenders (the “Credit Agreement”). The lenders under the Credit Agreement, together with certain suppliers of Just Energy and its affiliates, are party to the Credit Agreement and related intercreditor and security agreements, which provide for a joint security interest over all of Just Energy’s core assets in North America (excluding Filter Group Inc.). There are various covenants pursuant to the Credit Agreement that govern certain activities of Just Energy and its affiliates. The restrictions in the Credit Agreement may adversely affect Just Energy’s ability to finance its future operations and capital needs and to pursue available business opportunities. Should Just Energy or its subsidiaries default under the terms of the Credit Agreement, the credit facility thereunder may become unavailable and may materially reduce Just Energy’s liquidity. There can be no assurance that Just Energy would be able to obtain alternative financing or that such financing would be on terms favourable to Just Energy. In addition, Just Energy may not be able to extend, renew or refinance the credit facility on terms favourable to Just Energy, or at all, which would materially and adversely affect Just Energy’s liquidity position, in which case Just Energy could be forced to sell assets or secure additional financing to make up for any shortfall in its payment obligations under unfavourable circumstances, restructure or file for bankruptcy.

 

On September 12, 2018, Just Energy entered into a US$250 million non-revolving multi-draw senior unsecured term loan facility during the year to fund a tender offer for its U.S. dollar denominated convertible unsecured subordinated bonds, for general corporate purposes, including to pay down the Company’s credit facility, and for future acquisitions. The term loan contains usual and customary covenants for this type of financing, including but not limited to financial covenants and limitations on debt incurrence, distributions, asset sales, and transactions with affiliates. The restrictions in the loan facility may adversely affect Just Energy’s liquidity position and ability to finance its future operations and capital needs and to pursue available business opportunities.

 

Just Energy has significant levels of other debt, including convertible debentures, which could further limit Just Energy’s ability to obtain additional financing for working capital, capital expenditures, debt service requirements, restructuring, acquisitions or general corporate purposes, which could make Just Energy more vulnerable to economic downturns and adverse industry developments or limit flexibility in planning for or reacting to changes in its business. There can be no assurance that Just Energy would be able to refinance or replace such debt on terms favourable to Just Energy, or at all, and any such failure would materially and adversely affect Just Energy's liquidity position, as well as Just Energy’s financial condition, operating results and cash flows.

 

 33.

 

 

Just Energy has favourable credit terms with its energy suppliers that enhance Just Energy’s liquidity and provide a working capital benefit. There can be no assurance that Just Energy’s suppliers will continue to offer favourable payment terms which could have a material and adverse effect on Just Energy’s liquidity position, as well as Just Energy’s financial condition, operating results and cash flows.

 

Just Energy also has off balance sheet working capital products such as surety bonds. There can be no assurance that Just Energy will be able to renew or extend the off balance sheet products on terms favourable to Just Energy, or at all, which would materially and adversely affect Just Energy’s liquidity position, as well as Just Energy’s financial condition, operating results and cash flows. In addition, surety bond providers may demand collateral support for the bonds provided. Any demand for collateral could have a material and adverse effect on Just Energy’s liquidity position and cash flows.

 

Working capital requirements (availability of credit)

 

In several markets where Just Energy operates, payment is provided to Just Energy by LDCs only when the customer has paid the LDC for the consumed commodity, rather than when the commodity is delivered. Just Energy also manages natural gas storage facilities where Just Energy must inject natural gas in advance of payment. These factors, along with seasonality in energy consumption, create a working capital requirement necessitating the use of Just Energy’s available credit. In addition, Just Energy and its subsidiaries are required to post collateral to LDCs and independent system operators. Any changes in payment terms managed by LDCs, any termination of extended payment terms by commodity suppliers, any increase in cost of carrying natural gas storage inventory, and any increase in collateral posting requirements could result in significant liquidity risk to Just Energy, and in turn could materially and adversely affect Just Energy’s financial condition, operating results and cash flows.

 

Earnings seasonality and volatility

 

Just Energy’s business is seasonal in nature. In addition to regular seasonal fluctuations in its earnings, there is significant volatility in its earnings associated with the requirement to mark its commodity contracts to market. The earnings volatility associated with seasonality and mark to market accounting may affect the ability of Just Energy to access capital and increase its liquidity risk.

 

Cash dividends

 

The ability to pay dividends on common and preferred shares and the actual amount of dividends on common shares will depend upon numerous factors, including profitability, fluctuations in working capital, debt service requirements (including compliance with Credit Agreement obligations), additional issuance of senior preferred shares or indebtedness and the sustainability of margins. As at August 14, 2019, the Board of Directors of the Company suspended the common share dividend. On December 2, 2019, the Board suspended the dividend on its Series A Preferred Shares.

 

Share ownership dilution

 

Just Energy may issue an unlimited number of common shares and up to 50,000,000 preferred shares without the approval of shareholders which would dilute existing shareholders’ interests. As at the date hereof, 151,640,574 common shares and 4,662,165 preferred shares have been issued.

 

SUPPLY COUNTERPARTY RISK

 

Counterparty risk is a loss that Just Energy would incur if a counterparty fails to perform under its contractual obligations.

 

Credit risk

 

Just Energy enters into long-term derivative contracts with its counterparties. If a derivative counterparty were to default on its contractual obligations, Just Energy would be required to replace its contracted commodities or instruments at prevailing market prices, which may negatively affect related customer margin or cash flows. Just Energy mitigates credit risk by procuring a majority of its derivatives from investment grade rated counterparties, therefore restricting its exposure to unrated counterparties.

 

 34.

 

 

Supply delivery risk

 

Just Energy’s business model is based on contracting for supply of electricity or natural gas to deliver to its customers. Failure by Just Energy’s supply counterparties to deliver these commodities to Just Energy due to business failure, supply shortage, force majeure including as a result of COVID-19, or any other failure of such counterparties to perform their obligations under the applicable contracts would put Just Energy at risk of not meeting its delivery requirements with LDCs, thereby resulting in penalties, price risk, liquidity and collateral risk and may have a significant impact on the business, financial condition, operating results and cash flows of Just Energy. Just Energy attempts to mitigate supply delivery risk by diversifying its commodity procurement, purchasing from multiple suppliers and purchasing business interruption insurance.

 

LEGAL AND REGULATORY RISK

 

Legal and regulatory risk is a potential loss that may be incurred as a result of changes in regulations or legislation affecting Just Energy’s business model, costs or operations, as well as being a risk of potential litigation against Just Energy resulting in impact to Just Energy’s cash flow.

 

Regulatory environment

 

In most jurisdictions in which Just Energy operates, Just Energy is required to be licensed by the relevant regulatory authority. Just Energy’s commodity business is dependent on continuing to be licensed in existing markets and receiving approval for additional licenses in new and existing markets. If Just Energy is denied a license, has a license revoked or is not granted renewal of a license, Just Energy’s financial condition and operating results may be negatively impacted. Additionally, the denial or revocation or non-renewal of a license in one jurisdiction may adversely impact Just Energy’s current or future licenses in other jurisdictions and relationships with the various regulatory agencies.

 

Just Energy is able to operate in deregulated segments of the natural gas and electricity industries under currently effective state, provincial and federal regulations. If the competitive restructuring of the natural gas and electricity utility industries is altered, reversed, discontinued or delayed, Just Energy’s business, financial condition, results of operations and cash flows could be materially adversely affected. The retail energy industry is highly regulated. Regulations may be revised or reinterpreted, or new laws and regulations may be adopted or become applicable to Just Energy or its operations. Such changes may have a detrimental impact on Just Energy’s business, including Just Energy’s ability to use its sales and marketing channels. In certain deregulated electricity markets, proposals have been made by governmental agencies and/or other interested parties to partially or fully re-regulate areas of these markets. Other proposals to re-regulate may be made and legislated or other attention to the electric and gas restructuring process may: (i) delay or reverse the deregulation process; (ii) interfere with the ability to do business; (iii) inhibit growth; (iv) increase commodity, operating or financing costs; or (v) otherwise impact Just Energy’s profitability and financial condition. If competitive restructuring of electricity and natural gas markets is altered, reversed, discontinued or delayed, the business, financial condition, operating results and cash flows could be adversely affected. For example, on December 12, 2019, the New York Public Service Commission passed an order adopting changes to the retail access energy market, restricting mass market customer products and pricing, which will negatively impact current and future margins in New York. Similarly, several other states are taking preliminary actions to more closely monitor and control marketing activities, in particular as those activities relate to retail electricity markets. Negative outcomes in these matters or any future litigation or regulatory actions could result in significant settlements, damages or other penalties and could also increase legal costs, divert management attention from other business matters or harm Just Energy’s reputation with customers, any of which could adversely affect the financial condition, operating results and the viability of Just Energy’s business.

 

Just Energy may receive complaints from consumers which may involve sanctions from regulatory and legal authorities. The most significant potential sanction is the suspension or revocation of a license which would prevent Just Energy from selling in a particular jurisdiction.

 

Just Energy is exposed to changes in energy market regulations that may put the onus on Just Energy to adhere to stricter renewable energy compliance standards, procure additional volume of capacity and transmission units and pay regulated tariffs and charges for transmission and distribution of energy, which may change from time to time. In certain cases, Just Energy may not be able to pass through the additional costs from changes in energy market regulations to its customers which may impact Just Energy’s business, financial condition, operating results and cash flows.

 

 35.

 

 

Just Energy’s business model involves entering into derivative financial instruments to manage commodity price and supply risk. Financial reforms in the U.S., Canada and Europe may require Just Energy to comply with certain aspects of reporting, record keeping, position limits and other risk mitigation and price transparency rules that result in increased scrutiny of commodity procurement activities. Costs resulting from Just Energy’s compliance with certain new regulatory requirements as well as increased costs of doing business with Just Energy’s counterparties who may be subject to even greater regulatory requirements could have a material impact on Just Energy’s business.

 

Just Energy may also be impacted by the limited or significantly curtailed ability of public utility commissions to approve or authorize applications and other requests the Company may make with respect to its regulated businesses as a result of the COVID-19 pandemic.

 

Litigation

 

In addition to the litigation referenced herein (see “Legal proceedings” on page 43) and occurring in the ordinary course of business, Just Energy may in the future be subject to additional class actions and other actions arising in relation to its consumer contracts and marketing practices. This litigation is, and any such additional litigation could be, time consuming and expensive and could distract the executive team from the conduct of Just Energy’s business and may result in costly settlement arrangements. An adverse resolution or reputational damage of any specific lawsuit could have a material adverse effect on Just Energy’s business, financial condition or operating results and the ability to favourably resolve other lawsuits.

 

In certain jurisdictions, independent contractors that contracted with Just Energy to provide door-to-door sales have made claims, either individually or as a class, that they are entitled to employee benefits such as minimum wage or overtime pursuant to legislation, even though they have entered into a contract with Just Energy that provides that they are not entitled to benefits normally available to employees. Just Energy’s position has been confirmed in some instances and overturned by regulatory bodies and courts in others, and some of these decisions are under appeal. Should the regulatory bodies or claimants ultimately be successful, Just Energy would be required to remit unpaid tax amounts plus interest and might be assessed a penalty, of which amounts could be substantial and could have a material adverse effect on Just Energy’s business, financial condition, operating results and cash flows.

 

RETAIL RISK

 

Retail customer risk is a potential loss that may be incurred as a result of change in customer behaviour and from an increase in competition in the retail energy industry.

 

Consumer contract attrition and renewal rates

 

Just Energy may experience an increase in attrition rates and lower acceptance rates on renewal requests due to commodity price volatility, increased competition or change in customer behaviour. There can be no assurance that the historical rates of annual attrition will not increase substantially in the future or that Just Energy will be able to renew its existing energy contracts at the expiry of their terms. Any such increase in attrition or failure to renew could have a material adverse effect on Just Energy’s business, financial condition, operating results, cash flow, liquidity and prospects.

 

Customer credit risk

 

Just Energy has customer credit risk in various markets where bills are sent directly to customers for energy consumption from Just Energy, including in Texas and Alberta. In addition, if the Company changes the criteria for assessing the creditworthiness of its customers, any such change could result in increased customer credit risk for Just Energy. If a significant number of direct bill customers were to default on their payments, including as a result of any changes to the Company’s criteria for assessing customer creditworthiness or the impact of COVID-19, it could have a material adverse effect on the financial condition, operating results, cash flow and liquidity of Just Energy.

 

For other customers, the LDCs provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. There is no assurance that the LDCs that provide these services will continue to do so in the future or that current rates charged by LDCs will remain at the same level, which would mean that Just Energy may have to accept additional customer credit risk.

 

 36.

 

 

Risk of fraud

 

The Company is exposed to the risk of fraud, misconduct and other deceptive practices that could be committed by our customers, employees or other third parties engaged by us, including but not limited to fraudulent customer enrolments and invalid brokerage relationships. It is not always possible to deter fraud, misconduct or other deceptive practices and the Company’s systems that are in place to prevent and detect such activity may not be effective in all circumstances. Instances of fraud, misconduct or other deceptive practices could lead to, among other things, increased bad debts and/or payment of improper commissions by the Company, and generally could harm Just Energy’s reputation. Any fraud, misconduct or other deceptive practices that are perpetrated against the Company could have a material adverse effect on the financial condition, operating results, cash flow and liquidity of Just Energy.

 

Competition

 

A number of companies and incumbent utility subsidiaries compete with Just Energy in the residential, commercial and small industrial market. It is possible that new entrants may enter the market as marketers and compete directly for the customer base that Just Energy targets, slowing or reducing Just Energy’s market share. If the LDCs are permitted by changes in the current regulatory framework to sell natural gas or electricity at prices other than at cost, their existing customer bases could provide them with a significant competitive advantage. This could limit the number of customers available for marketers, including Just Energy, and impact Just Energy’s growth and retention.

 

Sales channel risk

 

Just Energy’s residential customers are generally acquired through the use of online advertising, retail stores, telemarketing and door-to-door sales. Commercial customers are primarily solicited through commercial brokers and independent sales agents. Just Energy’s ability to increase revenues in the future will depend significantly on the success of these marketing techniques, as well as its ability to expand into new sales channels to acquire customers. There is no assurance that competitive conditions will allow this sales channel strategy to continue or whether new sales channels will be successful in signing up new customers. In addition, many of Just Energy’s sales channels have been closed or otherwise limited in operations as a result of government initiatives mandated due to COVID-19. Further, if Just Energy’s services are not attractive to, or do not generate sufficient revenue for commercial brokers, retail stores and sales partners, or if Just Energy’s sales channels continue to be adversely impacted by COVID-19, Just Energy may lose these existing relationships, which would have a material adverse effect on the business, revenues, financial condition and operating results of Just Energy.

 

Retailer and product acceptance risk

 

Just Energy’s profitability and growth depends upon its customers’ broad acceptance of energy retailers and their products. There is no assurance that customers will widely accept Just Energy or its retail energy and value-added products. The acceptance of Just Energy’s products may be adversely affected by Just Energy’s ability to offer a competitive value proposition, and customer concerns relating to product reliability and general resistance to change. Unfavourable publicity involving customer experiences with other energy retailers could also adversely affect Just Energy’s acceptance. Lastly, market acceptance could be affected by regulatory and legal developments. Failure to achieve deep market penetration may have material adverse effects on Just Energy’s business, financial condition and operating results.

 

BUSINESS OPERATIONS RISKS

 

Business operations risk is a potential loss occurring from an unplanned interruption, civil lockdown, pandemic, cyber-attack, manual or system errors, or business earnings risk unique to the retail energy sales industry.

 

Civil lockdown risks

 

Just Energy’s sales channels may require face-to-face interaction with customers, sales brokers or agents. These sales channels may be impacted during mandatory civilian lockdown or emergency orders passed by regulatory bodies, including those currently being implemented as a result of COVID-19. In addition, the emergency orders may also result in temporary closures of commercial customers’ sites. This may result in an unplanned interruption in Just Energy’s business operations and may have a material effect on Just Energy’s financial condition, operating results, cash flow and liquidity.

 

In addition, should the lockdowns as a result of the COVID-19 pandemic be long lasting in nature, the resulting market-wide economic impact may have a significant financial impact on Just Energy and trigger other material risks such as customer credit risks, supplier failures, liquidity risks and market-wide impact on the retail energy industry as well as capital markets.

 

 37.

 

 

Public health crisis risks