form40f.htm
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, 2012
 
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.)

 
6345 Dixie Road, Suite 200
Mississauga, Ontario, Canada L5T 2E6
(905) 795-4206
(Address and telephone number of Registrant’s principal executive offices)
 
Corporation Service Company
1090 Vermont Avenue N.W.
Washington DC 20005
(800) 927-9800

 (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
 
Name of Each Exchange on Which Registered
Common Shares, No Par Value
 
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 139,348,926 Common Shares outstanding as at March 31, 2012

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      X        
No               

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
 
Yes               
No               
 
 

 
 

 

 
A.
Disclosure Controls and Procedures
 
Disclosure controls and procedures are defined in Rule 13a-15(e) under the U.S. Securities Exchange Act  of 1934, as amended (the "Exchange Act"), as those controls and other procedures that are designed to ensure that information required to be disclosed by the Registrant in reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (the "SEC") rules and forms. Rule 13a-15(e) also provides that disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Registrant is accumulated and communicated to the Registrant's management as appropriate to allow timely decisions regarding required disclosure.

The Registrant's Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Registrant's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, as of March 31, 2012 and have determined that such disclosure controls and procedures were effective as of March 31, 2012.  See "Management's Discussion and Analysis - Controls and Procedures" and "Management's Discussion and Analysis - Limitation on Scope of Design" included in Exhibit 1.2 to this Annual Report.
 
B.
Management's Annual Report on Internal Control Over Financial Reporting
 
This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.
 
C.
Attestation Report of the Registered Public Accounting Firm
 
This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by the rules of the SEC for newly public companies.
 
D.
Changes in Internal Control Over Financial Reporting
 
During the period covered by this Annual Report, there have been no changes in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
 
E.
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 officers during the fiscal year ended March 31, 2012.
 
F.
Audit Committee Financial Expert
 
The Registrant's board of directors has determined that Michael Kirby 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 applicable Canadian requirements.

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.

G.
Code of Ethics

The Registrant’s board of directors has adopted a code of ethics that applies to all directors, officers and employees, including its Chief Executive Officer, Chief Financial Officer and other senior officers. The Registrant will provide a copy of the code of ethics 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.

H.
Principal Accountant Fees and Services
 
See "Schedule “A” – Audit Committee Information Required in an AIF – External Auditor Service Fees (by Category)" in the Registrant’s Annual Information Form for the fiscal year ended March 31, 2012, which is filed as Exhibit 1.1 to this Annual Report on Form 40-F.
 
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, 2012, all audit and non-audit services performed by Ernst & Young LLP were pre-approved by the audit committee of the Registrant.

I.
Off-Balance Sheet Arrangements
 
The Registrant is not a party to any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

J.
Tabular Disclosure of Contractual Obligations
 
See "Management's Discussion and Analysis – Contractual Obligations," included in Exhibit 1.2 to this Annual Report.
 
K.
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. Michael Kirby, Hugh Segal, Brian Smith and William Weld, all of whom are independent as such term is defined under the rules and regulations of the New York Stock Exchange ("NYSE").

L.
Critical Accounting Policies
 
See “Management’s Discussion and Analysis – Critical Accounting Estimates,” included in Exhibit 1.2 to this Annual Report.
 
 
M.
Interactive Data File
 
The Registrant is not currently required to submit to the Commission, nor post to its corporate website, an Interactive Data File.

 
 

 



N.
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.
 
O.
Corporate Governance Practices
 
There are certain differences between the corporate governance practices applicable to the Registrant and those applicable to U.S. companies under the NYSE listing standards.  A summary of these differences can be found on the Registrant's website at www.justenergy.com.
 

 

 


 
 

 

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, 2012
       
 
1.2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended March 31, 2012
       
 
1.3
 
Audited Consolidated Financial Statements for the year ended March 31, 2012, prepared in accordance with international financial reporting standards including the report of the auditors thereon
       
 
23.1
 
Consent of Ernst & Young  LLP
       
 
31.1
 
Certification of the CEO and 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

 
 

 
 

 

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: May 31, 2012
By:  
  /s/ Beth Summers
 
 
Name:  
Beth Summers
    Title:
Chief Financial Officer





 
 

 

EXHIBIT INDEX

Number
 
Document
     
1.1
 
Annual Information Form for the year ended March 31, 2012
     
1.2
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended March 31, 2012
     
1.3
 
Audited Consolidated Financial Statements for the year ended March 31, 2012, prepared in accordance with international financial reporting standards including the report of the auditors thereon
     
23.1
 
Consent of Ernst & Young  LLP
     
31.1
 
Certification of the CEO and 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

 
 
 
 

exh1_1.htm
Exhibit 1.1
 
 
 
 
 
 
 
 
 
 
ANNUAL INFORMATION FORM
 
JUST ENERGY GROUP INC.
 


 

 
MAY 31, 2012
 

 
 

 

JUST ENERGY GROUP INC.
 
MAY 31, 2012
 
ANNUAL INFORMATION FORM (1)
 
TABLE OF CONTENTS
 
Page
 
FORWARD LOOKING STATEMENTS
  1
THE COMPANY
  2
THREE YEAR HISTORY OF THE COMPANY
4
BUSINESS OF JUST ENERGY
6
RISK FACTORS
16
DIVIDENDS AND DISTRIBUTIONS
16
MARKET FOR SECURITIES
17
PRIOR SALES
19
ESCROWED SECURITIES
20
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
20
LEGAL PROCEEDINGS AND REGULATORY ACTIONS
23
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
23
AUDITORS, TRANSFER AGENT AND REGISTRAR
23
INTEREST OF EXPERTS
23
MATERIAL CONTRACTS
24
AUDIT COMMITTEE INFORMATION
24
ADDITIONAL INFORMATION
24
SCHEDULE "A" – FORM 52-110F1
25
SCHEDULE "B" – AUDIT COMMITTEE MANDATE
27
SCHEDULE "C" – GLOSSARY
31

(1) Except as otherwise indicated, all information in this Annual Information Form is as at May 31, 2012.
(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.  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 customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, distributable cash, the ability to compete successfully and treatment under governmental regimes.  Some of the risks that could affect the Company’s future results and could cause results to differ materially from those expressed in forward-looking statements include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuation in natural gas and electricity prices, extreme weather patterns, changes in regulatory regimes and decisions by regulatory authorities, competition, difficulties encountered in the integration of acquisitions, dependence on certain suppliers.  See "Risk Factors" for additional information on these and other factors that could affect the Company’s operations, financial results or dividend levels.  These risks include, but are not limited to, risks relating to: credit, commodity and other market-related risks including availability of supply, volatility of commodity prices, availability of credit, market risk, energy trading inherent risk, customer credit risk, counterparty credit risk, electricity supply balancing risk, and natural gas supply balancing risk; operational risks including, reliance on information technology systems, reliance on third party service providers, outsourcing arrangements, dependence on independent sales contractors, independent representatives and brokers, electricity and gas contract renewals and attrition rates, cash dividends are not guaranteed and may fluctuate with the performance of the Company; model risk, commodity alternatives, capital asset and replacement risk, credit facilities and other debt arrangements, disruptions to infrastructure, expansion strategy and future acquisitions; legal, regulatory and securities risks including legislative and regulatory environment, investment eligibility, nature of convertible debentures, dilution from the issue of additional Shares; restrictions on potential growth, changes in legislation, dependence on federal and provincial legislation and regulation, environmental, health and safety laws, regulations and liabilities, disruptions to infrastructure or in the supply of fuel or natural gas and technological advances, and, in the case of NHS, buyouts and returns of water heaters, social or technological changes affecting the water heater and HVAC products, furnace or air-conditioner market, concentration and product failures of water heater, furnace and air-conditioner suppliers and geographic concentration of the Canadian water heater market; possible failure to realize anticipated benefits of acquisitions, potential undisclosed liabilities associated with acquisitions.  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.
 

 
1

 

THE COMPANY
 
Just Energy Group Inc.
 
The Company is a CBCA corporation created on January 1, 2011 pursuant to a plan of arrangement approved by unitholders of the Fund on June 29, 2010 and by the Alberta Court of the Queen’s Bench on June 30, 2010 (the “Trust Conversion”).  See “Business of Just Energy – Three Year History – Conversion Transaction” on page 4 for further details on the Trust Conversion and “Business of Just Energy - Articles of Arrangement of the Company” (“Articles”) on page 3 for a detailed description of the Articles and Common Shares of the Company.  The head office of the Company is located at 6345 Dixie Road, Suite 200, Mississauga, Ontario, L5T 2E6 and its registered office is located at First Canadian Place, 100 King Street West, Toronto, Ontario, M5X 1E1.  The Company holds, directly and indirectly, securities of all of its operating Subsidiaries.
 
Organizational Structure of the Company
 
The following diagram sets forth the simplified organizational structure of the Company.
 
 

Notes:
 
(1)
The Canadian Subsidiaries are corporations, limited partnerships, and unlimited liability companies directly or indirectly wholly-owned by the Company.  The Canadian operating Subsidiaries are Just Energy Ontario L.P. (Ontario); Just Energy Alberta L.P. (Alberta); Alberta Energy Savings 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.; Just Energy Trading L.P. (Ontario); Momentis Canada Corp. (Ontario); National Energy Corporation d/b/a National Home Services (Ontario), Hudson Energy Canada Corp. (Canada) and Terra Grain Fuels Inc. (Canada).  Just Energy Corp. is the general partner of each of the Canadian limited partnerships.
(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. 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.; Commerce Energy, Inc. (California); Just Energy Marketing Corp.; Just Energy Michigan Corp.; Momentis U.S. Corp.; Hudson Energy Services LLC (New Jersey); Just Energy Limited; Hudson Energy Solar Corp.; Fulcrum Retail Energy LLC d/b/a Amigo Energy (Texas); Tara Energy, LLC (Texas); Fulcrum Retail Energy New York, LLC (Texas) and American Home Energy Services Corp.
(3)
Hudson Energy Services UK Limited and Hudson Energy Supply UK Limited operating under the laws of England and Wales are direct and indirect, respectively, wholly owned subsidiaries of the Company.  Just Insurance Limited, a Barbadian company, an indirect wholly owned subsidiary of the Company, provides self-insurance to the Company and its subsidiaries.
(4)
The Company also indirectly owns a 50% interest in Just Ventures L.P. (Ontario) and Just Ventures LLC (Delaware) (collectively, “Just Ventures”), which operate as internet marketing companies for the Company’s subsidiaries.  The other 50% interest of Just Ventures is directly or indirectly held by a third party, Red Ventures, LLC (North Carolina).

 
2

 


Articles of Arrangement of the Company
 
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 May 31, 2012, 139,348,926 Common Shares and no Preferred Shares were issued and outstanding.
 
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.
 
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
 
 
(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.
 

 
3

 


THREE YEAR HISTORY OF THE COMPANY
 
During the past three years the Company has been involved in several significant events, including acquisitions and related financings, a re-branding, the expansion of its business by organic growth, the Trust Conversion and listing on the NYSE.  These events are described below in chronological order.
 
Name Change
 
The name of the Fund was changed from Energy Savings Income Fund to Just Energy Income Fund pursuant to an amendment to the Fund's Declaration of Trust dated May 14, 2009 and effective June 1, 2009, at which time the TSX trading symbol was changed from SIF.UN to JE.UN.  At approximately the same time or shortly thereafter, the corporate names of most of the operating Subsidiaries were changed to incorporate the Just Energy name. The Company holds the registered trademark "Just Energy" in Canada and the United States.
 
Universal Acquisition
 
On July 1, 2009, Just Energy completed the Universal Acquisition pursuant to the Universal Acquisition Agreement, acquiring all of the outstanding common shares of Universal in accordance with a plan of arrangement.  Under the plan of arrangement, Universal shareholders received 0.58 of an Exchangeable Share for each Universal common share held.  Each Exchangeable Share was exchangeable for one Unit at any time at the option of the holder and entitled the holder to a monthly dividend equal to 66⅔% of the monthly distribution (including any special distribution) paid by Just Energy on a Unit.  Just Energy also assumed all of the covenants and obligations of Universal in respect of the $90 Million Convertible Debentures.  The Universal acquisition increased Just Energy's market share and provided entry into new geographic markets, including, without limitation, Michigan, Ohio, California, New Jersey, Maryland and Pennsylvania, as well as accelerating Just Energy's entry into the water heater rental business through Universal's subsidiary, NHS in the Province of Ontario.  Universal also owned a 66⅔% interest in TGF, which owns the Belle Plaine Facility (the Company subsequently acquired the remaining one-third interest in TGF – see “EllisDon Put Option” below).
 
A Business Acquisition Report in respect of the Universal Acquisition is available on the Company’s SEDAR profile at www.sedar.com.
 
Concurrently with the Universal Acquisition, Just Energy amended and restated its Credit Facility, increasing the credit line from $150 million to $270 million.
 
NHS Water Heater Financing
 
On January 18, 2010 NHS and Home Trust Company (“HTC”), a wholly-owned subsidiary of Home Capital Group Inc., entered into a long-term financing agreement to finance current and future water heater installations by NHS.  Under the agreement (as amended and supplemented from time to time), NHS borrows an amount equal to the five-, seven- or ten-year cash flow with respect to each NHS water heater, furnace or air-conditioner customer rental contract entered into in Ontario, discounted at an agreed rate.  HTC is then paid an amount equal to the customer payments on the contracts for the cash flow term selected.  Following the end of the term, the residual rental payments over the life of the water heaters, furnaces and air-conditioners are paid to NHS.  The expected life of a water heater, furnace and air conditioner is approximately 15 years.
 
Establishment of Momentis
 
In 2010, the Company commenced multi-level marketing for the sale of Energy Contracts through its Momentis Subsidiaries.  Momentis continues to grow, offering Energy Contracts, as well as access to Direct TV®, wireless internet, voice over internet protocol (VOIP), energy management systems and NHS products in jurisdictions throughout Canada and the United States.
 
Financing of the Hudson Energy Acquisition
 
On May 5, 2010, Just Energy completed a public offering of $330 Million Convertible Debentures to finance the purchase price and related costs of the Hudson Energy Acquisition (see "Hudson Energy Acquisition" below).
 

 
4

 


 
Hudson Energy Acquisition
 
On May 7, 2010 Just Energy completed the acquisition of Hudson Energy in accordance with the Hudson Acquisition Agreement. Prior to the acquisition, Hudson Energy sold natural gas and electricity primarily to small to mid-size commercial customers in New York, New Jersey, Texas, and Illinois. The consideration for the acquisition was approximately US$304.2 million, adjusted by customary working capital adjustments, payable as to US$295 million in cash at closing, and a post-closing deferred payment of US$9.2 million, payable in four equal quarterly instalments during the first year following closing.  On October 7, 2010, the purchase price was reduced by approximately US$1.15 million in accordance with the post-closing adjustment terms of the Hudson Acquisition Agreement.  Since the acquisition, Hudson has expanded into Ontario, Alberta, Saskatchewan, Quebec, Massachusetts and Pennsylvania.  Hudson has also facilitated the growth of the Company’s commercial business through its broker network in California, Ohio, Alberta and British Columbia.
 
A Business Acquisition Report in respect of the Hudson Energy acquisition is available on the Company’s SEDAR profile at www.sedar.com.
 
Trust Conversion
 
On June 29, 2010 the holders of securities of three entities which were predecessors to Just Energy approved a plan of arrangement pursuant to section 192 of the CBCA the effect of which was, with the approval of the Alberta Court of Queens Bench, to authorize the conversion of the Fund and its affiliates to Just Energy, on January 1, 2011.  On January 1, 2011 the Fund was dissolved, a certificate of arrangement was issued under the CBCA amalgamating the predecessor entities and certain other entities to create Just Energy and the securities of such predecessor entities became, on a 1:1 basis Common Shares trading on the TSX as of January 4, 2011.  Just Energy and its subsidiaries seamlessly carried on the business previously carried on by the Fund and its subsidiaries.
 
EllisDon Put Option
 
On November 17, 2010, the minority shareholder of TGF, EllisDon Design Build Inc. (“EllisDon”), exercised its right to put its one-third equity interest in TGF to JEEC for $10 million of Exchangeable Shares. On January 4, 2011 the Company issued 689,940 Common Shares to EllisDon to effect the put option in exchange for EllisDon’s one-third interest in TGF, and TGF became a wholly-owned subsidiary of the Company.

Financing of the Fulcrum Acquisition
 
On September 22, 2011, the Company completed a public offering of the $100 Million Convertible Debentures that was used for corporate purposes and to finance the purchase price and related costs of the Fulcrum Acquisition (see "Fulcrum Acquisition" below).
 
Fulcrum Acquisition
 
On October 3, 2011, Just Energy completed the acquisition of Fulcrum in accordance with the Fulcrum Acquisition Agreement.  Fulcrum sells electricity to residential and small to mid-size commercial customers in Texas selling primarily through online and targeted affinity marketing channels. The consideration for the acquisition was approximately US$79.4 million, subject to customary working capital adjustments. Just Energy will also pay up to US$20 million (the “Earn-Out Amount”) to the seller 18 months following the closing date (the “Earn-Out Period”), provided that certain EBITDA and billed volume targets are satisfied by Fulcrum during the Earn-Out Period.  The Earn-Out Amount will be payable as to 45.12% in Common Shares, valued at $10.7166 per common share (converted into U.S. dollars).  The balance of the Earn-Out Amount is payable in cash.
 
Normal Course Issuer Bid and Suspension of the Dividend Reinvestment Plan
 
On December 13, 2011, the Company announced its intention to make a normal course issuer bid to purchase its Common Shares.  The notice provided that the Company may, during the 12 month period commencing December 16, 2011 and ending December 15, 2012, purchase on the TSX as well as alternative trading systems up to 13,200,917 Common Shares in total, being approximately 10% of the “public float” of Common Shares. The aggregate number of Common Shares that the Company may purchase during any trading day will not exceed 82,430 Common Shares, being approximately 25% of the average daily trading volume of the Common Shares

 
5

 

based on the trading volume on the TSX for the most recently completed six calendar months preceding the date of the Notice of Intention. Any Common Shares purchased pursuant to this normal course issuer bid are cancelled by Just Energy. The price that Just Energy will pay for any Common Shares is the market price at the time of acquisition. As of the date hereof, the Company had purchased 84,100 Common Shares under the Normal Course Issuer Bid.

Contemporaneously with the commencement of the Normal Course Issuer Bid, Just Energy suspended the ability of Shareholders to participate in Just Energy’s Distribution Reinvestment Plan, effective February 1, 2012 until further notice.

NYSE Listing
 
On January 30, 2012 the Company’s Common Shares commenced trading on the NYSE under the symbol “JE”.  The Common Shares continue to be listed for trading in Canada on the TSX under the same symbol.

 

BUSINESS OF JUST ENERGY
 
General
 
The principal business of the Company’s Subsidiaries involves the sale of natural gas and/or electricity to residential and commercial customers, under fixed-price, price-protected and variable-rate Energy Contracts.  By fixing the price of natural gas or electricity under its fixed-price, price-protected 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 rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion.   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.  The Company’s operating Subsidiaries currently carry on business in Canada in the provinces of Ontario, Manitoba, Québec, British Columbia, Alberta and Saskatchewan and in the United States in the states of Illinois, New York, Indiana, Michigan, Ohio, New Jersey, California, Maryland, Pennsylvania, Massachusetts, Georgia, Texas, Delaware and Florida.  The Company intends to commence commercial electricity marketing in the United Kingdom during the second quarter of Fiscal 2013 under the Hudson brand.
 
The map in Fig-1 below shows the jurisdictions in Canada and the United States in which Just Energy operates.
 
Fig-1
 
 

 
6

 


 
In the Province of Ontario the Company also rents and sells high efficiency and tankless water heaters, furnaces and air-conditioners through its Subsidiary, NHS.
 
Through its subsidiary, TGF, Just Energy also produces and sells wheat-based ethanol.
 
Hudson Solar provides customers with the ability to receive solar power through panels installed on either roof-tops or ground mounts in the States of New Jersey, Pennsylvania and Massachusetts.
 
As at March 31, 2012, Just Energy had aggregated approximately 3,870,000 RCEs, with approximately 51% from its Consumer Division (residential and small business) and 49% from its Commercial Division.
 
Consumer Division
 
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 as of May 30, 2012, Saskatchewan and in the States of Michigan, New York, Illinois, Indiana, Ohio, California, Pennsylvania and Georgia. 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.
 
Electricity
 
In the Provinces of Ontario and Alberta and the States of New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California and Massachusetts, Just Energy and its affiliates offer a variety of solutions to its electricity customers, including fixed-price and variable-price 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 requirements. The customers experience either a small balancing charge or credit (pass-through) on each bill due to fluctuations in prices applicable to their volume requirements not covered by a fixed price. 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 LDCs provide billing in all electricity markets except Alberta (see “Business of Just Energy – Natural Gas”) and Texas.  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, Massachusetts, California and Texas.  In California and Massachusetts, the LDC provides collection services only until the account is delinquent.  In Texas and Alberta, Just Energy bills and collects itself.  In Ontario, New York, Pennsylvania, New Jersey, Maryland and Michigan each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential and commercial customers.
 
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, inside sales team, and Momentis.  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
 

 
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services only until the account is delinquent.  The Fulcrum Acquisition provides Just Energy’s commercial business with an affinity marketing channel through Tara Energy, which is an established commercial brand in Texas.  Just Energy is in the process of expanding the Tara Energy affinity marketing channel to other jurisdictions.
 
Hudson Energy plans to commence the marketing of electricity in the United Kingdom during the second quarter of Fiscal 2013.
 
JustGreen and JustClean Products
 
Just Energy also offers green products through its JustGreen and JustClean programs.  Sales of the JustGreen and JustClean products continue to support and reaffirm the strong customer demand for green energy products in all markets.  The electricity JustGreen product offers the customer the option of having all or a portion of his or her electricity purchased from Just Energy sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits which will allow the customer to reduce or eliminate 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, 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.  The Company currently sells JustGreen gas in Ontario, British Columbia, Alberta, Michigan, New York, Ohio, Pennsylvania, and Illinois and JustGreen electricity in Ontario, Alberta, New York, Texas, Massachusetts, and Pennsylvania.  JustGreen sales are expanding in the remaining markets.  Of all residential customers who contracted with Just Energy in the year ending March 31, 2012, 29% purchased JustGreen for some or all of their energy needs.  On average, these customers elected to purchase 84% of their consumption as green supply.
 
Just Energy also launched its JustClean product in Ontario and Florida in the first half of calendar 2011.  JustClean allows homeowners the opportunity to offset their carbon footprint without purchasing commodity from Just Energy.  This product can be offered in all states and provinces and is not dependent on energy deregulation.
 
To date, Just Energy has invested over $50 million in more than 70 renewable energy projects across North America, including wind, hydro, solar, geothermal and biomass projects.  The Company has retained 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 JustClean products.  Grant Thornton LLP performed this review for calendar years 2009, 2010 and 2011 and determined that Just Energy was compliant.
 
National Home Services Division
 
NHS rents and sells residential customers high efficiency water heaters, furnaces and air-conditioners in Ontario.  As at March 31, 2012, NHS had a cumulative installed base of approximately 155,600  water heaters, 9,800 furnaces and 3,155 air conditioner units.  Currently, NHS is installing an average of approximately 770 water heaters and 125 HVAC products per week.
 
As NHS is a high growth, relatively capital-intensive business, Just Energy’s management believes that, in order to maintain the sustainability of its dividends, separate non-recourse financing of this capital is appropriate.  Accordingly, NHS entered into a long-term financing agreement with HTC for the funding of NHS' water heaters, furnaces and air-conditioners in the Enbridge and Union Gas distribution territories.  See “Financing – NHS Financing” on page 20 for further details.
 
Management’s strategy for NHS is to self-fund the business through its growth phase, building value within the customer base. In this manner, NHS will not require significant cash from Just Energy’s core operations nor will Just Energy rely on NHS’s cash flow to fund its dividends.
 
Terra Grain Ethanol Facility
 
TGF continues to remain focused on improving the plant production and run time of the Belle Plaine, Saskatchewan, wheat-based ethanol facility.  For the year ended March 31, 2012, the plant achieved an average production capacity of 80%, a slight increase from average production capacity of 78% in the prior year.  In the fourth quarter of 2012, the plant achieved average production capacity of 88%.  In Fiscal 2012, TGF received a federal subsidy based on
 

 
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ethanol sales of $0.08 per litre produced.  The subsidy reduces annually to $0.05 per litre by fiscal 2015 when the subsidy ends.
 
Solar Division
 
In 2011, Just Energy launched Hudson Solar, providing customers with the ability to receive solar power through panels installed on roof-tops or ground mounts in the States of New Jersey, Pennsylvania and Massachusetts.  Hudson Solar retains ownership of the solar panels and customers agree to a 15 to 20 year power purchase agreement with Hudson Solar at rates that are currently lower than the customer’s local utility.  Hudson Solar retains all Solar Renewable Energy Certificates generated from the projects.  In addition, Hudson Solar retains all of the rebates, incentives, tax depreciation and credits as the system owner.  Hudson Solar currently has completed projects totalling 5.5 MW and projects under construction or contracted to be constructed totalling 28 MW.  The Company is currently in negotiations to have Hudson Solar secure non-recourse debt to sustain its long term growth.
 
Marketing
 
Residential customers are solicited primarily on a door-to-door basis by Independent Contractors, who are not employees of Just Energy or NHS.  Commencing in April 2010, customers are also solicited through a multi-level marketing program by Momentis utilizing Independent Representatives.  Just Energy also utilizes telemarketing methods to solicit customers and allows customers to sign up online.  Hudson Energy primarily employs Independent Brokers utilizing the Hudson Connex sales portal to solicit Energy Contracts.  Marketing also involves inbound telemarketing through internet sales.
 
The elapsed period between the time when a customer contract is signed to when the first payment is received from the customer varies with each market.  The time delays per market are approximately two to six months.  The cost for obtaining a new customer and related expenses currently includes commissions payable to Independent Contractors, Independent Brokers and Independent  Representatives, salaries paid to the marketing and customer service departments which support the Independent Contractors, Independent Brokers and Independent Representatives, salaries paid to customer service representatives who verify the customer contracts, commissions paid to sales representative for closing a deal over the phone, the costs of printing contracts, bonus awards, advertising costs and the costs of promotional materials.  The ability of Just Energy to contract large numbers of customers at a reasonable cost has been a key ingredient in the success of Just Energy.
 
Retention
 
Legislation and regulations related to the renewal of consumer contracts in general or Energy Contracts in particular can affect Just Energy's ability to automatically renew customers upon notice, thereby affecting the percentage of existing customers with Energy Contracts that are renewed at the end of their initial term.  However, as more of Just Energy’s customers’ contracts come up for renewal, Just Energy has made it a priority to focus on renewals and is using a variety of marketing methods in its retention efforts, including direct-mail, door-to-door and telemarketing.  As part of these retention efforts, electricity and natural gas customers may be contacted for early renewal of their contracts under a blend and extend offer. These customers are offered a lower rate, compared to their current contracted rate, but the term of their contract is extended up to five more years. Consequently, Just Energy may experience a reduction in margins in the short term but will gain additional future margins.  In fiscal 2012, the renewal rate for Gas Contracts was 54% in Canada and 79% in the United States and the renewal rate for Electricity Contracts was 53% in Canada and 69% in the United States.  Attrition in fiscal 2012 for Gas Contracts in Canada was 10% in Canada and 24% in the United States and for Electricity Contracts was 9% in Canada and 13% in the United States.
 

 
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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 preset delivery schedule.
 
Just Energy mitigates 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 resulting in either a gain or loss compared to the weighted average cost of supply. Consequently, customer margin increases proportionately to the increase in consumption net of the gain or loss associated with the incremental supply purchase.  Additionally, for electricity, 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 Just Energy.  The supply participants to the Intercreditor Agreement are Shell, BP, Constellation, Société Générale, Bruce Power, EDF Trading North America, LLC, National Bank of Canada and The Bank of Nova Scotia (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.
 
JustGreen/JustClean
 
On behalf of its customers, Just Energy purchases and retires renewable energy credits and carbon offsets from certified sources for greenhouse gas reduction and green energy production matched to offset its customers' average electricity and/or natural gas use for those customers who elect to purchase JustGreen or JustClean.  Just Energy attempts to purchase the renewable energy credits and carbon offsets from facilities, such as wind farms, solar, biomass projects and landfill gas projects located in the local jurisdiction in which it is selling its JustGreen and JustClean products to customers (see Fig-2 below for a map of Just Energy’s significant project investments).  The Renewable Energy Credits are Green-e (U.S.)
 

 
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and EcoLogo (Canada) certified or comply with renewable portfolio standards where registered; and the carbon offset projects are Climate Action Reserve, Voluntary Carbon Standard or American Carbon Registry certified in the U.S., and meet the ISO 14064 Standard in Canada.  To date, Just Energy’s contractual commitments to green projects in Canada and the United States total approximately $63 million.  Overall, JustGreen makes up 10% of the consumer gas portfolio, up from 6% a year ago, and 12% of the consumer electricity portfolio, up from 10% on the same date last year.
 
FIG-2
 
 
Competition
 
Management of Just Energy believes it has competitive advantages over other energy retailers in that it has: (i) a marketing and sales organization which has achieved significant success in commodity and green product sales; (ii) a responsive customer care and customer service process; (iii) a disciplined management of commodity, JustGreen/JustClean products, water heater, furnace, air conditioner and solar panel purchases; (iv) products priced to achieve stable margin growth vs. customer growth in all business sectors (v) evolving sales channels; and (vi) growth of Just Energy’s commercial business through Hudson Energy.  The industry credibility of Just Energy's Affiliates 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 JustGreen/JustClean product offerings within the direct purchase market.
 
Industry Competition
 
Natural Gas and Electricity
 
Other than LDCs (discussed below) Just Energy's largest competitors in Canada and the United States 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, Gateway Energy Services Corporation (which is owned by Direct Energy), MXenergy Inc. and MXenergy Electric Inc. (which are owned by Constellation) and Superior Energy Management (a division of Superior Plus LP, which is owned by Superior Plus Corp.).  Ambit Energy and Stream Energy are the largest competitors with respect to Just Energy’s network marketing channel, Momentis.
 
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
 

 
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entrants may enter the market and compete directly for the customer base that Just Energy targets, slowing or reducing its market share.   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 Gas Contracts and Electricity Contracts.
 
JustGreen/JustClean
 
The most significant competitors with respect to Just Energy’s JustGreen and JustClean products are Green Mountain Energy Company in the United States and Bullfrog Power in Canada.
 
Water heaters, Furnaces and Air conditioners
 
As alternatives to renting water heaters, furnaces or air conditioners from NHS, persons may purchase or own a water heater or HVAC products, or rent a water heater or HVAC product from a competitor.  The incumbents in the Ontario market, Direct Energy/Enercare (Enbridge territory) and Reliance Home Comfort (Union Gas territory) operate water heater, furnace and air conditioner rental programs for Ontario residents (including the new home construction market) which compete with NHS' rental programs, as do several smaller rental providers.  While NHS’ market share has increased since it entered the market in 2008, each of the incumbent companies continues to hold a large majority in their respective original territories.
 
Ethanol
 
The largest Canadian ethanol producers in Canada with whom TGF competes are Greenfield Ethanol, Suncor and Husky Energy.  If TGF sells ethanol in the United States, it would compete with, among others, Archer Daniels Midland Company  (the single largest producer in the ethanol industry).  The North American ethanol industry also includes many small, independent firms and farmer-owned cooperatives.  Management believes that the Belle Plaine Facility's capacity is generally comparable to the capacity of the facilities owned by TGF's primary competitors. There has been considerable consolidation of ethanol producers in the United States as a result of declining commodity prices and tightening credit markets.
 
TGF believes that its ability to compete successfully in the ethanol production industry depends upon many factors, including the price of feedstock, reliability of its production processes and delivery schedule, transportation costs and volumes of ethanol produced and sold.  The key element impacting the financial performance of the plant is ethanol prices.
 
With respect to distillers grains, TGF competes with other ethanol producers, as well as a number of large and small suppliers of competing livestock and dairy feed.  TGF believes the principal competitive factors are price, proximity to purchasers and product quality.
 
Solar
 
Hudson Solar is one of the few organizations which is involved in multiple stages of the solar project, being the investment, development and management of the properties post installation.  There are many companies installing solar panels in the North American market. Hudson Solar uses some of these installation companies to complete the installation of its solar projects and to recommend additional projects which may provide an attractive investment. Some of Hudson Solar’s major competitors in the development stage of solar projects are R. Angelini Inc., Solar City and Borrego Solar. Hudson Solar has competition in the financing stage of the solar projects as a number of major American banks and insurance companies are also involved in this aspect of the industry.
 
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
 

 
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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.
 
In connection with TGF's Belle Plaine Facility, Just Energy is subject to various federal, provincial and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials; and the health and safety of its employees.  These laws and regulations require TGF to obtain and comply with environmental permits to operate its Belle Plaine Facility, which can require pollution control equipment or operational changes to limit actual or potential impacts on the environment.  A violation of these laws, regulations or permit conditions can result in substantial fines, criminal sanctions, permit revocations and/or facility shutdowns.  The Company does not anticipate a material adverse effect on its business or financial condition as a result of TGF's efforts to comply with these requirements.
 
Employees and Independent Contractors and Representatives
 
As of March 31, 2012, Just Energy and its affiliates employed approximately 1,200 persons.  In addition, approximately 1,200 Independent Contractors are involved in the door-to-door marketing of Energy Contracts, water heaters and HVAC equipment, approximately 47,800 independent representatives are enrolled with Momentis and over 1,100 Independent Brokers are associated with Hudson.
 
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 offices in Suffern, New York and Dallas, Texas and call centres in Mississauga, Ontario, Houston, Texas and Lansing, Michigan; as well as over 40 sales offices throughout North America.
 
The Company, through its ownership of TGF, owns the lands and buildings for the Belle Plaine Ethanol Facility, consisting of approximately 122,000 square feet of plant and office space situated on approximately 160 acres of land.  Additionally, through the Hudson Energy Acquisition, the Company holds title to a one story office building in Largo, Florida consisting of approximately 4,800 square feet of office space situated on a parcel of land of approximately 22,000 square feet.  The Largo property is currently vacant.
 
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, Saskatchewan 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, Saskatchewan 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.
 
There are not any specific government agencies which license the sale and rental of water heaters, furnaces and air-conditioners, solar panel installation or ethanol sales.  However, NHS, Hudson Energy Solar Corp. and TGF must comply with various statutes and regulations governing each of their respective businesses, including, without limitation, consumer protection legislation, grain purchases and environmental protection.
 
Financing
 
Just Energy Credit Facility
 
Concurrently with the Trust Conversion, on January 1, 2011, JEOLP and Just Energy (U.S.) amended and restated Just Energy’s credit facility to increase it to $350 million (the "Credit Facility").  To complement the Credit Facility,
 

 
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the Secured Suppliers and the lenders amended and restated the Intercreditor Agreement pursuant to which the Secured Suppliers and the lenders jointly hold security over substantially all of the assets (including, without limitation, the Energy Contracts) of the Company and its operating Subsidiaries (other than NHS, TGF, Hudson Solar and Hudson UK).  Securities owned directly or indirectly by the Company in its operating Subsidiaries (excluding, without limitation, NHS, TGF Hudson Solar and Hudson UK) have been pledged to CIBC, the collateral agent, as part of the security.  All receipts are directed to bank accounts over which CIBC, as collateral agent, has a deposit account control agreement 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, CIBC, 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.  To date, Just Energy has materially complied with all covenants under the Credit Facility.
 
$330 Million Convertible Debentures
 
To fund the acquisition of Hudson Energy, Just Energy entered into an agreement with a syndicate of underwriters for $330 million of convertible extendible unsecured subordinated debentures issued on May 5, 2010, which were assumed by the Company on the Trust Conversion. The $330 Million Convertible Debentures bear an interest rate of 6.0% per annum payable semi-annually in arrears on June 30 and December 31 of each year and mature on June 30, 2017. Each $1,000 of principal amount of the $330 Million Convertible Debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 Common Shares of the Company, representing a conversion price of $18 per Common Share.
 
The $330 Million Convertible Debentures are not redeemable prior to June 30, 2013, except under certain conditions after a change of control has occurred. On or after June 30, 2013, but prior to June 30, 2015, the 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, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On or after June 30, 2015, and prior to the maturity date, the 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.  The $330 Million Convertible Debentures are unsecured and are subordinated to Just Energy’s secured obligations and the $90 Million Convertible Debentures.
 
$90 Million Convertible Debentures
 
In conjunction with the acquisition of Universal on July 1, 2009, JEEC assumed the obligations of the convertible unsecured subordinated debentures issued by Universal in October 2007, which have a principal value of $90 million, and which were assumed by the Company on the Trust Conversion.  These debentures mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6%, payable semi-annually on March 31 and September 30 of each year. As at April 30, 2012, each $1,000 principal amount of the $90 million debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 34.36 Common Shares of the Company, representing a conversion price of $29.11 per Share.  Pursuant to the $90 Million Convertible Debentures, if the Company fixes a record date for the payment of a dividend on its Common Shares, the conversion price shall be adjusted in accordance therewith.
 
On and after October 1, 2010, but prior to September 30, 2012, the $90 Million Convertible Debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at the Company’s sole option on not more than 60 days’ and not less than 30 days’ prior notice, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On and after September 30, 2012, but prior to the maturity date, the $90 Million Convertible Debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at the Company’s sole option on not more than 60 days’ and not less than 30 days’ prior notice.  The $90 Million Convertible Debentures are unsecured and are subordinated to Just Energy’s secured obligations.
 

 
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$100 Million Convertible Debentures
 
To fund the acquisition of Fulcrum, Just Energy entered into an agreement with a syndicate of underwriters for $100 million of convertible extendible unsecured subordinated debentures issued on September 22, 2011. The $100 Million Convertible Debentures bear an interest rate of 5.75% per annum payable semi-annually in arrears on March 31 and September 30 of each year and mature on September 30, 2018.  Each $1,000 of principal amount of the $100 Million Convertible Debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 56.0224 Common Shares of the Company, representing a conversion price of $17.85 per Common Share.
 
The $100 Million Convertible Debentures are not redeemable prior to October 1, 2014, and prior to September 30, 2016, except under certain conditions after a change of control has occurred. On or after October 1, 2014, the 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, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On or after September 30, 2016, and prior to the maturity date, the 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.  The $100 Million Convertible Debentures are unsecured and are subordinated to Just Energy’s secured obligations and the $90 Million Convertible Debentures.
 
TGF Credit facility
 
A credit facility of up to $50 million was established with a syndicate of Canadian lenders led by Conexus Credit Union and was arranged to finance the construction of the ethanol plant in 2007. The facility was revised on March 18, 2009, and was converted to a fixed repayment term of ten years, commencing March 1, 2009, which includes interest costs at a prime rate plus 3% with principal repayments scheduled to commence on March 1, 2010. The credit facility is secured by a demand debenture agreement, a first priority security interest on all assets and undertakings of TGF, a mortgage on title to the land owned by TGF and a general security interest on all other current and acquired assets of TGF.  The credit facility includes certain financial covenants, the most significant of which relate to current ratio, debt to equity ratio, debt service coverage and minimum shareholders’ capital.  The covenants were measured as of March 31, 2012, and TGF failed to meet all required covenants.  The non-compliance was waived by the lenders but did result in a non-compliance fee of $0.1 million representing 0.25% of the loan balance as of March 31, 2012. The non-compliance fee was accrued as at March 31, 2012.
 
TGF Debentures
 
A debenture purchase agreement with a number of private parties providing for the issuance of up to $40 million aggregate principal amount of debentures was entered into in 2006. On April 1, 2011, the interest rate was increased to 12%. The agreement includes certain financial covenants, the more significant of which relate to current ratio, debt to capitalization ratio, debt service coverage, debt to EBITDA and minimum shareholders’ equity. Compliance with the new covenants, has been extended to May 15, 2014, with a call right any time after April 1, 2013.  On March 31, 2012, TGF agreed with the debenture holders to increase the quarterly blended payments to $1.2 million.  TGF also agreed to make an additional debt repayment after March 31, 2012, if the cash flow from operations exceeds $0.5 million for fiscal 2013, provided that this type of payment will not create a non-compliance issue for the corporation under the TGF credit facility.
 
NHS Financing
 
In fiscal 2010, NHS entered into a long-term financing agreement with HTC for the funding of new and existing rental water heater, furnace or air conditioner contracts in the Enbridge gas distribution territory. On July 16, 2010, the financing arrangement was expanded to the Union gas territory. Pursuant to the agreement, NHS receives financing of an amount equal to the net present value of the first five, seven or ten years (at its option) of monthly rental income, discounted at the agreed upon financing rate of 7.99% (subject to change), and is required to remit an amount equivalent to the rental stream from customers on the water heater, furnace and air conditioning contracts for the first five, seven or ten years, respectively. No more than one third of rental agreements may be financed for either the seven or ten year term. The financing agreement is subject to a holdback provision, whereby 3% in the Enbridge territory and 5% in the Union Gas territory of the outstanding balance of the funded amount is deducted and deposited to a reserve account in the event of default. Once all of the obligations of NHS are satisfied or
 

 
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expired, the remaining funds in the reserve account will immediately be released to NHS. HTC holds security over the contracts and equipment it has financed and has no recourse against the Company or any other Just Energy entity.  NHS is required to meet a number of covenants under the agreement and, as at March 31, 2012, all of these covenants have been met.  As of May 31, 2012, approximately $200 million has been advanced to NHS under the agreements.
 
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" at pages 50 through 54 of the 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 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 (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.  It is the current intention of the Board of Directors to pay a dividend on the Company’s outstanding Common Shares of $1.24 annually ($0.10333 monthly) per Common Share.  There is no guarantee that the Company will maintain this dividend policy.

The Shareholders of record on a dividend record date are entitled to receive dividends paid by the Company in respect of that month.  Cash dividends are made on the last business day of the calendar month to the Shareholders of record on the 15th day of such month or the first business day thereafter.
 
In Fiscal 2012, the Company declared regular monthly dividends of $0.10333 per Common Share, resulting in an aggregate of $1.24 per Common Share.
 
The following table sets forth the month of payment and the distributions per Unit paid by the Fund prior to the Trust Conversion and dividends per Common Share paid by the Company, as applicable for the three most recently completed financial years and for the months of April and May, 2012.
 

 
16

 


 
Record of Cash Distributions/
Dividends (1)
 
Fiscal 2013
$ Per Common Share
   
Fiscal 2012
$ Per Common Share
   
Fiscal 2011
$ Per Unit/ Common Share(2)
   
Fiscal 2010
$ Per Unit
                       
April
    0.10333       0.10333       0.10333       0.10333
May
    0.10333       0.10333       0.10333       0.10333
June
          0.10333       0.10333       0.10333
July
          0.10333       0.10333       0.10333
August
          0.10333       0.10333       0.10333
September
          0.10333       0.10333       0.10333
October
          0.10333       0.10333       0.10333
November
          0.10333       0.10333       0.10333
December
          0.10333       0.10333      
0.10333
                             
0.20(3)
January
          0.10333       0.10333       0.10333
February
          0.10333       0.10333       0.10333
March
          0.10333       0.10333       0.10333
 
Notes:
 
(1)
All distributions and dividends are paid on the last day of the month to Unitholders or Shareholders, as applicable, of record on the 15th day of the month or the first business day thereafter.
(2)
Dollars per Unit from April 2010 and to December 2010 and dollars per Common Share from January 2011 to March 2011.
(3)
Special Distribution declared December 15, 2009, to persons who were Unitholders of record at December 31, 2009 payable as to 100% in cash on January 31, 2010.  Similar arrangements were made by JEC to ensure that the special distribution was made available in 2010 to the holders of Class A Preference Shares, unit appreciation rights and deferred unit grants on the December 31, 2009 record date.
(4)
Distributions are also paid on all outstanding RSGs and DSGs equal to dividend paid on the Common Shares.  As of May 31, 2012, there were 3,709,985 RSGs and 137,748 DSGs outstanding.
 
MARKET FOR SECURITIES
 
Common Shares of the Company and Units of the Fund
 
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
 
2011
                 
April
    15.78       14.96       5,024,080  
May
    15.57       14.57       6,437,728  
June
    14.95       13.70       5,367,439  
July
    14.86       13.56       4,097,680  
August
    13.90       12.36       7,487,977  
September
    13.02       10.00       7,832,986  
October
    11.64       9.37       8,720,198  
November
    10.95       9.90       8,367,996  
December
    11.52       9.73       12,081,173  
2012
                       
January
    12.22       11.37       10,081,285  
February
    12.87       12.10       9,749,103  
March
    13.84       12.68       8,569,571  
April
    14.03       12.23       11,071,176  
May (1-25)
    13.24       11.06       5,885,676  

 

 
17

 


NYSE(1)
(US$)
Period
 
High ($)
   
Low ($)
   
Volume
 
2012
                 
January
    12.33       11.22       1,171,622  
February
    12.99       12.10       3,300,858  
March
    13.94       12.62       1,654,750  
April
    14.15       13.34       2,119,300  
May (1-25)
    13.42       10.74       1,507,582  

Notes:
(1)
The Company’s Common Shares commenced trading on the NYSE on January 30, 2012.
 
$330 Million Convertible Debentures
 
The $330 Million Convertible Debentures are traded on the TSX under the symbol JE.DB.  The following table sets forth trading information for the $330 Million Convertible Debentures for the periods indicated as reported by the TSX:
 
Period
 
High ($)
   
Low ($)
   
Volume
 
2011
                 
April
    104.00       100.80       1,775,000  
May
    103.50       102.00       3,377,000  
June
    103.00       99.50       7,027,130  
July
    100.31       99.75       2,463,382  
August
    100.50       97.00       4,351,000  
September
    99.84       92.00       6,059,000  
October
    94.00       88.00       1,932,000  
November
    94.50       92.12       5,016,000  
December
    94.93       92.01       4,765,000  
2012
                       
January
    99.50       94.35       7,463,000  
February
    99.90       97.40       5,347,000  
March
    98.90       97.74       9,749,500  
April
    99.90       97.00       4,978,000  
May (1-25)
    98.75       95.40       3,924,500  

$90 Million Convertible Debentures
 
The $90 Million Convertible Debentures are traded on the TSX under the symbol JE.DB.A.  The following table sets forth trading information for the $90 Million Convertible Debentures for the periods indicated as reported by the TSX:
 
Period
 
High ($)
   
Low ($)
   
Volume
 
2011
                 
April
    103.50       101.25       1,403,000  
May
    102.50       101.00       1,463,000  
June
    102.50       101.00       1,778,000  
July
    102.00       100.50       612,000  
August
    102.00       95.56       941,000  
September
    100.50       97.50       4,146,000  
October
    100.00       96.50       2,561,000  
November
    100.25       99.26       1,343,000  
December
    101.51       99.85       1,371,000  
2012
                       
January
    102.50       100.75       731,000  
February
    101.75       100.50       1,728,000  

 
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March
    101.80       100.50       1,587,000  
April
    101.95       100.50       1,034,000  
May (1-25)
    101.75       101.00       1,442,500  

 
$100 Million Convertible Debentures

The $100 Million Convertible Debentures began trading on the TSX under the trading symbol JE.DB.B on September 22, 2011.  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
 
2011
                 
September
    96.00       89.75       1,189,000  
October
    92.00       88.25       1,191,000  
November
    91.25       88.00       960,000  
December
    90.20       86.00       1,448,000  
2012
                       
January
    94.75       89.50       2,745,000  
February
    96.75       93.25       2,678,000  
March
    98.50       95.50       3,114,000  
April
    97.50       94.02       7,524,000  
May (1-25)
    95.01       89.99       2,378,000  
 
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:  The grant date value of the RSGs is, in most cases, based on the simple average closing price of the Common Shares on the TSX on the day prior to the grant date.
 
1.
4,356 RSGs were granted on May 23, 2011 having a grant value of $14.97 per RSG.
2.
483 RSGs were granted on June 30, 2011 having a grant value of $14.17 per RSG.
3.
12,892 RSGs were granted on July 18, 2011 having a grant value of $13.99 per RSG.
4.
7,679 RSGs were granted on July 20, 2011 having a grant value of $13.94 per RSG.
5.
5,000 RSGs were granted on August 11, 2011 having a grant value of $12.83 per RSG.
6.
12,819 RSGs were granted on September 8, 2011 having a grant value of $12.66 per RSG.
7.
17,005 RSGs were granted on September 27, 2011 having a grant value of $10.82 per RSG.
8.
10,746 RSGs were granted on October 14, 2011 having a grant value of $10.93 per RSG.
9.
1,500 RSGs were granted on November 8, 2011 having a grant value of $10.80 per RSG.
10.
11,913 RSGs were granted on November 9, 2011 having a grant value of $10.87 per RSG.
11.
11,260 RSGs were granted on December 15, 2011 having a grant value of $9.92 per RSG.
12.
7,162 RSGs were granted on January 16, 2012 having a grant value of $11.60 per RSG.
13.
8,660 RSGs were granted on February 6, 2012 having a grant value of $12.29 per RSG.
14.
19,484 RSGs were granted on February 14, 2012 having a grant value of $14.00 per RSG.
15.
5,437 RSGs were granted on March 20, 2012 having a grant value of $13.43 per RSG.
16.
6,769 RSGs were granted on March 23, 2012 having a grant value of $13.31 per RSG.
17.
7,457 RSGs were granted on March 31, 2012 having a grant value of $14.00 per RSG.
18.
26,853 RSGs were granted on March 31, 2012 having a grant value of $13.56 per RSG.
19.
8,984 RSGs were granted on April 19, 2012 having a grant value of $13.93 per RSG.
20.
626,349 RSGs were granted on May 17, 0212 having a grant value of $13.41 per RSG.

In addition, 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 20 day simple average closing price of the Common Shares, as applicable on the TSX preceding the quarter end.
 

 
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The following table describes the number of DSGs or Common Shares granted, the date granted, and the 20 day simple average closing price of Units or 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, 2011
5,159
$14.07
September 30, 2011
7,336
$11.26
December 31, 2011
6,798
$10.97
March 31, 2012
5,462
$13.56

 
ESCROWED SECURITIES
 
As of the date hereof, there are no shares of the Company held in escrow or subject to a contractual restriction on transfer.  Pursuant to the Fulcrum Acquisition, provided that certain targets are met as of March 31, 2013, Just Energy has agreed to issue up to 842,058 Common Shares to the seller.


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 May 31, 2012 as follows:
 
Name, Municipality of Residence
 
Year of
Appointment(5)
 
Present Principal Occupation
During Five Preceding Years(7)
         
Rebecca MacDonald
Toronto, Ontario
 
 
2001
 
Executive Chair of the Company
 
 
Hon. Hugh D. Segal (1)(2)(3)(4)(5)(6)
Kingston, Ontario
 
 
2001
 
Member of the Senate of Canada; and Senior Fellow, School of Policy Studies, Queen’s University
 
Hon. Michael Kirby (1)(4)
Ottawa, Ontario
 
 
2001
 
Corporate Director and Chairman of Partners for Mental Health (national charity)
John A. Brussa (2)(4)
Calgary, Alberta
 
 
2001
 
Partner, Burnet, Duckworth & Palmer LLP (law firm)
Brian R.D. Smith Q.C.(1)(2)(4)
Victoria, British Columbia
 
 
2001
 
Federal Chief Treaty Negotiator and Energy Consultant
Hon. Gordon D. Giffin (2)(4)
Atlanta, Georgia
 
 
2006
 
Senior Partner, McKenna, Long & Aldridge LLP (law firm)
Hon. R. Roy McMurtry (2)(3)
Toronto, Ontario
 
 
2007
 
Counsel, Gowling Lafleur Henderson LLP (law firm)
 
 
Ken Hartwick, C.A.
Milton, Ontario
 
 
2008
 
President and Chief Executive Officer of the Company
 
 
William F. Weld (1)(3)
New York, New York
 
 
2012
 
 
Of Counsel, McDermott Will & Emery LLP (law firm)
(1)
Member of the Audit Committee. Mr. Kirby 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. Smith is the Chair of the Committee.  Messrs Brussa and Giffin are non-voting members.
(3)
Member of the Nominating and Corporate Governance Committee.  Mr. Segal is the Chair of the Committee.
(4)
Member of the Risk Committee.  Mr. Kirby is the Chair and Mr. Giffin is the Vice-Chair of the Committee.

 
20

 


(5)
Other than Mr. Weld, each of the persons who are directors of the Company, became a director of the Company on December 31, 2010, immediately prior to the Trust Conversion.  Prior to the Trust Conversion, each director (other than Mr. Weld) was a director of Just Energy Corp., the administrator of the Fund.
(6)
Appointed lead director by the Board on January 17, 2005 and Vice Chair of the Board on May 20, 2010.
(7)
Each of the Directors of the Company has held the principal occupation indicated opposite his or her name during the preceding past five years except:

 
(a)
Mr. Kirby was the Chair of The Mental Health Commission of Canada until April 2012;
 
(b)
Mr. McMurtry was the Chief Justice of the Province of Ontario until May 2007; and
 
(c)
Mr. Hartwick was also the Chief Financial Officer of the Company between July 2007 and December 2007.

Executive Officers of the Company
 
The names, municipality of residence and present principal occupations of the executive officers of the Company as at May 31, 2012 are as follows:
 
Name, Municipality of Residence
 
Principal Occupation
During Five Preceding Years(1)
     
Rebecca MacDonald
Toronto, Ontario
 
 
Executive Chair
Ken Hartwick, C.A.
Milton, Ontario
 
 
President and Chief Executive Officer
Beth Summers, C.A.
Oakville, Ontario
 
 
Chief Financial Officer
 
James W. Lewis
Pearland, Texas
 
Executive Vice President and Chief Operating Officer
 
 
Deborah Merril
Houston, Texas
 
 
Executive Vice President, Commercial; and President of Hudson
 
Darren Pritchett
Kilbride, Ontario
 
 
Executive Vice President, Consumer Sales
 
Gord Potter
Richmond Hill, Ontario
 
 
Executive Vice President, Regulatory and Legal Affairs
 
Mark Silver
Toronto, Ontario
 
 
President of National Home Services
R. Andrew McWilliams
Dallas, Texas
 
 
President and Chief Executive Officer of Momentis
Abe Grohman
Miami Beach, Florida
 
 
Executive Director of Hudson Solar
Stephanie Bird
Toronto, Ontario
 
 
Senior Vice President and Corporate Risk Officer
Jonah Davids
Toronto, Ontario
 
Vice President and General Counsel
 
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)
Beth Summers was the Chief Financial Officer and Executive Vice President of Hydro One Inc. (electric utility) from March 2004 to January 2009;
 
(b)
Darren Pritchett was a self-employed National Distributor of Just Energy until April 30, 2008;
 
(c)
Mark Silver was the Chief Executive Officer of Universal Energy Group Ltd. (energy retailer) until July 1, 2009 when it was acquired by the Company;
 
(d)
Mr. McWilliams was an independent representative of Momentis from April 2010 to June 1, 2011, prior to which he was self-employed working in the multi-level marketing industry;

 
21

 


 
(e)
Abe Grohman was the President of Hudson until May 7, 2010 when it was acquired by the Company; and
 
(f)
Jonah Davids was an associate with McMillan LLP (law firm) until November 2007.

Ownership, Control and Direction of Securities by Directors and Executive Officers
 
As of May 25, 2012, 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 6,875,853 Common Shares, representing approximately 4.93% 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.
 
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.
 
The Hon. Gordon D. Giffin, a director of the Company, was a director of Abitibi Bowater Inc. from October 29, 2007 until his resignation on January 22, 2010.  In April 2009, AbitibiBowater Inc. and certain of its U.S. and Canadian subsidiaries filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware for relief under the provisions of Chapter 11 and Chapter 15 of the United States Bankruptcy Code, as amended, and sought creditor protection under the Companies' Creditors Arrangement Act (Canada) with the Superior Court of Quebec in Canada.
 
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.
 

 
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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.
 
The State of California has filed a number of complaints to the Federal Energy Regulatory Commission (“FERC”) against many suppliers of electricity, including Commerce with respect to events stemming from the 2001 energy crisis in California.  Pursuant to the complaints, the State of California is challenging the FERC’s enforcement of its market-based rate system. Although Commerce did not own generation facilities, the State of California is claiming that Commerce was unjustly enriched by the run-up in charges caused by the alleged market manipulation of other market participants.  On March 18, 2010, the Administrative Law Judge in the matter granted a motion to strike the claim for all parties in one of the complaints, holding that California did not prove that the reporting errors masked the accumulation of market power.  California appealed the decision.  In May, 2011, FERC affirmed the Administrative Law Judge’s finding.  The agency also found that while sellers had quarterly reporting errors, without a showing that the sellers accumulated market power, the California Parties cannot demonstrate that a nexus existed between the sellers’ improper or untimely quarterly transaction reports and their individual accumulation of market power.  The California Parties must seek rehearing from FERC and then may file an appeal with the U.S. Court of Appeals for the Ninth Circuit.  Commerce continues to vigorously contest this matter and it is not expected to have a material impact on the financial condition of the Company.
 
Just Energy will resolve or vigorously contest the claims in these matters and in any other non-material litigation matters.
 
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
 
There were no material interests, direct or indirect, of directors or executive officers of JEC 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 June 28, 2012.
 
Computershare Investor Services Inc. at its principal transfer offices in Toronto, Ontario acts as the transfer agent and registrar for the Common Shares, the $330 Million Convertible Debentures, the $90 Million Convertible Debentures and the $100 Million Convertible Debentures.
 
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.
 

 
23

 


 
MATERIAL CONTRACTS
 
Except for contracts entered into by the Just Energy 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, the $330 Million Debenture Indenture (as amended and supplemented from time to time), the $90 Million Debenture Indenture (as amended and supplemented from time to time), the Hudson Acquistion Agreement, the Fulcrum Acquisition Agreement and the $100 Million Debenture Indenture (as amended and supplemented from time to time), 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".
 
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.
 

 
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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's charter as approved on February 9, 2012 is attached hereto as Schedule "B".

Composition of the Audit Committee and Relevant Education and Experience.
 
At May 31, 2012, the Company’s Audit Committee consisted of Michael J.L. Kirby (Chair), Hugh D. Segal, Brian R.D. Smith 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. Kirby, Chair of the Committee, has a PhD in applied mathematics and has been Chair of the Audit Committee for over eight years.  He has been a member of the faculty of several business schools, including the University of Chicago.  For several years in the 1990's he was Chair of the Standing Senate Committee on Banking, Trade and Commerce, the Senate Committee which is responsible for all legislation and regulations affecting business.  Until recently, Mr. Kirby was Vice-Chair of the Accounting Standards Oversight Board.  Currently, he serves as a director of four publicly listed companies (including the Company) and is chair of the Audit Committee of two of them, being the Company and Indigo Books & Music Inc.
 
Mr. Smith became a director of JEC on August 21, 2001 and a member of the Audit Committee on August 13, 2003.  Mr. Smith has had significant business experience including serving as Chair of BC Hydro from February 1996 to June 2001 and Chair of Canadian National Railways from 1989 to 1994 where, in both positions he was inextricably involved in strategic financial planning and reporting.  In his role as Minister of Education, Minister of Energy and Mines and Attorney General in the government of the Province of British Columbia between 1979 and 1994, Mr. Smith developed an acute understanding of public and private finance matters. Mr. Smith serves on the board of two Canadian publicly listed companies and has previously served as a member of the audit committee of a Canadian publicly listed company.
 
Mr. Segal was President of the Institute for Research on Public Policy until May 31, 2006 and has been a member of the Company’s Audit Committee since 2003.  Mr. Segal serves as a director of one TSX listed companies, Sun Life Financial Inc. He has served as a member of the audit committee of two publicly listed companies.  He is a senior fellow at the Queen's School of Policy Studies and an Adjunct Professor at the Queen's School of Business.  Mr. Segal developed the ability to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves as President, between 1982 and 1991, of a company with $100 million in sales.  Beyond his undergraduate degree and business experience, Mr. Segal studied trade economics at the graduate level and between 1982 and 1991, advised clients on takeovers and merger activity.  Between 1996 and 1998 he also served on the staff of a major Bay Street investment firm.
 
William F. Weld joined the board of the Company on April 2, 2012 and became a member of the Audit Committee at such time.  In addition to his bachelor’s degree from Havard College and law degree from Havard Law School, Mr. Weld holds a diploma (with distinction) in economics and political science from Oxford University.  Mr. Weld is currently Of Counsel with the law firm of McDermott Will & Emery LLP.  His practice focuses in the areas of government strategies, corporate and legislative investigations, litigation, and legal crisis management.  Mr. Weld joined McDermott in 1997 after serving as governor of Massachusetts, where he was 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 countries in Asia, Europe, Latin America, and Africa.  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. In all of these roles, Mr. Weld has had to develop and maintain an understanding and appreciation of finance and accounting principles.
 
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
 

 
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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 2012, 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 $949,000 (2011 — $827,000).   
 
Tax Fees
 
Tax fees for professional services rendered by Ernst &Young LLP for tax compliance, tax advice, tax planning and other services were $325,000 (2011 — $161,500).
 
Total Fees
 
The aggregate fees billed by Ernst &Young LLP were $1,531,500 (2011 —$1,091,831).  No other services were provided to Just Energy and its subsidiaries by Ernst &Young LLP.
 

 

 
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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, ie., 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

 
27

 

 
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.

 
(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;
 

 
28

 


 
(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;
 
(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 auditors 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
 

 
29

 

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;
 
(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.



 
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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)
 

 
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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.
 
"$90 Million Convertible Debentures" means the $90 million aggregate principal amount of 6.0% convertible unsecured subordinated debentures of the Company issued on October 2, 2007 pursuant to the $90 Million Debenture Indenture.
 
"90 Million Debenture Indenture" means the trust indenture dated as of October 2, 2007 between Universal and Computershare, as amended and supplemented pursuant to a First Supplemental Trust Indenture dated as of July 1, 2009 between JEEC (as successor to Universal) and Computershare and pursuant to a Second Supplemental Trust Indenture dated as of January 1, 2011 between the Company (as successor to JEEC) and Computershare.
 
"$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.
 
"100 Million Supplemental Indenture" means the supplemental indenture dated as of September 22, 2011 between the Company and Computershare, supplementing the $330 Million Debenture Indenture.
 
"$330 Million Convertible Debentures" means the $330 million aggregate principal amount of 6.0% extendible unsecured subordinated debentures of the Company issued on May 5, 2010 pursuant to the $330 Million Debenture Indenture.
 
"$330 Million Debenture Indenture" means the trust indenture dated as of May 5, 2010 between the Fund and Computershare, as amended and supplemented pursuant to a First Supplemental Trust Indenture dated as of January 1, 2011 between the Company (as successor to the Fund) and Computershare.
 
"Alberta Energy Savings" means the limited partnership formed under the laws of the Province of Alberta with the name Alberta Energy Savings L.P.
 
"Belle Plaine Facility" means TGF's ethanol facility and related infrastructures and facilities located in Belle Plaine, Saskatchewan.
 
"Board" and "Board of Directors" means the board of directors of the Company.
 
"BP" means collectively BP Energy Company, BP Canada Energy Marketing Corp., and BP Corporation North America 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.
 
"CDS" means The Canadian Depository for Securities Limited.
 
Commerce” means Commerce Energy, Inc. a corporation incorporated under the laws of California.
 
"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.
 

 
32

 


 
Computershare” means Computershare Trust Company of Canada.
 
"Constellation" means collectively Constellation Energy Group Inc. and Constellation Energy Commodities Group, Inc. or any other related affiliate with which Just Energy contracts.
 
"Credit Facility" shall have the meaning attributed thereto under the heading "Just Energy Credit Facility" on page 13 herein.
 
"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 Contracts" means contracts entered into from time to time by Just Energy with customers for the supply of electricity and potentially JustGreen products.
 
"Electricity Supplier" means a person who is an electricity producer or an electricity supply aggregator.
 
"Energy Contracts" means customer Gas Contracts and Electricity Contracts.
 
"Exchangeable Shares" means exchangeable shares, series 1 in the capital of JEEC.
 
"Financial Statements" means the audited comparative consolidated financial statements of the Company as at and for the years ended March 31, 2012 and 2011, together with the notes thereto and the auditor's report thereon.
 
“Fulcrum” means Fulcrum Retail Holdings LLC, a limited liability company formed under the laws of Texas.
 
“Fulcrum Acquisition” means the indirect acquisition by the Company of Fulcrum on October 3, 2012.
 
“Fulcrum Acquisition Agreement” means the Purchase and Sale Agreement dated as of August 24, 2011 among JEUSC, the Company, Fulcrum and Fulcrum Power Services L.P., as amended, restated and/or supplemented from time to time, pursuant to which JEUSC acquired Fulcrum.
 
"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 Contracts" mean customers Gas contracts entered into from time to time by Just Energy with customers for the supply of natural gas and potentially JustGreen products.
 
"Gas Supplier" means a person who is a natural gas producer or natural gas supply aggregator.
 
Hudson” means Hudson Energy Services LLC, a limited liability company formed under the laws of New Jersey.
 
"Hudson Acquisition Agreement" means the equity interest purchase agreement dated April 19, 2010 among JEUSC, Hudson Energy Corp., Hudson Parent Holdings, LLC, the stockholders and members of Hudson Energy and Lake Capital Partners LP, pursuant to which JEUSC acquired Hudson Energy.
 
"Hudson Energy Acquisition" means the indirect acquisition by the Fund of Hudson Energy on May 7, 2010.
 
Hudson Solar” means Hudson Energy Solar Corp., a corporation incorporated pursuant to the laws of Delaware.
 
"HVAC" means heating, ventilation and air conditioning.
 

 
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"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, small to mid-size commercial and small industrial customers.
 
"Independent Representative" means a person who serves in the capacity of an independent representative under Momentis to solicit Energy Contracts (including JustGreen products) and non-energy contracts, to residential and small to mid-size commercial customers.
 
"Information Circular" means the management information circular of the Company dated May 21, 2012 in respect of the annual meeting of shareholders of the Company to be held on June 28, 2012.
 
"Intercreditor Agreement" means the fourth amended and restated intercreditor agreement made as of January 1, 2011 between the Company, certain of the Company’s Subsidiaries, CIBC, as Collateral Agent, Shell, BP, Constellation, Société Générale and Bruce Power, EDF Trading North America, LLC National Bank of Canada and The Bank of Nova Scotia, as amended and supplemented from time to time.
 
"JEC" means Just Energy Corp., a corporation incorporated under the OBCA and the former administrator of the Fund.
 
"JEEC" means Just Energy Exchange Corp., a corporation created by amalgamation under the CBCA on July 1, 2009 that amalgamated with, among others, the Company pursuant to the Trust Conversion, on January 1, 2011.
 
"JEOLP" means the limited partnership formed under the laws of the Province of Ontario with the name Just Energy Ontario L.P.
 
JEUSC” means Just Energy (U.S.) Corp., a corporation incorporated under the laws of Delaware.
 
"Just Energy" means all or any one or more of the Company and the Subsidiaries thereof as the context implies or may require.
 
"Just Energy Alberta" means the limited partnership formed under the laws of the Province of Alberta with the name Just Energy Alberta L.P.
 
"kWh" means a kilowatt hour, the standard commercial unit of electric energy, with one kilowatt hour being the amount of energy consumed by ten 100 watt light bulbs burning for one hour.
 
"LDC" means local distribution company, the natural gas or electricity distributor for a geographic franchise area.
 
"MD&A" means management's discussion and analysis of the financial condition and operations of the Company for the year ended March 31, 2012.
 
"Momentis" means, collectively, Momentis Canada Corp., a corporation incorporated under the CBCA, and Momentis U.S. Corp., a corporation incorporated under the laws of Delaware.
 
"NHS" means National Energy Corporation, a corporation incorporated under the OBCA, doing business as National Home Services.
 
“NYSE” means the New York Stock Exchange.
 
"OBCA" means the Business Corporations Act (Ontario), as amended from time to time, including the regulations promulgated thereunder.
 

 
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"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.
 
"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.
 
"TGF " means Terra Grain Fuels Inc., a corporation amalgamated under the CBCA.
 
"Trust Conversion" shall have the meaning attributed thereto under the heading "Three Year History – Trust Conversion" on page 5 herein.
 
"TSX" means the Toronto Stock Exchange.
 
"Units" means the units of the Fund, each unit representing an equal undivided beneficial interest therein.
 
"Universal " means Universal Energy Group Ltd., a corporation incorporated under the CBCA and amalgamated with JEEC on July 1, 2009.
 
"Universal Acquisition" means the indirect acquisition by the Fund of all of the outstanding common shares of Universal on July 1, 2009.
 
"Universal Acquisition Agreement" means the amended and restated arrangement agreement dated effective as of April 22, 2009 among the Fund, JEC, UEGL Acquisition Corp. and Universal, pursuant to which the Fund indirectly acquired all of the outstanding common shares of Universal.
 
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.
 
 
 
 
 35

exh1_2.htm
Exhibit 1.2
 
Management’s discussion and analysis
(“MD&A”) – May 17, 2012
 
Overview
 
The following discussion and analysis is a review of the financial condition and results of operations of Just Energy Group Inc. (“JE” or “Just Energy” or the “Company”) (formerly Just Energy Income Fund (the “Fund”)) for the year ended March 31, 2012, and has been prepared with all information available up to and including May 17, 2012. This analysis should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2012. 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”). Just Energy’s date of transition to IFRS was April 1, 2010. All dollar amounts are expressed in Canadian dollars. 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 EDGAR at www.sec.gov.
 
Just Energy is a corporation established under the laws of Canada and holds securities and distributes the income of its directly or indirectly owned operating subsidiaries and affiliates. Effective January 1, 2011, Just Energy completed the conversion from the Fund to Just Energy (the “Conversion”). As part of the Conversion, Just Energy Exchange Corp. (“JEEC”) was amalgamated with JE and, like the unitholders of the Fund, the holders of JEEC’s Exchangeable Shares received common shares of JE on a one for one basis. JE also assumed all of the obligations under the $90m convertible debentures and $330m convertible debentures.
 
On October 3, 2011, Just Energy completed the acquisition of Fulcrum Retail Holdings LLC (“Fulcrum”) with an effective date of October 1, 2011. Fulcrum is a retail electricity provider operating in Texas and focuses on residential and small to mid-size commercial customers. Fulcrum markets primarily online and through targeted affinity marketing channels. Just Energy used the proceeds from the issuance of $100 million of convertible unsecured subordinated debentures issued on September 22, 2012, which bear interest at a rate of 5.75% per annum, to fund the Fulcrum acquisition and for other general corporate purposes.
 
Just Energy’s business primarily involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price, price-protected or variable-priced contracts. Just Energy markets its gas and electricity contracts in Canada and the U.S. under the following trade names: Just Energy, Hudson Energy, Commerce Energy, Amigo Energy and Tara Energy. By fixing the price of natural gas or electricity under its fixed-price or price-protected program 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 rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy 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 related price at which it purchases the associated volumes from its suppliers.
 
Just Energy also offers green products through its JustGreen and JustClean programs. The electricity JustGreen product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits that allow customers to reduce or eliminate the carbon footprint of their homes or businesses. JustClean products allow customers in certain jurisdictions to offset their carbon footprint without purchasing commodity from Just Energy. JustClean can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the JustGreen and JustClean products will not only add to profits but will also increase sales receptivity and improve renewal rates.
 
In addition, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents, through a subsidiary under the trade name National Home Services (“NHS”). Just Energy also operates a network marketing division under the trade name Momentis. Through its subsidiary, Terra Grain Fuels, Inc. (“TGF”), Just Energy produces and sells wheat-based ethanol. Just Energy’s subsidiary, Hudson Energy Solar Corp (“HES”), also provides a solar project development platform operating in New Jersey, Pennsylvania and Massachusetts, under the trade name Hudson Energy Solar. Just Energy also holds a 50% ownership in Just Ventures LLC and Just Ventures L.P. (collectively “Just Ventures”), a jointly controlled entity, which is involved in the marketing of Just Energy’s gas and electricity contracts.
 
Forward-looking information
 
This management’s discussion and analysis (“MD&A”) contains certain forward-looking information pertaining to customer additions and renewals, customer consumption levels, EBITDA, Base EBITDA, Adjusted EBITDA and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes, decisions by regulatory authorities and competition, and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations, financial results or distribution levels are included in the May 31, 2012 Annual Information Form and other reports on file with Canadian security regulatory authorities, which can be accessed on our corporate website at www.justenergygroup.com or through the SEDAR website at www.sedar.com or EDGAR at www.sec.gov.
 

Just Energy Annual Report 2012
 
1

 
 
 

 

Key terms
 
“$90m convertible debentures” represents the $90 million in convertible debentures issued by Universal Energy Group Ltd. (“Universal”) in October 2007. Just Energy Exchange Corp. assumed the obligations of the debentures as part of the Universal acquisition on July 1, 2009 and Just Energy assumed the obligations of the debentures as part of the Conversion. See “Long-term debt and financing” on page 24 for further details.
 
“$100m convertible debentures” represents the $100 million of convertible debentures issued by the Company to finance the purchase of Fulcrum, effective October 1, 2011. See “Long-term debt and financing” on page 23 for further details.
 
“$330m convertible debentures” represents the $330 million in convertible debentures issued by the Fund to finance the purchase of Hudson, effective May 1, 2010. Just Energy assumed the obligations of the debentures as part of the Conversion. See “Long-term debt and financing” on page 23 for further details.
 
“customer” does not refer to an individual customer but instead an RCE.
 
“Failed to renew” means customers who did not renew expiring contracts at the end of their term.
 
“Gross margin per RCE” represents the gross margin realized on Just Energy’s customer base, including both low margin customers acquired through various acquisitions and gains/losses from the sale of excess commodity supply.
 
“Large commercial customer” means customers representing more than 15 RCEs.
 
“LDC” means a local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area.
 
“RCE” means residential customer equivalent which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards electricity, 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.
 
NON-GAAP FINANCIAL MEASURES
 
Just Energy’s consolidated financial statements are prepared in compliance with IFRS. All non-GAAP financial measures do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.
 
Just Energy converted from an income trust to a corporation on January 1, 2011. Under the corporate structure, management believes that Adjusted EBITDA is the best basis for analyzing the financial results of Just Energy.
 
EBITDA
 
“EBITDA” represents earnings before finance costs, taxes, depreciation and amortization. This is a non-GAAP measure that reflects the pre-tax profitability of the business.
 
BASE EBITDA
 
“Base EBITDA” represents EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments on future supply positions. This measure reflects operating profitability as mark to market gains (losses) are associated with supply already sold at future fixed prices.
 
Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under IFRS, the customer margins are not marked to market but there is a requirement to mark to market the future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing. Management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance of Just Energy and have therefore excluded it from the Base EBITDA calculation.
 

Just Energy Annual Report 2012
 
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ADJUSTED EBITDA
 
“Adjusted EBITDA” represents Base EBITDA adjusted to deduct selling and marketing costs sufficient to maintain existing levels of gross margin and maintenance capital expenditures necessary to sustain existing operations. This adjustment results in the exclusion of the marketing that Just Energy carried out and the capital expenditures that it had made to add to its future productive capacity. Management believes this is a useful measure of operating performance for investors.
 
FUNDS FROM OPERATIONS
 
“Funds from operations” refers to the net cash available for distribution to shareholders. Base funds from operations is calculated by Just Energy as gross margin adjusted for cash items including administrative expenses, selling and marketing expenses, bad debt expenses, finance costs, corporate taxes, capital taxes and other items. The gross margin used includes a seasonal adjustment for the gas markets in Ontario, Quebec, Manitoba and Michigan in order to include cash received.
 
ADJUSTED FUNDS FROM OPERATIONS
 
“Adjusted funds from operations” refers to the funds from operations adjusted to deduct the selling and marketing costs sufficient to maintain existing levels of gross margin and maintenance capital expenditures necessary to sustain existing operations. This adjustment results in the exclusion of the marketing carried out and the capital expenditures made by Just Energy to add to its future productive capacity.
 
EMBEDDED GROSS MARGIN
 
“Embedded gross margin” is a rolling five-year measure of management’s estimate of future contracted energy gross margin as well as the margin associated with the average remaining life of National Home Services’ customer contracts. The energy marketing embedded margin is the difference between existing customer contract prices and the cost of supply for the remainder of term, with appropriate assumptions for customer attrition and renewals. It is assumed that expiring contracts will be renewed at target margin and renewal rates.
 
Financial highlights
 
For the years ended March 31
 
(thousands of dollars, except where indicated and per share/unit amounts)
 
   
Fiscal 2012
   
Fiscal 2011
   
Fiscal 2010
 
      $    
Per share
   
Per share change
      $    
Per share
   
Per share/unit change
      $    
Per unit
 
Sales
    2,785,269     $ 19.70       (8 )%     2,953,192     $ 21.38       20 %     2,299,231     $ 17.77  
Gross margin
    517,489       3.66       5 %     481,562       3.49       9 %     415,333       3.21  
Administrative expenses
    122,397       0.87       9 %     109,400       0.79       16 %     88,423       0.68  
Finance costs
    60,935       0.43       14 %     52,085 3     0.38       202 %     16,134       0.12  
Net income (loss)1
    (126,643 )     (0.90 )     (135 )%     352,940       2.56       43 %     231,496       1.79  
Dividends/distributions (including Special Distributions)4
    175,382       1.24       0 %     170,004       1.24       (14 )%     185,205       1.43  
Base EBITDA2
    208,982       1.48       (12 )%     231,344       1.68       (1 )%     220,000       1.70  
Adjusted EBITDA2
    283,125       2.00       7 %     258,954       1.88       3 %     236,304       1.83  
Payout ratio on Base EBITDA
    84 %                     73 %                     84 %        
Payout ratio on Adjusted EBITDA
    62 %                     66 %                     78 %        
 
1
Net income (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 discussion of “Non-GAAP financial measures” on page 2.
 
3
Excludes distributions paid to holders of Exchangeable Shares prior to Conversion included as finance costs under IFRS.
 
4
No Special Distribution was paid in fiscal 2012 or 2011. Fiscal 2010 included a one-time Special Distribution of $26.7 million.
 
INTERNATIONAL FINANCIAL REPORTING STANDARDS
 
Just Energy has adopted IFRS as the basis for reporting its financial results commencing with the interim consolidated financial statements of fiscal 2012 and using April 1, 2010, as the transition date. The comparative figures for fiscal 2011 have been restated in accordance with the Company’s IFRS accounting policies.
 

Just Energy Annual Report 2012
 
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Acquisition of Fulcrum Retail Holdings LLC
 
On October 3, 2011, Just Energy completed the acquisition of Fulcrum with an effective date of October 1, 2011. The acquisition was funded by an issuance of $100 million in convertible debentures.
 
The consideration for the acquisition was US$79.4 million paid at the time of closing and subject to customary working capital adjustments. Just Energy will also pay up to US$11.0 million in cash and issue up to 867,025 common shares (collectively the “Earn-Out” amount) to the seller 18 months following the closing date, provided that certain EBITDA and billed volume targets are satisfied by Fulcrum during the Earn-Out period.
 
In addition, the Company will pay, as part of the contingent consideration, an additional 4.006% on the cash portion of the contingent consideration and $1.86 for each of the common shares that are issued at the end of the Earn-Out period.
 
The acquisition of Fulcrum was accounted for using the acquisition method of accounting. Just Energy allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition as follows:
 
Fair value recognized on acquisition
     
Current assets (including cash of $3,875)
  $ 43,528  
Property, plant and equipment
    758  
Software
    215  
Customer contracts and relationships
    39,533  
Affinity relationships
    42,359  
Brand
    13,034  
Contract initiation costs
    156  
Non-controlling interest
    540  
 
    140,123  
Current liabilities
    (44,856 )
Other liabilities – current
    (12,430 )
Other liabilities – long term
    (3,768 )
Deferred lease inducements
    (322 )
Long-term debt
    (586 )
      (61,962 )
Total identifiable net assets acquired
    78,161  
Goodwill arising on acquisition
    21,106  
Total consideration
  $ 99,267  
Cash paid, net of estimated working capital adjustment
  $ 80,940  
Contingent consideration
    18,327  
Total consideration
  $ 99,267  
 
The electricity customer contracts and affinity relationships are amortized over the average remaining life at the time of acquisition. The electricity contracts and customer relationships are amortized over 3.5 years. The affinity relationships are amortized over eight years.
 

Just Energy Annual Report 2012
 
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Acquisition of Hudson Energy Services, LLC
 
In May 2010, Just Energy completed the acquisition of all of the equity interests of Hudson Parent Holdings, LLC, and all of the common shares of Hudson Energy Services, LLC (“Hudson”), with an effective date of May 1, 2010. The acquisition was funded by an issuance of $330 million in convertible debentures.
 
The acquisition of Hudson was accounted for using the acquisition method of accounting. The Company allocated the purchase price to the identified assets and liabilities acquired based on their fair values at the time of acquisition, as follows:
 
Fair value recognized on acquisition
     
Current assets (including cash of $24,003)
  $ 88,696  
Property, plant and equipment
    1,648  
Software
    911  
Electricity contracts and customer relationships
    200,653  
Gas contracts and customer relationships
    26,225  
Broker network
    84,400  
Brand
    11,200  
Information technology system development
    17,954  
Contract initiation costs
    20,288  
Other intangible assets
    6,545  
Unbilled revenue
    15,092  
Notes receivable – long term
    1,312  
Security deposits – long term
    3,544  
Other assets – current
    124  
Other assets – long term
    100  
      478,692  
Current liabilities
    (107,817 )
Other liabilities – current
    (74,683 )
Other liabilities – long term
    (40,719 )
 
    (223,219 )
Total identifiable net assets acquired
    255,473  
Goodwill arising on acquisition
    32,317  
Total consideration
  $ 287,790  
Cash outflow on acquisition:
       
Cash paid
  $ 287,790  
Net cash acquired with the subsidiary
    (24,003 )
Holdback
    (9,345 )
Net cash outflow
  $ 254,442  
 
All contracts and intangible assets, excluding brand, are amortized over the average remaining life at the time of acquisition. The gas and electricity contracts and customer relationships are amortized over 30 months and 35 months, respectively. Other intangible assets, excluding brand, are amortized over periods of three to five years. The brand value is considered to be indefinite and, therefore, not subject to amortization. The purchase price allocation is considered final and, as a result, no further adjustments will be made.
 

Just Energy Annual Report 2012
 
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Operations
 
NATURAL GAS
 
Just Energy offers natural gas customers a variety of products ranging from month-to-month variable-price offerings to five-year fixed-price contracts. For fixed-price contracts, Just Energy purchases gas supply through physical or financial transactions with market counterparts in advance of marketing, based on forecast customer aggregation for residential and small commercial customers. For larger commercial customers, gas supply is generally purchased concurrently with the execution of a contract.
 
The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Furthermore, 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 mitigate weather effects is limited by the severity of weather from normal. 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 gas consumption, Just Energy must purchase the short supply in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Consequently, customer margin increases proportionately to the increase in consumption. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy’s customer gross margin may be reduced or increased depending upon market conditions at the time of balancing. Under some commercial contract terms, this balancing may be passed onto the customer.
 
Just Energy entered into weather index derivatives for the third and fourth quarters of fiscal 2012 with the intention of reducing gross margin fluctuations from extreme weather. The maximum payout associated with the weather derivatives for fiscal 2012 was $15 million, with the total cost of these options being $2 million.
 
Ontario, Quebec, British Columbia and Michigan
In Ontario, Quebec, British Columbia and Michigan, the volumes delivered for a customer typically remain constant throughout the year. Just Energy does not recognize sales until the customer actually consumes the gas. During the winter months, gas is consumed at a rate that is greater than delivery and, in the summer months, deliveries to LDCs exceed customer consumption. Just Energy receives cash from the LDCs as the gas is delivered, which is even throughout the year.
 
Manitoba, Alberta and Saskatchewan
In Manitoba, Alberta and Saskatchewan, the volume of gas delivered is based on the estimated consumption for each month. Therefore, the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash received from customers and LDCs will be higher in the winter months.
 
New York, Illinois, Indiana, Ohio, California, Georgia, New Jersey and Pennsylvania
In New York, Illinois, Indiana, Ohio, California, Georgia, New Jersey 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 winter months is higher than in the spring and summer months. Consequently, cash flow received from these states 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
 
In Ontario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California and Massachusetts, Just Energy offers a variety of solutions to its electricity customers, including fixed-price and variable-price 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 requirements. The customers may experience either a small balancing charge or credit (pass-through) on each bill due to fluctuations in prices applicable to their volume requirements not covered by a fixed price. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.
 
Just Energy purchases power supply through physical or financial transactions with market counterparties in advance of marketing for residential and small commercial customers based on forecast customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger commercial customers. The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase to expected normal customer load. Furthermore, Just Energy mitigates exposure to weather variations through active management of the power portfolio. The expected cost of this strategy is incorporated into the price to the customer. Our ability to mitigate weather effects is limited by the severity of weather from normal. In certain markets, to the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss in relation to the original cost of supply. Further, customer margin is lowered proportionately to the decrease in consumption. In the case of greater than expected power consumption, Just Energy must purchase the short supply in the spot market resulting in either a gain or loss in relation to the fixed cost of supply. Customer margin generally increases proportionately to the increase in consumption. To the extent that supply balancing is not fully covered through customer pass-throughs or 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 Annual Report 2012
 
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JUSTGREEN
 
Customers have the ability to choose an appropriate JustGreen program to supplement their electricity and natural gas contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.
 
JustGreen programs for electricity customers involve the purchase of power from green generators (such as wind, solar, run of the river hydro or biomass) via power purchase agreements and renewable energy certificates. JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects.
 
JUSTCLEAN
 
In addition to its traditional commodity marketing business, Just Energy allows customers to effectively manage their carbon footprint without buying energy commodity products by signing a JustClean contract. The JustClean products are essentially carbon offsets from carbon capture and reduction projects as well as green power renewable energy certificates from green generators. This product can be offered in all states and provinces and is not dependent on energy deregulation.
 
BLEND AND EXTEND PROGRAM
 
As part of Just Energy’s retention efforts, electricity and natural gas customers may be contacted for early renewal of their contracts under a Blend and Extend offer. These customers are offered a lower rate, compared to their current contracted rate, but the term of their contract is extended up to five more years. Consequently, Just Energy may experience a reduction in margins in the short term but will gain additional future margins.
 
CONSUMER (RESIDENTIAL) ENERGY DIVISION
 
The sale of gas and electricity to customers of 15 RCEs and less is undertaken by the Consumer Energy division. The marketing of energy products of this division is primarily done door-to-door through 1,000 independent contractors, the Momentis network marketing operation and Internet-based and telephone marketing efforts. Approximately 51% of Just Energy’s customer base resides within the Consumer Energy division, which is currently focused on longer-term price-protected and variable rate offerings of commodity products, JustGreen and JustClean. To the extent that certain markets are better served by shorter-term or enhanced variable rate products, the Consumer Energy independent contractors also offer these products.
 
COMMERCIAL ENERGY DIVISION
 
Customers with annual consumption over 15 RCEs are served by the Commercial Energy division. These sales are made through three main channels: door-to-door commercial independent contractors; inside commercial sales representatives; and sales through the broker channel using the commercial platform acquired with the Hudson purchase. Commercial customers make up about 49% of Just Energy’s customer base. Products offered to commercial customers can range from standard fixed-price offerings to “one off” offerings, which are tailored to meet the customer’s specific needs. These products can be either fixed or floating rate or a blend of the two, and normally have terms of less than five years. Margin per RCE for this division is lower than consumer margins but customer aggregation costs and ongoing customer care costs are lower as well on a per RCE basis. Commercial customers tend to have combined attrition and failed-to-renew rates that are lower than those of consumer customers.
 
HOME SERVICES DIVISION
 
NHS began operations in April 2008 and provides Ontario residential customers with a long-term water heater, furnace and air conditioning rental, offering high efficiency conventional and power vented tanks and tankless water heaters and high efficiency furnaces and air conditioners. NHS markets through approximately 190 independent contractors in Ontario. See page 17 for additional information.
 
ETHANOL DIVISION
 
Just Energy owns and operates Terra Grain Fuels, a 150-million-litre capacity wheat-based ethanol plant located in Belle Plaine, Saskatchewan. The plant produces wheat-based ethanol and high protein distillers’ dried grain (“DDG”). On January 4, 2011, Just Energy acquired the 33.3% interest in TGF that was previously owned by EllisDon Design Build Inc. (“EllisDon”) pursuant to a put option exercised by EllisDon. See page 18 for additional information on TGF.
 
NETWORK MARKETING DIVISION
 
Just Energy owns and operates Momentis, a network marketing company operating within Canada and the U.S. Independent representatives educate consumers about the benefits of energy deregulation and sell them products offered by Just Energy as well as a number of other products. Independent representatives are rewarded through commissions earned based on new customers added. As of March 31, 2012, there were approximately 47,800 independent representatives.
 
SOLAR DIVISION
 
Hudson Energy Solar, a solar project development platform operating in New Jersey, Pennsylvania and Massachusetts, brings renewable energy directly to the consumer, enabling them to reduce their environmental impact and energy costs. HES installs solar systems on residential or commercial sites, maintaining ownership of the system and providing maintenance and monitoring of the system for a period of up to 20 years. HES sells the energy generated by the solar panels back to the customer. This division will contribute to operating metrics through commodity sales, renewable energy credit offset sales and tax incentives. As of March 31, 2012, the division has made commitments of approximately $90.7 million with the status of the associated projects ranging from contracted to completed.
 

Just Energy Annual Report 2012
 
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Adjusted EBITDA
For the years ended March 31
(thousands of dollars, except per share/unit amounts)
 
   
Fiscal 2012
   
Per share
   
Fiscal 2011
   
Per share
   
Fiscal 2010
   
Per unit
 
Reconciliation to income statement
                                   
Profit attributable to shareholders of Just Energy
  $ (126,522 )   $ (0.89 )   $ 355,076     $ 2.57     $ 231,496     $ 1.79  
Add:
                                               
Finance costs
    60,935               59,883               16,134          
Provision for income tax expense
    37,527               173,439               (100,260 )        
Capital tax
                  188               522          
Amortization
    140,697               148,805               70,826          
EBITDA
  $ 112,637     $ 0.80     $ 737,391     $ 5.34     $ 218,718     $ 1.69  
Add (subtract):
                                               
Change in fair value of derivative instruments
    96,345               (506,047 )             1,282          
Base EBITDA
    208,982     $ 1.48       231,344     $ 1.68       220,000     $ 1.70  
Add (subtract):
                                               
Selling and marketing expenses to add gross margin
    80,007               36,428               32,967          
Maintenance capital expenditures
    (5,864 )             (8,818 )             (16,663 )        
Adjusted EBITDA
  $ 283,125     $ 2.00     $ 258,954     $ 1.88     $ 236,304     $ 1.83  
Adjusted EBITDA
                                               
Gross margin per financial statements
  $ 517,489     $ 3.66     $ 481,562     $ 3.49     $ 415,333     $ 3.21  
Add (subtract):
                                               
Administrative expenses
    (122,397 )             (109,400 )             (88,423 )        
Selling and marketing expenses
    (177,302 )             (133,607 )             (95,760 )        
Bad debt expense
    (28,514 )             (27,650 )             (17,940 )        
Share-based compensation
    (10,662 )             (9,914 )             (4,754 )        
Amortization included in cost of sales/selling and marketing expenses
    26,617               22,266               4,381          
Other income
    6,702               7,235               3,515          
Transaction costs
    (1,101 )             (1,284 )                      
Proportionate share of loss from the joint venture
    (1,971 )                                    
Minority interest
    121               2,136               3,648          
Base EBITDA
  $ 208,982     $ 1.48     $ 231,344     $ 1.68     $ 220,000     $ 1.70  
Selling and marketing expenses to add gross margin
    80,007               36,428               32,967          
Maintenance capital expenditures
    (5,864 )             (8,818 )             (16,663 )        
Adjusted EBITDA
  $ 283,125     $ 2.00     $ 258,954     $ 1.88     $ 236,304     $ 1.83  
Cash distributions/dividends (includes Special Distribution)
                                               
Distributions and dividends
  $ 171,381             $ 161,585             $ 175,517          
Class A preference share distributions
                  4,896               7,580          
Restricted share grants/unit appreciation rights and deferred share grant/unit grant distributions
    4,001               3,523               2,108          
Total distributions/dividends
  $ 175,382     $ 1.24     $ 170,004     $ 1.24     $ 185,205     $ 1.43  
Adjusted fully diluted average number of shares/units outstanding1
    141.4 m             138.1 m             129.4 m        
 
1
The per share/unit amounts are calculated on an adjusted fully diluted basis, removing the impact of the $330m, $100m and $90m convertible debentures as all will be anti-dilutive in future periods.
 

Just Energy Annual Report 2012
 
8

 
 

 

Base EBITDA differs from EBITDA in that the impact of the mark to market gains (losses) from the financial instruments is removed. This measure reflects operating profitability as mark to market gains (losses) are associated with supply already sold at future fixed prices. Just Energy ensures that the value of customer contracts is protected by entering into fixed-price supply contracts. Under IFRS, the value of the customer contracts is not marked to market but there is a requirement to mark to market the future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing volatility. Management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance of Just Energy.
 
For Adjusted EBITDA, selling and marketing expenses used for increasing gross margin are also removed along with maintenance capital expenditures being deducted. As a corporation, management believes that Adjusted EBITDA is the best measure of operating performance.
 
Adjusted EBITDA amounted to $283.1 million ($2.00 per share) for fiscal 2012, an increase of 9% (7% per share) from $259.0 million ($1.88 per share) in the prior year. The increase is attributable to the increase in gross margin, offset by higher operating expenses. Gross margin increased 7% (5% per share) overall with energy marketing gross margin increasing by 1% and margin contributions from NHS and TGF increasing 78% and 31%, respectively, versus the prior fiscal year.
 
Administrative expenses increased by 12% from $109.4 million to $122.4 million year over year. The increase over the prior comparable year was due to the inclusion of the administrative expenses relating to Fulcrum of $5.9 million and investments in growth for solar and network marketing expansion. Excluding the Fulcrum-related expenses, administrative expenses amounted to $116.5 million, a 6% increase over prior year in order to support the 10% organic growth in the customer base. A portion of the 6% non-Fulcrum growth is attributable to the Company’s expansion into new markets where investments have been made but the customer growth is not yet reflected in the results.
 
Selling and marketing expenses for the year ended March 31, 2012, were $177.3 million, a 33% increase from $133.6 million reported in the prior comparative year. This increase is attributable to the 9% increase in customer additions as well as the increased investments related to the build-out of the independent representative network by Momentis. Excluding the $37.3 million of costs associated with the building of Momentis, sales and marketing expenses increased by 5% to $140.0 million.
 
The sales and marketing expenses representing the costs associated with maintaining gross margin, which are deducted in Adjusted EBITDA, were $83.3 million for the year ended March 31, 2012, 2% lower than $84.8 million in the prior fiscal year. Customers lost through attrition and failure to renew were 775,000 for the year, up from 638,000 for the year prior, reflecting a 17% higher customer base. Margin growth from NHS and the TGF contributed to the offset of lost margin at a relatively low sales and marketing cost.
 
Bad debt expense was $28.5 million for the year ended March 31, 2012, a 3% increase from $27.7 million recorded for the prior comparable year. This increase is a result of the 15% increase in revenue for markets for which Just Energy bears the bad debt risk year over year. For the year-end March 31, 2012, the bad debt expense of $28.5 million represents approximately 2.4% of revenue in the jurisdictions where the Company bears the credit risk.
 
Dividends and distributions paid for the year ended March 31, 2012, were $175.4 million, an increase of 3% from the prior comparative year as a result of a higher number of shares outstanding. The payout ratio on Base EBITDA was 84% for the year ended March 31, 2012, versus 73% in fiscal 2011. For the year ended March 31, 2012, the payout ratio on Adjusted EBITDA was 62%, versus 66% in the prior year.
 
For further information on the changes in the gross margin, please refer to “Gas and electricity marketing” on page 13 and “Administrative expenses”, “Selling and marketing expenses”, “Bad debt expense” and “Finance costs”, which are further clarified on pages 19 through 20.
 
For the year ended March 31, 2010, gross margin was $415.3 million for the year, reflecting lower gas consumption from the winter months being warmer than expected. Administrative, sales and marketing and bad debt expenses amounted to $88.4 million, $95.8 million and $17.9 million, respectively. For fiscal 2010, Adjusted EBITDA amounted to $236.3 million ($1.83 per unit) and payout ratio on Adjusted EBITDA was 78% for the year, reflecting higher distributions of $1.43 per unit due to a Special Distribution of $0.20 per unit being paid.
 
FUTURE EMBEDDED GROSS MARGIN
 
Management’s estimate of the future embedded gross margin is as follows:
 
(millions of dollars)
 
   
As at Mar 31, 2012
   
As at Mar 31, 2011
   
Mar 2012 vs. Mar 2011 Variance
   
As at Mar 31, 2010
   
Mar 2011 vs. Mar 2010 Variance
 
Canada – energy marketing (CAD$)
  $ 592.1     $ 632.6       (6 )%   $