40-F

 

 

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, 2013

Commission File Number: 001-35400

 

 

JUST ENERGY GROUP INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Canada   4924   Not Applicable

(Province or other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(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 142,029,340 Common Shares outstanding as at March 31, 2013

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 rules and forms of the Securities and Exchange Commission (the “SEC”). 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, 2013 and have determined that such disclosure controls and procedures were effective as of March 31, 2013. See “Management’s Discussion and Analysis – Controls and Procedures,” included in Exhibit 1.2 to this Annual Report.

 

B.

Management’s Annual Report on Internal Control Over Financial Reporting

Management of the Registrant is responsible for establishing and maintaining adequate internal control over the Registrant’s financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. The Registrant’s Chief Executive Officer and Chief Financial Officer have assessed the effectiveness of the Registrant’s internal control over financial reporting as at March 31, 2013 in accordance with the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Registrant’s Chief Executive Officer and the Chief Financial Officer have determined that the Registrant’s internal control over financial reporting was effective as of March 31, 2013. See “Management’s Discussion and Analysis – Internal Controls over Financial Reporting,” included in Exhibit 1.2 to this Annual Report.

The Registrant’s auditor has attested to management’s internal control over financial reporting for the year ended March 31, 2013. The auditor’s attestation report on management’s assessment of the Registrant’s internal control over financial reporting is included in Exhibit 1.3 to this Annual Report.

 

C.

Attestation Report of the Registered Public Accounting Firm

Ernst & Young LLP (“E&Y”), the independent registered public accounting firm of the Registrant, has issued an attestation report on the effectiveness of the internal control over financial reporting of the Registrant as of March 31, 2013. For a copy of E&Y’s report see Exhibit 1.3 to this Annual Report.

 

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, 2013.

 

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, 2013, which is filed as Exhibit 1.1 to this Annual Report.

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, 2013, all audit and non-audit services performed by E&Y were pre-approved by the audit committee of the Registrant.

 

I.

Off-Balance Sheet Arrangements

The Registrant has issued letters of credit in accordance with its credit facility totalling $115.5 million to various counterparties, primarily utilities in the markets in which it operates as well as suppliers.

Pursuant to separate arrangements with Westchester Fire Insurance Company, Travelers Casualty and Surety Company of America, and The Hanover Insurance Group, the Registrant has issued surety bonds to various counterparties including states, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at March 31, 2013 totalled $35.3 million. See “Management’s Discussion and Analysis – Off Balance Sheet Items,” included in Exhibit 1.2 to this Annual Report.


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, 2013

  1.2   

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended March 31, 2013

  1.3   

Audited Consolidated Financial Statements for the year ended March 31, 2013, prepared in accordance with international financial reporting standards as issued by the international accounting standards board, including the report of the auditors thereon

23.1   

Consent of Ernst & Young LLP

31.1   

Certification of the CEO 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, 2013

   

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, 2013

  1.2   

Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended March 31, 2013

  1.3   

Audited Consolidated Financial Statements for the year ended March 31, 2013, prepared in accordance with international financial reporting standards as issued by the international accounting standards board, including the report of the auditors thereon

23.1   

Consent of Ernst & Young LLP

31.1   

Certification of the CEO 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

EX-1.1

Exhibit 1.1

 

LOGO

ANNUAL INFORMATION FORM

JUST ENERGY GROUP INC.

MAY 31, 2013


JUST ENERGY GROUP INC.

MAY 31, 2013

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      7   
RISK FACTORS      17   
DIVIDENDS AND DISTRIBUTIONS      17   
MARKET FOR SECURITIES      18   
PRIOR SALES      20   
ESCROWED SECURITIES      21   
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY      21   
LEGAL PROCEEDINGS AND REGULATORY ACTIONS      24   
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS      24   
AUDITORS, TRANSFER AGENT AND REGISTRAR      24   
INTEREST OF EXPERTS      25   
MATERIAL CONTRACTS      25   
AUDIT COMMITTEE INFORMATION      25   
ADDITIONAL INFORMATION      25   
SCHEDULE “A” - FORM 52-110F1      26   
SCHEDULE “B” - AUDIT COMMITTEE MANDATE      28   
SCHEDULE “C” - GLOSSARY      32   

 

(1) 

Except as otherwise indicated, all information in this Annual Information Form is as at May 31, 2013.

(2)

All capitalized terms not otherwise defined in the body of this Annual Information Form, shall have the meanings ascribed to them in Schedule C – Glossary


FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Information Form and documents incorporated by reference herein constitute forward-looking statements. These statements relate to future events and future performance. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those included in the forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “may”, project”, “predict”, “potential”, targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Just Energy Group Inc. (the “Company”) believes the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. In particular, this Annual Information Form, and the documents incorporated by reference herein, contain forward looking statements pertaining to 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 National Energy Corporation, doing business as National Home Services, buyouts and returns of water heaters and HVAC products, 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 “Three Year History – Conversion Transaction” on page 4 for further details on the Trust Conversion and “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, Suite 2630, Toronto, Ontario, M5X 1E1.

Organizational Structure of the Company

The following diagram sets forth the simplified organizational structure of the Company.

 

LOGO

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); Just Green L.P. (Alberta); Just Energy Manitoba L.P. (Manitoba); Just Energy B.C. Limited Partnership (British Columbia); Just Energy Québec L.P. (Quebec); Just Energy Prairies L.P.; 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. Additionally, the Company indirectly holds a 15% fully diluted interest in ecobee Inc., a manufacturer and distributor of smart thermostats located in Toronto, Ontario.

(2)

The U.S. Subsidiaries are corporations, limited liability companies and limited partnerships indirectly wholly-owned by the Company and are incorporated or formed, as applicable, under the laws of the State of Delaware, unless otherwise noted. The U.S. 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. (“Hudson Solar”); 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 Holdings UK Limited, Hudson Energy Supply UK Limited, Just Energy UK Limited and Momentis (UK) Limited operating under the laws of England and Wales are direct and indirect 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.

 

2


(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).

(5)

Hudson Solar has a number of subsidiaries, including Hudson USB ITC Owner LLC (51% indirectly owned), Hudson USB ITC Owner 2 LLC (51% indirectly owned), Hudson USB ITC Managing Member LLC, Hudson USB ITC Managing Member 2 LLC, Hudson Solar Macy LLC, Hudson Solar Project 2 LLC, Hudson Solar Project 1 Corp.

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 30, 2013, 142,249,269 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, the expansion of its business by organic growth, the Trust Conversion and listing on the NYSE. These events are described below in chronological order.

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 offers Energy Contracts, as well as a variety of in home and NHS products in jurisdictions throughout Canada and the United States. In the summer of 2012, Momentis expanded its operations to the United Kingdom.

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).

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, Pennsylvania and the United Kingdom. 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 Queen’s 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.

 

4


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. Additionally, there was the potential for a payment to the seller by Just Energy of up to US$20 million (the “Earn-Out Amount”) provided that certain EBITDA and billed volume targets were satisfied by Fulcrum during 18 months following the closing date (the “Earn-Out Period”). The Earn-Out Amount was to 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 was to be payable in cash. On May 15, 2013, Just Energy notified the seller that the EBITDA target was not satisfied and accordingly, the Earn-Out Amount would not be paid. The seller has until June 14, 2013 to dispute this determination.

Normal Course Issuer Bid

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 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 December 15, 2012 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. Just Energy’s Distribution Reinvestment Plan was reinstated on September 30, 2012.

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.

Solar Financings

Effective August 1, 2012, Hudson Solar, through a subsidiary, entered into a US$30 million financing agreement to assist with the construction of certain solar projects. The credit facility matures August 1, 2014, with no prepayment permitted, bearing interest, and payable quarterly, at U.S. prime plus 6.9% or Eurodollar rate plus 7.9%. The facility is subject to certain financial and other covenants and is secured by the assets financed under this agreement. As at December 31, 2012, all of the covenants had been met.

 

5


Hudson Solar, through certain of its subsidiaries, has also entered into an arrangement providing access to a construction loan for up to approximately $28.5 million, to fund certain specified projects. As at the date hereof, $14,097,327 has been advanced under this loan. The construction loan bears interest at 10% and is due upon completion of certain solar projects. Upon completion of the solar projects, the construction loan will be settled from the proceeds of a term loan to be received from the same counterparty and an investment from an institutional investor. The term loan for approximately $16 million will bear interest at 8% and mature in six years. The investment will be for approximately $15 million and will provide the institutional investor with a significant portion of the tax incentives generated by the projects funded.

Hudson Solar, through a subsidiary has also entered into an arrangement with an institutional investor providing access to construction loans for up to approximately $6.2 million in the aggregate, to fund certain specified projects. The construction loans bear interest at 10%.

ecobee Inc. Investment

On August 10, 2012, Just Energy acquired a 15% fully diluted interest in ecobee Inc., a manufacturer and distributor of smart thermostats located in Toronto, Ontario.

$105 Million Note

Just Energy entered into an agreement with CPPIB Credit Investments Inc. for a $105 million senior unsecured note issued on December 12, 2012. The $105 Million Note bears an interest rate of 9.75% and matures in May of 2018. The $105 Million Note is subject to certain financial and other covenants. As of March 31, 2013, all of these covenants have been met. Just Energy is using net proceeds from the $105 Million Note to reduce its drawings on its working capital line, fund future growth and for general corporate purposes.

Strategic Supply Arrangement with Shell Energy Europe Limited

On February 1, 2013 Hudson Energy Supply UK Limited (“Hudson UK”) entered into a 5 year strategic supply arrangement with Shell Energy Europe Limited (“SEEL”) for Hudson UK’s commercial retail business in the United Kingdom. Under the arrangement, SEEL will be the wholesale supplier for Hudson UK. The structure will give Hudson UK access to the wholesale market and the benefit of SEEL’s market presence and knowledge. The arrangement also accommodates Hudson UK’s forecasted working capital requirements for continued customer growth.

Dividend Reduction and Normal Course Issuer Bids

On February 7, 2013, the Company announced that the monthly dividend would be reduced to $0.07 per Common Share per month ($0.84 per Common Share annually) from $0.10333 per Common Share per month ($1.24 per Common Share annually) commencing as of the dividend payment paid on April 30, 2013. The reduction will allow the Company to fund its growth and build a cash reserve to pay down debt on maturity. In conjunction with dividend reduction the Company announced on February 12, 2013 its intention to make a normal course issuer bid to purchase its Common Shares. The notice provides that Just Energy may, during the 12 month period commencing February 14, 2013 and ending February 13, 2014, purchase on the Toronto Stock Exchange as well as alternative trading systems up to 10,000,000 Common Shares in total, being 7.4% of the “public float” of Common Shares. The aggregate number of Common Shares that Just Energy may purchase during any trading day will not exceed 107,182 Common Shares, being approximately 25% of the average daily trading volume of the Shares 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. To date no Common Shares have been purchased.

Additionally, on February 19, 2013, the Company announced its intention to make a normal course issuer bid for each of its $100 Million Convertible Debentures and $330 Million Convertible Debentures. The notice provides that Just Energy may, during the 12 month period commencing February 22, 2013 and ending February 21, 2014, purchase on the Toronto Stock Exchange as well as alternative trading systems up to $10 million of the $100 Million Convertible Debentures and $33 million of the $330 Million Convertible Debentures, being 10% of the “public float” of both the $100 Million Convertible Debentures and $330 Million Convertible Debentures. The aggregate

 

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amount of $100 Million Convertible Debentures and $330 Million Convertible Debentures that Just Energy may purchase during any trading day will not exceed $24,548 and $158,993 respectively, being approximately 25% of the average daily trading volume of the $100 Million Convertible Debentures and $330 Million Convertible Debentures 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 of the $100 Million Convertible Debentures and $330 Million Convertible Debentures purchased pursuant to this normal course issuer bid will be cancelled by Just Energy. The price that Just Energy will pay for the $100 Million Convertible Debentures and $330 Million Convertible Debentures is the market price at the time of acquisition. To date there have been no purchases under this normal course issuer bid.

BUSINESS OF JUST ENERGY

General

Just Energy is a direct marketing company selling electricity and/or natural gas to residential and commercial customers under long-term fixed-price, price-protected and variable-priced contracts in deregulated markets. By fixing the price of electricity or natural gas 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 the United States in the states of Illinois, New York, Indiana, Michigan, Ohio, New Jersey, California, Maryland, Pennsylvania, Massachusetts, Georgia, Texas and Delaware and in Canada in the provinces of Ontario, Alberta, Manitoba, Québec, British Columbia and Saskatchewan. The Company also commenced commercial electricity marketing in the United Kingdom on July 23, 2013 under the Hudson brand.

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

Fig-1

 

LOGO

 

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While its core business is energy marketing, Just Energy has a number of other products and offerings. Through its subsidiary, NHS, Just Energy rents and sells water heaters, furnaces, air conditioners and smart thermostats. Just Energy also offers customers the ability to offset their carbon footprint through the sale and purchase of renewable energy certificates and carbon offsets. 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, 2013, Just Energy had aggregated approximately 4,222,000 RCEs, with approximately 45% from its Consumer Division (residential and small business) and 55% from its Commercial Division.

Additionally, through its subsidiary, TGF, Just Energy produces and sells wheat-based ethanol. However, TGF is currently undergoing a sale process and is being treated as a discontinued operation by Just Energy.

Consumer Division

Electricity

In the Provinces of Ontario and Alberta and the States of New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California, Ohio 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, Ohio, Illinois, Maryland and Michigan each LDC assumes 100% of the credit (receivable) risk associated with default in payment by residential and commercial customers.

Natural Gas

Just Energy and its affiliates offer natural gas customers a variety of products, such as five-year fixed-price contracts, flat-bill options and month-to-month variable-price offerings in the Provinces of Ontario, Québec, British Columbia, Alberta Manitoba and Saskatchewan and in the States of Michigan, New York, Illinois, Indiana, Ohio, California, Pennsylvania, New Jersey 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 and Georgia, the LDCs provide billing and, except in Alberta, Illinois, Georgia 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.

Smart Thermostats

During the first calendar quarter of 2013, Just Energy began bundling its commodity contracts with a smart thermostat product manufactured by ecobee Inc. to customers located in Ontario and Texas. The smart thermostats allow customers to have more control over their energy consumption and can assist them in reducing energy costs. The Company expects to expand the bundled product offering to other jurisdictions in Fiscal 2014.

 

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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 services only until the account is delinquent.

Hudson Energy commenced the marketing of electricity in the United Kingdom during the second quarter of Fiscal 2013 utilizing the same technology and deal process used in North America adapted for the unique characteristics in the market. Shell Energy Europe Limited and Hudson signed a supply agreement on February 1, 2013, under which Shell will be the wholesale supplier for the UK business providing credit support and wholesale supply to cover the commodity obligation for customers.

JustGreen Products

Just Energy also offers green products through its JustGreen and JustGreen Lifestyle (formerly JustClean) programs. Sales of the JustGreen 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, 2013, 28% purchased JustGreen for some or all of their energy needs. On average, these customers elected to purchase 82% of their consumption as green supply.

Just Energy also launched its JustGreen Lifestyle product via an online sales website at the beginning of calendar 2013. JustGreen Lifestyle allows homeowners and small businesses 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. Prior to the launch of this website, Just Energy marketed its JustClean products via door-to-door in Ontario and Florida.

To date, Just Energy has committed to more than 90 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 JustGreen Lifestyle products. Grant Thornton LLP has performed this review since 2009 and determined that Just Energy was compliant each year.

National Home Services Division

Since 2008, NHS has rented and sold residential customers high efficiency water heaters, furnaces and air-conditioners in Ontario. As at March 31, 2013, NHS had a cumulative installed base in Ontario of approximately 216,800 water heaters, 12,200 furnaces and 6,000 air conditioner units. Currently, NHS is installing an average of approximately 700 water heaters and 120 HVAC products per week. NHS also began marketing smart thermostats in the fall of 2012. It has also installed approximately 5,900 thermostats. In late Fiscal 2013, NHS expanded its offerings into Québec and Texas.

 

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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 16 for further details.

Management’s strategy for NHS is to self-fund the business, 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 operates a wheat based ethanol plant in Belle Plaine, Saskatchewan. For the year ended March 31, 2013, the plant achieved an average production capacity of 73%, a decrease from average production capacity of 80% in the prior year. In the fourth quarter of 2013, the plant achieved average production capacity of 74%. The plant continued to have financial challenges during Fiscal 2013 – see TGF Credit Facility and TGF Debentures on pages 15 and 16. The Company actively sought to sell the plant over the course of Fiscal 2013. As of March 31, 2013, TGF is being treated as a discontinued operation by the Company.

In Fiscal 2013, TGF received a federal subsidy based on ethanol sales of $0.07 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 (other than as specified in certain financing arrangements). In addition, Hudson Solar retains all of the rebates, incentives, tax depreciation and credits as the system owner (other than as specified in certain financing arrangements). Hudson Solar currently has completed projects totalling 21 MW and projects under construction or contracted to be constructed totalling 20 MW. Over the course of Fiscal 2013, Hudson Solar and its subsidiaries completed a number of non-recourse financings totalling $39 million in available credit of which $20 million has been utilized to date.

Marketing

Residential customers are contracted through a number of sales channels including door-to-door, online, telemarketing and affinity programs. Customers are also solicited through a multi-level marketing program by Just Energy’s subsidiary, Momentis utilizing Independent Representatives. Hudson Energy primarily employs Independent Brokers utilizing the Hudson Connex sales portal to solicit Energy Contracts. Marketing also involves inbound telemarketing through internet sales primarily through Just Energy’s joint venture internet company, Just Ventures LLC, in which it has a 50% interest.

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 representatives 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.

 

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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 pre-set 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. Consequently, customer margin increases proportionately to the increase in consumption net of the gain or loss associated with the incremental supply purchase. Additionally, to the extent that supply balancing is not fully covered through customer pass-throughs, active management or the options employed, Just Energy’s customer gross margin may be impacted depending upon market conditions at the time of balancing.

Just Energy transacts with a number of different counterparties for its energy supply. Its primary Suppliers participate in an Intercreditor Agreement pursuant to which the Commodity Suppliers and lenders to Just Energy share in the collateral provided by Just Energy. The supply participants to the Intercreditor Agreement are Shell, BP, Exelon, 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/JustGreen Lifestyle

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 offsetting their average electricity and/or natural gas use for those customers who elect to purchase JustGreen or JustGreen Lifestyle. 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 JustGreen Lifestyle products. The Renewable Energy Credits are Green-e (U.S.) and EcoLogo (Canada) certified or comply with renewable portfolio standards where registered; 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. Just Energy has committed to more than 90 green projects in Canada and the U.S. and our customer contracts have

 

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removed 757,000 tonnes of carbon from the atmosphere, the equivalent of taking 158,000 cars off the road. Our customers spent more than $33 million on green energy in fiscal 2013. Overall, JustGreen makes up 9% of the consumer gas portfolio, down from 10% a year ago, and 13% of the consumer electricity portfolio, up from 12% on the same date last year.

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/JustGreen Lifestyle products, water heater, furnace, thermostat, 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/JustGreen Lifestyle product offerings within the direct purchase market.

Industry Competition

Electricity and Natural Gas

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 Exelon) 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 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/JustGreen Lifestyle

The most significant competitors with respect to Just Energy’s JustGreen and JustGreen Lifestyle 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 water heaters or HVAC products or rent water heaters or HVAC products 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

 

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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.

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, construction and ongoing management of the projects. There are many companies installing solar panels in the North American market. Hudson Solar uses some of these installation contractors to construct solar projects and also 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 developers and contractors such as Borego Solar, SunEdison, and other local teams. 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 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, 2013, Just Energy and its affiliates employed approximately 1500 persons. In addition, approximately 1600 Independent Contractors are involved in the door-to-door marketing of Energy Contracts, water heaters and HVAC equipment, approximately 85,100 independent representatives are enrolled with Momentis and approximately 3,200 Independent Brokers are actively 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

 

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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, environmental protection and consumer protection legislation.

Financing

Just Energy Credit Facility

JEOLP and Just Energy (U.S.) are parties to the fourth amended and restated credit agreement, providing Just Energy with a credit facility of up to $370 million for working capital purposes (the “Credit Facility”). To complement the Credit Facility, Just Energy, the Secured Suppliers and the lenders have entered into the Intercreditor Agreement pursuant to which the Secured Suppliers and the lenders jointly hold security over substantially all of the assets (including, without limitation, the Energy Contracts) of the Company and its operating Subsidiaries (other than, among others, 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. During the Fiscal 2013, the Credit Facility under went three amendments pursuant to which certain covenants were renegotiated to facilitate the growth of the Company. Just Energy has complied with all covenants under the Credit Facility. The Credit Facility matures on December 31, 2013.

$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

 

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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.

$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 represents a fixed repayment term of ten years, commencing March 1, 2009, which includes interest costs at a prime rate plus 3%, with principal repayments that commenced March 1, 2010. The credit facility is secured by a demand debenture agreement, a first priority security charge 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

 

15


service coverage and minimum shareholders’ capital. The covenants were measured as of March 31, 2012, and TGF failed to meet certain required covenants. The non-compliance was waived by the lenders but did result in a non-compliance fee of $0.08 million, representing 0.25% of the loan balance as of March 31, 2012. Pursuant to a forbearance agreement dated as of December 31, 2012, the lenders have agreed that TGF shall not be required to make any principal or interest payments until May 31, 2013. The covenants were remeasured as of March 31, 2013 and TGF failed to meet all required covenants. However, the lenders have chosen not to impose any non-compliance fees and are actively working with Just Energy to locate buyers for the plant.

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, 2013, 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. Pursuant to a waiver and forbearance agreement made as of December 31, 2012, the debenture holders have agreed to waive any principal and interest payments to and including July 1, 2013.

TGF Line of Credit

TGF has a working capital operating line of $7 million bearing interest at a rate of prime plus 2%. On April 4, 2013, it was amended to provide TGF with an additional $1.5 million until April 22, 2013.

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 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 24, 2013, there was approximately $241 million owed to HTC under the agreements.

$105 Million Note

Just Energy entered into an agreement with CPPIB Credit Investments Inc. for a $105 million senior unsecured note issued on December 12, 2012. The $105 Million Note bears an interest rate of 9.75% and matures in May of 2018. The $105 Million Note is subject to certain financial and other covenants. As of March 31, 2013, all of these covenants have been met. Just Energy is using the net proceeds from the $105 Million Note to reduce its drawings on its working capital line, fund future growth and for general corporate purposes.

Solar Financing

Effective August 1, 2012, Hudson Solar, through a subsidiary, entered into a US$30 million financing agreement to assist with the construction of certain solar projects. The credit facility matures August 1, 2014, with no prepayment permitted, bearing interest, and payable quarterly, at U.S. prime plus 6.9% or Eurodollar rate plus 7.9%. The facility is subject to certain financial and other covenants and is secured by the assets financed under this agreement. As at December 31, 2012, all of the covenants had been met.

 

16


Hudson Solar, through certain of its subsidiaries, has also entered into an arrangement providing access to a construction loan for up to approximately $28.5 million, to fund certain specified projects. As at the date hereof, $14,097,327 has been advanced under this loan. The construction loan bears interest at 10% and is due upon completion of certain solar projects. Upon completion of the solar projects, the construction loan will be settled from the proceeds of a term loan to be received from the same counterparty and an investment from an institutional investor. The term loan for approximately $16 million will bear interest at 8% and mature in six years. The investment will be for approximately $15 million and will provide the institutional investor with a significant portion of the tax incentives generated by the projects funded.

Hudson Solar, through a subsidiary has also entered into an arrangement with an institutional investor providing access to construction loans for up to approximately $6.2 million in the aggregate, to fund certain specified projects. The construction loans bear interest at 10%.

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 54 to 59 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 $0.84 annually ($0.07 per month) 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 2013, the Company declared regular monthly dividends of $0.10333 per Common Share, resulting in an aggregate of $1.24 per Common Share. On February 7, 2013, the Company announced that the monthly dividend would be reduced by 32% to $0.07 per Common Share per month ($0.84 annually) commencing as of the dividend payment due on April 30, 2013.

 

17


The following table sets forth the month of payment and dividends per Common Share paid by the Company, as applicable for the three most recently completed financial years and for the months of April and May, 2013.

 

Record of Cash Distributions/Dividends(1)

   Fiscal 2014
$ Per Common
Share
     Fiscal 2013
$ Per Common
Share
     Fiscal 2012
$ Per Common
Share
     Fiscal 2011
$ Per Common
Share(2)
 

April

     0.07         0.10333         0.10333         0.10333   

May

     0.07         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   

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 onwards.

(3)

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 4,050,273 RSGs and 160,661 DSGs outstanding.

MARKET FOR SECURITIES

Common Shares of the Company

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

TSX

(CDN$)

 

Period

   High ($)      Low ($)      Volume  

2012

        

April

     14.03         12.23         11,071,176   

May

     13.24         10.75         7,349,234   

June

     11.84         10.63         5,673,339   

July

     11.98         9.93         10,079,478   

August

     11.55         10.81         6,840,562   

September

     11.22         10.35         6,429,539   

October

     11.07         9.95         7,485,835   

November

     10.49         7.86         15,126,360   

December

     9.95         8.70         10,259,218   

2013

        

January

     10.25         9.60         7,878,442   

February

     9.98         7.26         16,734,746   

March

     8.05         5.89         16,155,916   

April

     6.97         6.18         10,723,443   

May (1 to 17)

     7.60         6.23         7,629,641   

 

18


NYSE

(US$)

 

Period

   High ($)      Low ($)      Volume  

2012

        

April

     14.15         13.34         2,199,300   

May

     13.42         10.40         1,773,799   

June

     11.63         10.14         1,400,403   

July

     11.78         9.81         1,628,753   

August

     11.69         10.75         1,043,409   

September

     11.50         10.50         1,923,138   

October

     11.36         10.01         2,115,528   

November

     10.57         7.85         6,587,982   

December

     10.10         8.75         7,319,192   

2013

        

January

     10.45         9.81         7,997,965   

February

     9.99         7.21         16,600,015   

March

     7.83         5.77         19,110,227   

April

     6.86         6.03         14,264,929   

May (1 to 17)

     7.40         6.13         7,738,120   

$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  

2012

        

April

     99.90         97.00         4,978,000   

May

     98.75         94.40         5,043,500   

June

     95.71         89.50         5,530,500   

July

     96.85         83.00         10,846,214   

August

     92.75         89.05         2,705,000   

September

     90.75         85.37         2,158,000   

October

     89.00         80.00         3,603,000   

November

     81.25         68.00         36,340,600   

December

     83.35         78.60         27,032,950   

2013

        

January

     86.80         82.51         8,292,600   

February

     84.00         78.00         21,445,500   

March

     80.00         69.81         14,487,000   

April

     78.00         72.02         8,833,329   

May (1 to 17)

     81.96         75.65         10,064,000   

 

19


$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  

2012

        

April

     101.95         100.50         1,034,000   

May

     101.75         100.50         1,463,000   

June

     101.00         97.85         1,653,000   

July

     101.50         97.50         4,101,000   

August

     101.25         99.75         2,350,000   

September

     100.45         99.11         1,823,000   

October

     100.34         99.47         1,739,000   

November

     99.75         92.50         2,820,000   

December

     99.27         96.00         1,328,000   

2013

        

January

     101.50         98.00         1,378,000   

February

     100.75         97.00         9,221,000   

March

     99.95         94.80         2,841,000   

April

     99.51         94.73         3,564,000   

May (1 to 17)

     98.51         97.34         3,655,000   

$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  

2012

        

April

     97.50         94.02         7,524,000   

May

     95.01         89.71         2,735,000   

June

     92.50         89.91         2,009,000   

July

     91.50         86.00         2,459,500   

August

     89.00         86.86         1,960,500   

September

     87.50         83.66         1,198,000   

October

     84.65         80.45         2,297,000   

November

     81.00         67.90         2,498,000   

December

     81.00         76.00         1,576,000   

2013

        

January

     83.00         79.90         2,842,500   

February

     82.80         75.62         6,289,000   

March

     77.52         66.50         3,989,000   

April

     74.99         67.85         2,617,000   

May (1 to 17)

     77.20         70.96         2,022,000   

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:

 

1.

8,984 RSGs were granted on April 19, 2012 having a grant value of $12.58 per RSG.

 

2.

9,901 RSGs were granted on May 25, 2012 having a grant value of $11.34 per RSG.

 

3.

13,121 RSGs were granted on June 29, 2012 having a grant value of $11.21 per RSG.

 

4.

28,783 RSGs were granted on June 30, 2012 having a grant value of $11.18 per RSG.

 

5.

12,561 RSGs were granted on August 9, 2012 having a grant value of $11.09 per RSG.

 

20


6.

19,595 RSGs were granted on November 8, 2012 having a grant value of $9.94 per RSG.

 

7.

11,000 RSGs were granted on February 7, 2013 having a grant value of $9.81 per RSG.

 

8.

500,000 Options were granted on March 5, 2013 at an exercise price of $7.88 per Option.

 

9.

515,333 RSGs were granted on May 16, 2013 having a grant value of $6.26 per RSG.

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.

The following table describes the number of DSGs or Common Shares granted, the date granted, and the 10 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, 2012

     5,481       $ 11.37   

September 30, 2012

     5,822       $ 10.71   

December 31, 2012

     7,066       $ 9.39   

March 31, 2013

     6,063       $ 6.80   

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.

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, 2013 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

  

Senior Partner, Burnet, Duckworth & Palmer LLP (law firm)

Hon. Gordon D. Giffin(2)(4)

Atlanta, Georgia

  

2006

  

Senior Partner, McKenna, Long & Aldridge LLP (law firm)

Ken Hartwick, C.P.A.C.A.

Milton, Ontario

  

2008

  

President and Chief Executive Officer of the Company

William F. Weld(1)(3)

New York, New York

  

2012

  

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

George Sladoje

Chicago, Illinois

  

2012

  

Principal of Sladoje Consulting, LLC

 

21


(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. Kirby is the Chair of the Committee.

(3)

Member of the Nominating and Corporate Governance Committee. Mr. Segal is the Chair of the Committee.

(4)

Member of the Risk Committee. Mr. Sladoje is the Chair and Mr. Giffin is the Vice-Chair of the Committee.

(5)

Other than Mr. Weld and Mr. Sladoje, 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 and Mr. Sladoje) 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. Sladoje was Chief Executive Officer of NASDAQ OMX Commodities Clearing Company until December 31, 2011 and Chair and Chief Executive Officer of North American Energy and Clearing Corporation until March 3, 2010; and

  (c)

Mr. Weld was Of Counsel at McDermott Will & Emery LLP until October, 2012.

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, 2013 are as follows:

 

Name, Municipality of Residence

  

Principal Occupation
During Five Preceding Years(1)

Rebecca MacDonald

Toronto, Ontario

  

Executive Chair

Ken Hartwick, C.P.A., C.A.

Milton, Ontario

  

President and Chief Executive Officer

Beth Summers, C.P.A., 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

Mark Silver

Toronto, Ontario

  

President of National Energy Corporation

R. Andrew McWilliams

Dallas, Texas

  

President and Chief Executive Officer of Momentis

Abe Grohman

Miami Beach, Florida

  

Executive Director of Hudson Solar

Stephanie Bird C.P.A., C.A.

Toronto, Ontario

  

Senior Vice President and Corporate Risk Officer

Jonah Davids

Toronto, Ontario

  

Senior Vice President, Legal & Regulatory 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)

Ms. Summers was the Chief Financial Officer and Executive Vice President of Hydro One Inc. (electric utility) from March 2004 to January 2009;

  (b)

Mr. Silver was the Chief Executive Officer of Universal Energy Group Ltd. (energy retailer) until July 1, 2009 when it was acquired by the Company;

 

22


  (c)

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; and

  (d)

Mr. Grohman was the President of Hudson until May 7, 2010 when it was acquired by the Company.

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

As of May 30, 2013, 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 9,670,684 Common Shares, RSGs and DSGs, representing approximately 6.8% 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.

On December 17, 2012, Reliance Comfort Limited Partnership filed a lawsuit in the Ontario Superior Court of Justice against NHS in the amount of $60 million. The lawsuit makes several allegations relating to the marketing and sale of products by National Home Services, including allegations of misleading advertising and other unfair trade practices. National Home Services believes the action is without merit and is an attempt by Reliance to deflect attention from its own anti-competitive conduct. As disclosed in public filings with the Federal Court, the Commissioner of Competition (the head of the Competition Bureau) has initiated a formal investigation of Reliance regarding allegations of anti-competitive conduct contrary to the Competition Act. Just Energy will resolve or vigorously contest the claims in these matters and in any other non-material litigation matters. NHS will vigorously defend itself against the action and has counterclaimed for $60 million in damages for claims of misleading advertising, breaches of the Competition Act, breaches of the Consumer Protection Act and defamation.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as described at pages 59 to 61 of the Management Information Circular dated May 17, 2013 which is incorporated by reference herein, there were no material interests, direct or indirect, of directors or executive officers of the Company, any person that beneficially owns, or controls or directs, directly or indirectly, more than 10% of the Common Shares, or any known associate or affiliate of such persons, in any transaction within the three most recently completed financial years or during the current financial year which has materially affected or is reasonably expected to materially affect the Company.

AUDITORS, TRANSFER AGENT AND REGISTRAR

The auditors of the Company are Ernst & Young LLP, Chartered Accountants, Toronto, Ontario. Based on the recommendation of the Audit Committee of the Company, the Board has proposed that Ernst & Young LLP continue as auditors of the Company at the Annual and Special General Meeting of the Company to take place on June 26, 2013.

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, the $100 Million Convertible Debentures and the $105 Million Note Indenture.

 

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INTEREST OF EXPERTS

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

MATERIAL CONTRACTS

Except for contracts entered into by the 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 Acquisition Agreement, the Fulcrum Acquisition Agreement the $100 Million Debenture Indenture (as amended and supplemented from time to time) and the $105 Million Note Indenture, 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, 2013, 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. 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. 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 company, 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 a Principal with Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. Prior to October, 2012, Mr. Weld was 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.

Mr. Sladoje joined the board of the Company on November 6, 2012 and became a member of the Audit Committee on February 6, 2013. Mr. Sladoje was, until 2011, CEO of NASDAQ OMX Commodities Clearing Company and former Chair and CEO to 2010 of North American Energy and Clearing Corporation, both centered in Chicago, Illinois. Mr. Sladoje serves as Principal, Sladoje Consulting, Chicago where he specializes in providing regulatory and compliance consulting to organizations dealing in electricity and gas trading and has provided marketing services to grid operators across the United States including Midwest ISO and ERCOT. This expertise, along with his accounting background as a CPA with a big 8 accounting firm, his experience in working with energy regulators and in risk management and governance qualifies him to serve on the Just Energy board of directors and as a member of the audit committee and chair of the risk committee. He has also served as a director of other companies and has worked with many major national regulators including The Commodity Futures Trading Commission, the SEC FERC, the public utility commissions of several states, The California Power Exchange, and the United States Power Fund.

 

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Pre-Approval Policies and Procedures.

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

External Auditor Service Fees

Audit and Audit Related Fees

For fiscal 2013, 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 $1,122,800 (2012 – $949,000).

Tax Fees

Tax fees for professional services rendered by Ernst & Young LLP for tax compliance, tax advice, tax planning and other services were $195,000 (2012 – $325,000).

Total Fees

The aggregate fees billed by Ernst & Young LLP were $1,563,300 (2012 – $1,531,000). 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, i.e., a relationship that could, in the view of the Company’s board of directors (the “Board”) reasonably interfere with the exercise of a member’s independent judgment.

 

(b)

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

 

(c)

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

 

(d)

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

 

(e)

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

 

2.

AUTHORITY

 

(a)

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

 

(b)

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

 

(c)

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

 

3.

MEETINGS

 

(a)

The Committee is to meet at least four times per year preferably immediately following the meeting of the Risk Committee. The meetings will be scheduled to permit the review of the scope of the audit as presented by the Company’s auditor before commencement of the audit and the timely review of the quarterly and annual financial statements and such other annual filings required to be made by the

 

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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;

 

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(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 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;

 

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(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.

 

 

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.

$105 Million Note Indenture” means the trust indenture dated as of December 12, 2012 between Just Energy and Computershare.

$105 Million Note” means the $105 million aggregate principal amount of the 9.75% note issued to CPPIB Credit Investments Inc. on December 12, 2012 pursuant to the $105 Million Note 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.

AHES” means American Home Energy Services Corp., a corporation formed under the laws of [Delaware].

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.

 

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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.

Competition Act” means the Competition Act, 1998 as amended from time to time, including the regulations promulgated thereunder.

Computershare” means Computershare Trust Company of Canada.

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.

Exelon” means collectively Exelon Energy Group Inc. and Exelon Energy Commodities Group, Inc. or any other related affiliate with which Just Energy contracts.

Financial Statements” means the audited comparative consolidated financial statements of the Company as at and for the years ended March 31, 2013 and 2012, 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.

 

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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.

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 17, 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, Exelon, 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 laws of Ontario 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.

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 laws of Ontario, doing business as National Home Services.

“NYSE” means the New York Stock Exchange.

 

34


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.

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

EX-1.2

Exhibit 1.2

Management’s discussion and analysis

(“MD&A”) – May 16, 2013

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”) for the year ended March 31, 2013, and has been prepared with all information available up to and including May 16, 2013. This analysis should be read in conjunction with the audited consolidated financial statements for the year ended March 31, 2013. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). All dollar amounts are expressed in Canadian dollars. 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 at the U.S. Securities Exchange Commission’s website 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. Just Energy is a direct marketer with its business involving 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, the United States and, commencing in July 2012, the United Kingdom, under the following trade names: Just Energy, Hudson Energy, Commerce Energy, Smart Prepaid Electric, 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 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. Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.

In addition, Just Energy rents and sells high efficiency and tankless water heaters, air conditioners and furnaces to Ontario and Quebec residents, through a subsidiary operating under the trade name National Home Services (“NHS”). During the fiscal year, Just Energy purchased a 15% ownership in ecobee Inc. (“ecobee”), a company that designs, manufactures and distributes smart thermostats to residential and commercial customers throughout North America. 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 ethanol. Just Energy’s subsidiary, Hudson Energy Solar Corp. (“HES”), and its subsidiaries provide solar project development platforms 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 primarily involved in the Internet-based marketing of Just Energy’s gas and electricity contracts.

Included in the MD&A is an analysis of the above operations. As at March 31, 2013, Terra Grain Fuels is available for sale and is expected to be sold within the next 12 months. As a result, it has been classified as discontinued operations and the financial results from operations for prior periods have been restated to reflect results from continuing and discontinued operations for comparative purposes.

Forward-looking information

This MD&A contains certain forward-looking information pertaining to customer additions and renewals, customer consumption levels, EBITDA, Base EBITDA, Adjusted EBITDA, Funds from Operations, Base Funds from Operations 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,

 

1.


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 dividend levels are included in the May 30, 2013 Annual Information Form and other reports on file with 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 at the U.S. Securities Exchange Commission’s website at www.sec.gov.

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 for continuing operations” on page 30 for further details.

“$100m convertible debentures” represents the $100 million of convertible debentures issued by the Company to finance the purchase of Fulcrum Retail Holdings, LLC, effective October 1, 2011. See “Long-term debt and financing for continuing operations” on page 30 for further details.

“$330m convertible debentures” represents the $330 million in convertible debentures issued by Just Energy to finance the purchase of Hudson Energy Services, LLC, effective May 1, 2010. Just Energy assumed the obligations of the debentures as part of the Conversion. See “Long-term debt and financing for continuing operations” on page 30 for further details.

“attrition” means customers whose contracts were terminated primarily due to relocation or cancelled by Just Energy due to delinquent accounts.

“customer” does not refer to an individual customer but instead an RCE (see Key Term below).

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

“gross margin per RCE” represents the energy gross margin realized on Just Energy’s customer base, including gains/losses from the sale of excess commodity supply.

“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-IFRS FINANCIAL MEASURES

Just Energy’s consolidated financial statements are prepared in compliance with IFRS. All non-IFRS financial measures do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. Management believes that Adjusted EBITDA and Base Funds from Operations are 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-IFRS 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 in the future at fixed prices.

 

2.


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 management has therefore excluded it from the Base EBITDA calculation.

ADJUSTED EBITDA

“Adjusted EBITDA” represents Base EBITDA adjusted to deduct selling and marketing costs sufficient to maintain existing levels of embedded 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.

FUNDS FROM OPERATIONS

“Funds from Operations” refers to the cash flow generated by operations. 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.

BASE FUNDS FROM OPERATIONS

“Base Funds from Operations” refers to the Funds from Operations adjusted for capital expenditures purchased to maintain productive capacity. Capital expenditures to maintain productive capacity represent the capital spend relating to capital assets and spending relating to contract initiation costs to maintain embedded gross margin at the current level.

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 remaining life of National Home Services’ customer contracts. The energy marketing embedded gross margin is the difference between existing energy 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.

The energy marketing embedded gross margin also includes an estimate of the future margin on residual payments on non-energy products sold to the current Momentis customer base as well as the completed contracts for Hudson Energy Solar. The embedded gross margin for HES represents gross margin associated with Solar Power Purchase Agreements (“PPAs”) and Solar Renewable Energy Credits (“SRECs”) for a rolling five-year period generated from its completed projects.

 

3.


Financial highlights

For the years ended March 31

(thousands of dollars, except where indicated and per share amounts)

 

      Fiscal 2013           Fiscal 2012           Fiscal 2011  
           % increase
(decrease)
          % increase
(decrease)
       

Sales

   $ 2,881,964        9 %     $ 2,654,778        (7)   $ 2,844,666   

Gross margin

     525,868       5 %       499,657       7 %       467,937  

Administrative expenses

     138,855       22 %       114,168       16 %       98,169  

Selling & marketing expenses

     208,029       17 %       177,302       33 %       133,607  

Finance costs

     75,151       38 %       54,450       3 %       53,021  

Profit (loss) from continuing operations

     601,705       NMF  3      (128,455)        NMF  3      359,341  

Profit (loss) from discontinued operations

     (72,050)        NMF  3      1,812       NMF  3      (6,401)   

Profit (loss)

     529,655       NMF  3      (126,643)        NMF  3      352,940  

Earnings (loss) per share from continuing operations—basic

     4.30         (0.93)          2.66  

Earnings (loss) per share from continuing operations—diluted

     3.68         (0.93)          2.60  

Dividends/distributions

     178,400       2 %       175,382       3 %       170,004  

Base EBITDA from continuing operations

     163,128      
 
(16)
 

  
    193,342      
 
(14)
 

  
    223,769  

Adjusted EBITDA from continuing operations

     248,277      
 
(7)
 

  
    267,735       6 %       251,649  

Base Funds from continuing operations

     96,899      
 
(40)
 

  
    160,729      
 
(13)
 

  
    185,771  

Payout ratio on Base EBITDA from continuing operations

     109       91       76

Payout ratio on Adjusted EBITDA from continuing operations

     72       66       68

Payout ratio on Base Funds from continuing operations

     184       109       92

Payout ratio on Base Funds from continuing operations pro forma $0.84 current dividend

     125       74       62

Embedded gross margin

     2,268,900       15 %       1,976,800       15 %       1,725,500  

Energy customers (RCEs)

     4,222,000       9 %       3,870,000       17 %       3,314,000  

Home Services customers (installed units)

     235,000       42 %       165,000       39 %       119,000  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total customers (RCEs and installed units)

     4,457,000       10 %       4,035,000       18 %       3,433,000  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

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

2 

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

3 

Not a meaningful figure.

 

4.


ACQUISITION OF FULCRUM RETAIL HOLDINGS LLC (“Fulcrum”)

On October 3, 2011, Just Energy completed the acquisition of the 100% equity interest in Fulcrum Retail Holdings LLC (“Fulcrum”), a Texas-based electricity retailer, with an effective date of October 1, 2011. The acquisition was funded by the issuance of $100 million of convertible debentures. Fulcrum markets primarily online and through targeted marketing channels, and focuses on residential and small to mid-size commercial customers.

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. The fair value of the contingent considerations at acquisition was estimated to be $18,327. Changes in the fair value of the contingent consideration are recorded in the consolidated statements of income (loss) as change in fair value of derivative instruments. The contingent consideration was valued at $NIL as at March 31, 2013 with the conclusion 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  

(thousands of dollars)

      

Current assets (including cash of $3,875)

   $ 41,129  

Property, plant and equipment

     758  

Software

     215  

Customer contracts and relationships

     39,533  

Affinity relationships

     42,359  

Brand

     13,034  

Contract initiation costs

     156  

Other

     1,082  
  

 

 

 
     138,266  
  

 

 

 

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

     76,304  

Goodwill arising on acquisition

     26,833  
  

 

 

 

Total consideration

   $ 103,137  
  

 

 

 

Cash paid, net of estimated working capital adjustment

   $ 84,810  

Contingent consideration (Earn-Out amount)

     18,327  
  

 

 

 

Total consideration

   $ 103,137  
  

 

 

 

 

5.


The electricity customer contracts and affinity relationships are amortized over the average remaining life at the time of acquisition. The electricity customer contracts are amortized over 3.5 years. The affinity relationships are amortized over eight years. The brand value, which represents the value allocated to the market awareness of the operating names used to sell and promote Fulcrum’s products, is considered to have an indefinite life and, therefore, is not subject to amortization. The purchase price allocation is considered final and, as a result, no further adjustments will be made.

Continuing 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. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion.

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. 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 2013 with the intention of reducing gross margin fluctuations from extreme weather. The maximum payout associated with the weather derivatives for fiscal 2013 was $20 million. The fiscal 2013 winter finished with overall normal weather, resulting in a cost of $2.0 million for the weather index derivatives.

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.

Alberta

In Alberta, 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 the LDC will be higher in the winter months.

Other gas markets

In New York, Illinois, Indiana, Ohio, California, Georgia, New Jersey, Pennsylvania, Manitoba and Saskatchewan, 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/provinces 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, Ohio, Massachusetts and the United Kingdom, 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. 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 to 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

 

6.


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.

The Company’s 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. 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.

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.

In addition to its traditional commodity marketing business, Just Energy allows customers to effectively manage their carbon footprint without buying energy commodity products. The JustGreen Lifestyle products are essentially carbon offsets from carbon capture and reduction projects as well as green power renewable energy certificates from green generators. The JustGreen Lifestyle products can be offered in all states and provinces and are not dependent on energy deregulation.

CONSUMER (RESIDENTIAL) ENERGY DIVISION

The sale of gas and electricity to customers consuming 15 RCEs and less is undertaken by the Consumer Energy division. Marketing of the energy products of this division is primarily done door-to-door through 1,400 independent contractors, the Momentis network marketing operation and Internet-based marketing and telemarketing efforts. Approximately 47% 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 and JustGreen. 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. In addition, the Consumer Energy division has commenced marketing bundled products in Ontario and Texas, offering certain commodity products along with a smart thermostat.

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: sales through the broker channel using the commercial platform acquired with the Hudson purchase; door-to-door commercial independent contractors; and inside commercial sales representatives. Commercial customers make up approximately 53% 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

National Home Services began operations in April 2008 and provides Ontario and Quebec residential customers with a long-term water heater, furnace and air conditioning rental, offering high efficiency conventional and power vented tank and tankless water heaters and high efficiency furnaces and air conditioners. In addition, National Home Services division has commenced marketing smart thermostats in Ontario. The thermostats are being sold independently in Ontario or also offered in a bundled product offering with the rental of air conditioners or furnaces.

NHS markets through approximately 270 independent contractors in Ontario and Quebec. See page 23 for additional information.

NETWORK MARKETING DIVISION

Just Energy owns and operates Momentis, a network marketing company operating in Canada, the U.S. and the U.K. 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.

 

7.


SOLAR DIVISION

Hudson Energy Solar, a solar project development company operating in New Jersey, Pennsylvania and Massachusetts, brings renewable energy directly to consumers, enabling them to reduce their environmental impact and energy costs. HES installs solar systems on residential and 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, 2013, the division has made cumulative commitments of approximately $106.9 million with the status of the associated projects ranging from contracted to completed.

Discontinued operations

ETHANOL DIVISION

Terra Grain Fuels is a 150-million-litre capacity ethanol plant located in Belle Plaine, Saskatchewan. The plant produces wheat-based ethanol and high protein distillers’ dried grain (“DDG”). TGF was acquired in 2009 as part of the Universal Energy Group Limited acquisition. Since then, management has considered TGF to be a non-core division and management continued to operate based on the intention of the plant maintaining cash flow neutral operations at a minimum. In March 2013, Just Energy formally commenced the process to dispose of TGF. The business of TGF has been operating in an unpredictable product environment, making it difficult for management to derive real growth and profitability from the segment. The disposal of TGF is due to be completed within the next 12 months. As at March 31, 2013, TGF was classified as held for sale and as discontinued operations. See page 28 for more on the financial results from operations.

 

8.


EBITDA

For the years ended March 31

(thousands of dollars)

 

      Fiscal 2013     Fiscal 2012     Fiscal 2011  

Reconciliation to consolidated statements of income

      

Profit (loss) for the year from continuing operations

   $ 601,705      $ (128,455   $ 359,341   

Add:

      

Finance costs

     75,151       54,450       53,021  

Provision for income taxes

     86,385       37,527       173,439  

Capital tax

     —         —         188  

Amortization

     118,809       133,489       141,717  

Profit attributable to non-controlling interest

     653       121       2,136  
  

 

 

   

 

 

   

 

 

 

EBITDA from continuing operations

   $ 882,703      $ 97,132      $ 729,842   

Add (subtract):

      

Change in fair value of derivative instruments

     (719,575     96,210       (506,073
  

 

 

   

 

 

   

 

 

 

Base EBITDA from continuing operations

     163,128       193,342       223,769  
  

 

 

   

 

 

   

 

 

 

Selling and marketing expense to add gross margin

     92,066       80,007       36,428  

Maintenance capital expenditures

     (6,917     (5,614     (8,548
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA from continuing operations

   $ 248,277      $ 267,735      $ 251,649   

Adjusted EBITDA from discontinued operations

     5,822       15,390       7,305  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 254,099      $ 283,125      $ 258,954   
  

 

 

   

 

 

   

 

 

 

EBITDA

      

Gross margin per financial statements

   $ 525,868      $ 499,657      $ 467,296   

Add (subtract):

      

Administrative expenses

     (138,855     (114,168     (98,169

Selling and marketing expenses

     (208,029     (177,302     (133,607

Bad debt expense

     (30,850     (28,514     (27,650

Share-based compensation

     (11,952     (10,662     (9,914

Amortization included in cost of sales/selling and marketing expenses

     28,054       20,746       17,012  

Other income

     5,696       6,536       7,949  

Transaction costs

     —         (1,101     (1,284

Proportionate share of loss from the joint venture

     (7,457     (1,971     —    

Profit attributable to non-controlling interest

     653       121       2,136  
  

 

 

   

 

 

   

 

 

 

Base EBITDA from continuing operations

   $ 163,128      $ 193,342      $ 223,769   
  

 

 

   

 

 

   

 

 

 

Selling and marketing expense to add gross margin

     92,066       80,007       36,428  

Maintenance capital expenditures

     (6,917     (5,614     (8,548
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA from continuing operations

   $ 248,277      $ 267,735      $ 251,649   

Adjusted EBITDA from discontinued operations

     5,822       15,390       7,305  
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 254,099      $ 283,125      $ 258,954   
  

 

 

   

 

 

   

 

 

 

Dividends/distributions

      

Dividends

   $ 173,646      $ 171,381      $ 161,585   

Class A preference share distributions

     —         —         4,896  

Restricted share grant and deferred share grant distributions

     4,754       4,001       3,523  
  

 

 

   

 

 

   

 

 

 

Total dividends/distributions

   $ 178,400      $ 175,382      $ 170,004   
  

 

 

   

 

 

   

 

 

 

Adjusted fully diluted average number of shares outstanding

     143.9m        141.4m        138.1m   
  

 

 

   

 

 

   

 

 

 

 

1 

The per share 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.

 

9.


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 in the future at 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 embedded gross margin are also removed along with maintenance capital expenditures being deducted.

Adjusted EBITDA from continuing operations amounted to $248.3 million ($1.73 per share) for fiscal 2013, a decrease of 7% from $267.7 million ($1.89 per share) in the prior year. The decrease is attributable to a number of factors including: LDC reconciliations in the first and second quarters resulting from the warm 2011—2012 winter; higher growth in administrative costs than the increase in gross margin as the Company expanded into ten new utility territories (including the U.K) and higher sales and marketing expenses as the Company added a record number of new customers during the fiscal year. Due to the delay extending from two to nine months from when a customer signs to the time that the related commodity flows, the customers signed in fiscal 2013 generated cash flow for only a portion of the fiscal year, or in some cases, not at all.

Gross margin increased 5% overall with energy marketing and home services gross margin increasing by 2% and 50%, respectively, versus the prior fiscal year. The energy marketing customer base increased by 9% during the year, with record additions from both the Consumer division and the Commercial division.

Administrative expenses increased by 22% from $114.2 million to $138.9 million year over year. The increase over the prior comparable year was due to the inclusion of a full year of the administrative expenses relating to Fulcrum and investments in growth for the home services and energy marketing divisions, particularly with the Company’s expansion into ten new utility territories.

Selling and marketing expenses for the year ended March 31, 2013, were $208.0 million, a 17% increase from $177.3 million reported in the prior comparable year. This increase is attributable to the 24% increase in customer additions. The sales and marketing expenses representing the costs associated with maintaining gross margin, which are deducted in Adjusted EBITDA, were $98.5 million for the year ended March 31, 2013, 18% higher than $83.3 million in the prior fiscal year.

Bad debt expense was $30.9 million for the year ended March 31, 2013, an 8% increase from $28.5 million recorded for the prior year. This increase is a result of the 23% increase in revenue for markets for which Just Energy bears the bad debt risk year over year. For the year ended March 31, 2013, the bad debt expense of $30.9 million represents approximately 2.1% of revenue in the jurisdictions where the Company bears the credit risk. In the prior year, bad debt expense of $28.5 million represented 2.4% of its relevant revenue.

Dividends and distributions paid for the year ended March 31, 2013 were $178.4 million, an increase of 2% from the prior year as a result of a higher number of shares outstanding. For the year ended March 31, 2013, the payout ratio on Adjusted EBITDA from continuing operations was 72%, versus 66% in the prior year. Payout ratio of Base EBITDA from continuing operations was 109% for fiscal 2013, compared with 91% in fiscal 2012.

For further information on the changes in the operating segments, please refer to “Segmented Base EBITDA from continuing operations” on page XX and “Administrative expenses”, “Selling and marketing expenses”, “Bad debt expense” and “Finance costs”, which are further clarified on pages 26 through 27.

Adjusted EBITDA including continuing and discontinued operations amounted to $254.1 million for fiscal 2013, a decrease of 10% from $283.1 million for the year ended March 31, 2012.

For the year ended March 31, 2011, gross margin was $467.3 million for the year, an increase over the prior year due to strong customer additions and the acquisition of Hudson Energy in May 2010. Administrative, sales and marketing and bad debt expenses amounted to $98.2 million, $133.6 million and $27.7 million, respectively. For fiscal 2011, Adjusted EBITDA from continuing operations amounted to $251.6 million ($1.82 per share) and payout ratio on Adjusted EBITDA from continuing operations was 68% for the year.

 

10.


EMBEDDED GROSS MARGIN

As at March 31

(millions of dollars)

Management’s estimate of the future embedded gross margin is as follows:

 

                   2013 vs.            2012 vs.  
     Fiscal      Fiscal      2012     Fiscal      2011  
     2013      2012      variance     2011      variance  
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Energy marketing division

   $ 1,671.3      $ 1,583.8          $ 1,442.8        10

Home Services

     597.6        393.0        52      282.7        39
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total embedded gross margin

   $ 2,268.9      $ 1,976.8        15    $ 1,725.5        15
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

1 

Energy marketing also includes embedded gross margin related to Momentis and HES.

Management’s estimate of the embedded gross margin amounted to $2,268.9 million as at March 31, 2013, an increase of 15% over fiscal 2012. The increase of $292.1 million in embedded gross margin during the year was generated through sales and marketing expenses to increase embedded gross margin of $92.1 million.

The embedded gross margin for energy marketing increased by 6% in fiscal 2013. The growth in energy marketing embedded gross margin for the year was less than the 9% increase in energy marketing customers due to the increasing share of commercial customers. Commercial customers by design, have lower margins and shorter base contract terms than consumer customers. However, the addition of commercial customers also results in lower customer aggregation costs and lower annual customer servicing costs, neither of which is captured in embedded gross margin.

The Home Services division experienced an increase of 42% in installed units and contractual price increases, resulting in a 52% higher embedded gross margin. NHS’s embedded gross margin represents the margin associated with the average remaining life of the customer contracts.

The U.S. dollar strengthened against the Canadian dollar over fiscal 2013, resulting in an increase of $19.8 million in embedded gross margin when the U.S. energy marketing future gross margin is stated in Canadian dollars.

In fiscal 2012, embedded gross margin increased by 15% to $1,976.8 million. The embedded gross margin for Energy marketing increased by 10% due to a 17% increase in customer base, the majority of which were commercial customers which generate lower gross margin. The embedded gross margin for the Home Services division increased by 39%, reflecting a 39% increase in customer base during the fiscal year and contractual price increases.

 

11.


Funds From Operations for continuing operations

For the years ended March 31

(thousands of dollars)

 

      Fiscal 2013     Fiscal 2012     Fiscal 2011  

Cash inflow from continuing operations

   $ 99,762     $ 147,191     $ 145,483  

Add:

      

Increase in non-cash working capital

     2,223       15,076       39,063  

Dividend/distribution classified as finance cost

     —         —         7,798  

Other

     653       121       2,136  

Tax adjustment

     1,178       3,955       (161
  

 

 

   

 

 

   

 

 

 

Funds from continuing operations

   $ 103,816     $ 166,343     $ 194,319  

Less: maintenance capital expenditures

     (6,917     (5,614     (8,548
  

 

 

   

 

 

   

 

 

 

Base Funds from continuing operations

   $ 96,899     $ 160,729     $ 185,771  
  

 

 

   

 

 

   

 

 

 

Base Funds from Operations

      

Gross margin from financial statements

   $ 525,868     $ 499,657     $ 467,937   

Add (Subtract):

      

Adjustment required to reflect net cash receipts from gas sales

     (4,536     7,740       (1,725

Administrative expenses

     (138,855     (114,168     (98,169

Selling and marketing expenses

     (208,029     (177,302     (133,607

Bad debt expense

     (30,850     (28,514     (27,650

Current income tax recovery provision

     (2,060     (662     (8,812

Amortization included in cost of sales/sales and marketing expenses

     28,054       20,746       17,012  

Other income

     5,696       6,536       7,949  

Financing charges, non-cash

     11,024       8,760       7,799  

Finance costs

     (75,151     (54,450     (53,021

Proportionate share of loss from the joint venture

     (7,457     (1,971     —    

Other non-cash adjustments

     112       (29     16,606  
  

 

 

   

 

 

   

 

 

 

Funds from continuing operations

   $ 103,816     $ 166,343     $ 194,319  

Less: maintenance capital expenditures

     (6,917     (5,614     (8,548
  

 

 

   

 

 

   

 

 

 

Base Funds from continuing operations

   $ 96,899     $ 160,729     $ 185,771  

Base Funds from continuing operations payout ratio

     184     109     92
  

 

 

   

 

 

   

 

 

 

Funds from continuing operations represents the cash generated from Just Energy’s ongoing operations and excluding the ethanol division as it is classified as discontinued operations at the end of fiscal 2013. For the year ended March 31, 2013, Funds from continuing operations were $103.8 million ($0.72 per share), a 38% decrease from $166.3 million ($1.18 per share) in the prior fiscal year. Base Funds from continuing operations, which represents Funds from continuing operations reduced by the maintenance capital expenditures, was $96.9 million for the year ended March 31, 2013, compared with $160.7 million in fiscal 2012. The decrease in the current fiscal year is due to the increase in gross margin being offset by higher operating and finance costs.

Administrative costs increased by 22% as a result of the inclusion of a full year of administrative costs for Fulcrum as well as the additional costs related to the expanding Home Services division and new markets entered for energy marketing such as the U.K. The lower Funds from Continuing Operations and Base Funds from Continuing Operations are due to this increase in administrative costs and the 17% growth in selling and marketing expenses. The energy marketing customer base increased by 9% in fiscal 2013 and embedded margin increased by 15% during the year ended March 31, 2013. Finance costs increased by 38% in fiscal 2013 to $75.2 million due to an increase in credit facility usage, the issuance of the $105 million senior unsecured note and increased NHS and HES financing.

 

12.


Selected consolidated financial data from continuing operations

(thousands of dollars, except per share amounts)

The results from operations have been reclassified for fiscal 2012 and 2011 to present the Ethanol division as discontinued operations as it is available for sale as of March 31, 2013. The Ethanol division is therefore excluded from the results presented below.

Statements of Operations from continuing operations

For the years ended March 31

 

      Fiscal 2013      Fiscal 2012     Fiscal 2011  

Sales

   $ 2,881,964      $ 2,654,778     $ 2,844,666  

Gross margin

     525,868        499,657       467,937  

Profit (loss) from continuing operations

     601,705        (128,455     359,341  

Profit (loss) from continuing operations per share—basic

     4.30        (0.93     2.66  

Profit (loss) from continuing operations per share—diluted

     3.68        (0.93     2.60  

Balance sheet data

As at March 31

      Fiscal 2013      Fiscal 2012      Fiscal 2011  

Total assets

   $ 1,451,503      $ 1,543,044      $ 1,590,026  

Long-term liabilities

     916,748        999,608        890,657  
  

 

 

    

 

 

    

 

 

 

2013 COMPARED WITH 2012

Sales increased by 9% to $2.9 billion in fiscal 2013, compared with $2.7 billion in the prior fiscal year. The sales increase is a result of the 9% increase in the Energy Marketing customer base as well as the 42% increase in the installed units for the Home Services division.

For the year ended March 31, 2013, gross margin increased by 5% to $525.9 million from $499.7 million reported in fiscal 2012. Gross margin related to energy marketing increased 2% year over year lower than the 9% increase in customer base as a result of the increase in the percentage of commercial customers as well as the continuing impact from the fiscal 2012 warm winter as the under-consumed gas was sold at low margins during the first and second quarters of fiscal 2013. Gross margin from Home Services increased by 50% in fiscal 2013 due to a 42% increase in the number of installed units and contractual price increases.

Profit from continuing operations for fiscal 2013 amounted to $601.7 million, compared with a loss of $128.5 million in fiscal 2012. The change in profit from continuing operations is attributable to the change in fair value of the derivative instruments on the Company’s supply portfolio, which showed a gain of $719.6 million in fiscal 2013, versus a loss of $96.2 million in fiscal 2012. Under IFRS, the customer margins are not marked to market but there is a requirement to mark to market the future supply contracts, creating unrealized gains or losses depending on the supply pricing.

Total assets decreased by 6% to $1.5 billion in fiscal 2013 as a result of the amortization of the intangible assets acquired through the Hudson and Fulcrum acquisitions. Excluded from the total assets are $77.4 million of assets for the Ethanol division which are held for sale as of March 31, 2013.

Total long-term liabilities as of March 31, 2013 were $916.7 million representing an 8% decrease over the fiscal 2012. During fiscal 2013, long-term debt increased with the issuance of $105 million senior unsecured note and HES financing as well as increases to HES financing. These increases to long-term liabilities were offset by Just Energy’s credit facility being reclassed to current liabilities, as it expires on December 31, 2013. Management anticipates that the credit facility will be renewed prior to its expiry.

2012 COMPARED WITH 2011

Sales decreased by 7% from $2.8 billion in fiscal 2011 to $2.7 billion in fiscal 2012. The sales decline was the result of a gradual reduction in average price within the customer base as new customers signed, and customer renewals, were at lower prices than that of customers expiring or lost through attrition due to the general decrease in commodity market prices.

 

13.


For the year ended March 31, 2012, gross margin increased by 7% to $499.7 million from $467.9 million reported in fiscal 2011. Gross margin related to energy marketing increased 1% year over year versus a 17% increase in customer base as a result of the warm winter temperatures impacting gas consumption across all markets and the increasing percentage of lower margin commercial customers within the overall book. Gross margin from NHS increased by 78% for the year ended March 31, 2012 reflecting a 39% increase in installed units as well as a full year of gross margin associated with units installed in the previous year.

Net loss for fiscal 2012 amounted to $128.5 million, compared with a net income of $359.3 million in fiscal 2011. The change in net income (loss) is due to the change in fair value of the derivative instruments, which showed a loss of $96.2 million in fiscal 2012, versus a gain in fiscal 2011 of $506.0 million. Under IFRS, the customer margins are not marked to market but there is a requirement to mark to market the future supply contracts, creating unrealized gains or losses depending on the supply pricing.

Total assets decreased by 3% to $1.5 billion in fiscal 2012 as a result of the amortization of the intangible assets acquired through the Hudson acquisition, offset by the increase in assets acquired with the Fulcrum acquisition.

Total long-term liabilities as of March 31, 2012 were $999.6 million representing a 12% increase over fiscal 2011. Just Energy funded the Fulcrum acquisition effective October 1, 2011 by issuing $100 million in convertible debentures, which at March 31, 2012, were valued at $85.9 million in long-term debt. Offsetting this increase other long-term liabilities have decreased in fiscal 2012 primarily due to the movement from long-term liabilities to short-term liabilities at March 31, 2012.

 

14.


Summary of quarterly results for continuing operations

(thousands of dollars, except per share amounts)

 

      Q4
fiscal 2013
    Q3
fiscal 2013
    Q2
fiscal 2013
    Q1
fiscal 2013
 

Sales

   $ 877,475      $ 707,562      $ 674,390      $ 622,537   

Gross margin

     157,655        140,270        114,286        113,657   

Administrative expenses

     36,739        34,888        33,390        33,838   

Sales and marketing expenses

     49,277        49,918        50,268        58,566   

Finance costs

     22,221        18,184        18,436        16,310   

Profit (loss) for the period from continuing operations

     203,391        41,806        23,964        332,544   

Profit (loss) for the period

     137,691        40,238        23,087        328,639   

Profit (loss) for the period from continuing operations per share—basic

     1.44        0.30        0.17        2.39   

Profit (loss) for the period from continuing operations per share—diluted

     1.22        0.29        0.17        2.00   

Dividends/distributions paid

     44,965        44,636        44,409        44,390   

Base EBITDA from continuing operations

     69,612        52,293        25,468        15,755   

Adjusted EBITDA from continuing operations

     87,527        70,660        47,237        42,853   

Base Funds from continuing operations

     47,314        35,897        12,606        1,082   

Payout ratio on Base EBITDA from continuing operations

     65 %       85 %       174 %       293 %  

Payout ratio on Adjusted EBITDA from continuing operations

     51 %       63 %       94 %       105 %  

Payout ratio on Base Funds from continuing operations

     95 %       124 %       352 %       NMF 1% 
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q4
fiscal 2012
    Q3
fiscal 2012
    Q2
fiscal 2012
    Q1
fiscal 2012
 

Sales

   $ 794,031      $ 701,075      $ 563,664      $ 596,008   

Gross margin

     170,651        140,941        96,349        91,716   

Administrative expenses

     32,143        29,882        26,624        25,519   

Sales and marketing expenses

     58,580        48,866        35,302        34,554   

Finance costs

     14,854        14,757        12,734        12,105   

Profit (loss) for the period from continuing operations

     (75,640 )       (100,636     (5,561 )       53,382   

Profit (loss) for the period

     (76,895 )       (97,386 )       (3,494 )       51,132   

Profit (loss) for the period from continuing operations per share—basic

     (0.55 )       (0.73 )       (0.04 )       0.39   

Profit (loss) for the period from continuing operations per share—diluted

     (0.55 )       (0.73 )       (0.04 )       0.39   

Dividends/distributions paid

     44,152        43,934        43,691        43,605   

Base EBITDA from continuing operations

     74,675        56,884        33,134        28,649   

Adjusted EBITDA from continuing operations

     107,078        81,898        42,519        36,240   

Base Funds from continuing operations

     54,598        44,972        38,290        22,869   

Payout ratio on Base EBITDA from continuing operations

     59 %       77 %       132 %       152 %  

Payout ratio on Adjusted EBITDA from continuing operations

     41 %       54 %       103 %       120 %  

Payout ratio on Base Funds from continuing operations

     81 %       98 %       114 %       191 %  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

1 

Not a meaningful figure

 

15.


Just Energy’s results reflect seasonality, as electricity consumption is greater in the first and second quarters (summer quarters) and gas consumption is greater during the third and fourth quarters (winter quarters). Currently, electricity and gas marketing consists of 73% and 27%, respectively, of the energy marketing operations based on fiscal 2013 gross margin. While quarter over quarter comparisons are relevant, sequential quarters will vary materially. The main impact of this will be higher Base EBITDA, Adjusted EBITDA, Funds from Operations, Adjusted Funds from Operations and lower payout ratios in the third and fourth quarters and lower Base EBITDA, Adjusted EBITDA, Funds from Operations, Adjusted Funds from Operations and higher payout ratios in the first and second quarters. This impact is lessening as current net customer additions are concentrated in electricity which traditionally experiences less seasonality than natural gas.

ANALYSIS OF THE FOURTH QUARTER

Financial results

Sales increased by 11% quarter over quarter to $877.5 million from $794.0 million. The fourth quarter is traditionally the strongest seasonal quarter as natural gas consumption is concentrated in the colder winter months. The impact of this seasonality is diminishing as electricity has become the dominant commodity within the customer book. Quarterly sales from energy marketing and home services divisions increased by 10% and 78%, respectively, versus the prior comparable quarter.

Gross margin was $157.7 million, down 8% from a year earlier. The growth in gross margin from NHS was more than offset by lower gross margin contributions from Energy Marketing and Momentis. Gas margins were up 18% despite a 10% decrease in customer base as a result of higher consumption in the current year compared with record warm temperatures in the fourth quarter of fiscal 2012.

Electricity margin was down 24% compared with the prior comparable quarter. Electricity margin compression was seen in the northeastern states because of increased capacity costs. Historically these costs have been lower and relatively stable. Year over year these costs have increased significantly, thereby compressing margins particularly in the fourth quarter. Going forward, the company will look to structure contracts to pass these costs onto the customer as well as effectively hedge capacity costs, to mitigate future impact to gross margin.

Gross margin from Momentis for the fourth quarter was $0.4 million, a decrease from $7.9 million in the fourth quarter of fiscal 2012. The decrease in gross margin is attributable to less revenue generated as a result of a lower number of new independent representatives joining Momentis and fewer products sold in the current quarter.

Administrative expenses amounted to $36.7 million, an increase of 14% from $32.1 million recorded in the fourth quarter of fiscal 2012. The increase in administrative expenses is related to the growth in the customer base year over year, particularly in the home services division and the expansion into ten utility territories during fiscal 2013, most notably the U.K. commercial operations.

Selling and marketing expenses were $49.3 million in the fourth quarter of fiscal 2013, a decrease of 16% from $58.6 million in the prior comparable quarter. The decrease is due to lower Momentis costs as fewer incentives were needed in the current fiscal year to build that sales force. Telemarketing and internet sales also resulted in lower per customer aggregation costs.

Bad debt expense for the three months ended March 31, 2013 was $8.3 million, an increase of 19% from $7.0 million in the prior comparable quarter. Revenue earned in markets where Just Energy bears the collection risk increased by 19% quarter over quarter. Finance costs were $22.2 million for the fourth quarter of fiscal 2013, an increase of 50% from $14.9 million recorded for the three months ended March 31, 2012. The increase in finance costs is attributable to the increase in the credit facility, NHS financing as well as the issuance of HES financing and the $105 million senior unsecured note.

The change in fair value of derivative instruments resulted in a gain of $226.0 million for the current quarter, in comparison with a loss of $90.2 million recorded in the fourth quarter of the prior fiscal year. Profit for the period ended March 31, 2013, was $137.7 million. For the prior comparable quarter, the loss was $76.9 million. The fair value of derivative instruments represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers in the future at fixed prices, minimizing any impact of mark to market gains and losses.

Base EBITDA from continuing operations (after all selling and marketing costs) decreased by 7% to $69.6 million for the three months ended March 31, 2013, down from $74.7 million in the prior comparable quarter. This was primarily a result of lower gross margin from energy marketing due to lower cash receipts from weather option derivatives and lower gross margin per commercial customer. Adjusted EBITDA from continuing operations was $87.5 million for the three months ended March 31, 2013, an 18% decrease from $107.1 million in the prior comparable quarter. Despite lower quarterly EBITDA, strong net customer additions led to higher embedded gross margin at the end of the quarter.

 

16.


Funds from continuing operations were lower than the prior comparable quarter as the available cash was utilized to fund new markets and strong customer additions with the resultant embedded gross margin growth.

Dividends/distributions paid were $45.0 million, an increase of 2% over the prior comparable quarter as a result of a higher number of shares outstanding. The payout ratio on Adjusted EBITDA from continuing operations was 51% for the three months ended March 31, 2013, compared with 41% in the prior comparable quarter. The payout ratio on Base Funds from continuing operations was 95% for the three months ended March 31, 2013, compared with 81% reported for the fourth quarter of fiscal 2012.

Marketing results

Gross customer additions for the fourth quarter were 332,000, up 5% from the 316,000 customers added through marketing in the fourth quarter of fiscal 2012. Net additions from marketing were 98,000 for the quarter versus 112,000 net customers added in the prior comparable quarter.

Consumer customer additions amounted to 154,000 for the fourth quarter of fiscal 2013, consistent with the gross customer additions recorded in the prior comparable period. Commercial customer additions were 178,000 for the current year, a 10% increase from 162,000 gross customer additions in the three months ended March 31, 2012. The higher additions were a result of strong results from independent contractors, brokers and internet marketing.

The home services division continued its customer growth with installations for the three months ended March 31, 2013 of 11,000 water heaters and 1,000 air conditioners and furnaces, with 9% higher installations than in the prior comparable quarter.

 

17.


Segmented Base EBITDA from continuing operations

For the years ended March 31

 

                             Fiscal 2013  
     Gas
marketing
    Electricity
marketing
    Home
services
    Other     Consolidated  

Gross margin per financial statements

   $ 125,774      $ 340,895      $ 41,937      $ 17,262      $ 525,868   

Add (subtract):

          

Administrative expenses

     (33,123     (78,191     (19,197     (8,344     (138,855

Selling and marketing expenses

     (44,724     (128,059     (5,171     (30,075     (208,029

Bad debt expense

     (2,078     (28,728     (44     —         (30,850

Share-based compensation

     (2,352     (7,688     (1,360     (552     (11,952

Amortization included in cost of sales/selling and marketing expenses

     —         14,900       11,732       1,422       28,054  

Other income (loss)

     (591     4,238       —         2,049       5,696  

Proportionate share of loss from joint venture

     (1,763     (5,694     —         —         (7,457

Profit attributable to non-controlling interest

     —         653       —         —         653  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Base EBITDA from continuing operations

   $ 41,143      $ 112,326      $ 27,897      $ (18,238   $ 163,128   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                             Fiscal 2012  
     Gas
marketing
    Electricity
marketing
    Home
services
    Other     Consolidated  

Gross margin per financial statements

   $ 140,140      $ 316,232      $ 27,979      $ 15,306      $ 499,657   

Add (subtract):

          

Administrative expenses

     (30,822     (66,263     (12,901     (4,182     (114,168

Selling and marketing expenses

     (34,546     (101,236     (4,188     (37,332     (177,302

Bad debt expense

     (3,188     (25,222     (104     —         (28,514

Share-based compensation

     (2,602     (6,515     (1,329     (216     (10,662

Amortization included in cost of sales/selling and marketing expenses

     —         12,427       8,319       —         20,746  

Other income (loss)

     (7,038     12,722       —         852       6,536  

Transaction costs

     —         (1,101     —         —         (1,101

Proportionate share of loss from joint venture

     (565     (1,406     —         —         (1,971

Profit attributable to non-controlling interest

     —         121       —         —         121  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Base EBITDA from continuing operations

   $ 61,379      $ 139,759      $ 17,776      ($ 25,572   $ 193,342   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Base EBITDA from continuing operations amounted to $163.1 million for the year ended March 31, 2013, a decrease from $193.3 million in the prior fiscal year. Gas marketing contributed $41.1 million to Base EBITDA from continuing operations for the year, a decrease of 33% from $61.4 million in fiscal 2012, as a result of a 10% decrease in customer base and the inclusion of weather derivative option proceeds in fiscal 2012, while the related unfavourable reconciliation of excess gas with LDCs was recorded in the first half of fiscal 2013. Electricity marketing contributed $112.3 million to Base EBITDA from continuing operations, a decrease of 20% from fiscal 2012 when the segment contributed $139.8 million. The decrease is a result of higher capacity costs in the northeast U.S. and the overall increase in the commercial customer base which generates lower gross margin on a per-customer basis.

NHS contributed $27.9 million to the consolidated Base EBITDA from continuing operations for fiscal 2013, an increase from $17.8 million in the prior comparable year due to 42% increase in customer base and contractual price increases. Just Energy’s other divisions, Momentis and HES, contributed a combined $(18.2) million to Base EBITDA from continuing operations for the current year, compared with $(25.6) million contributed in the year ended March 31, 2012.

For further information on each division, please refer to “Energy Marketing” included on the next page, “Home Services division (NHS)” on page 23 and “Other divisions (Momentis and Solar)” on page 24.

 

18.


Energy marketing

For the years ended March 31

(thousands of dollars)

 

      Fiscal 2013     Fiscal 2012  
Sales    Gas     Electricity     Total     Gas      Electricity      Total  

Canada

   $ 406,276     $ 411,786     $ 818,062     $ 476,020      $ 489,043      $ 965,063  

United States

     338,799       1,650,223       1,989,022       407,037        1,230,810        1,637,847  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   $ 745,075     $ 2,062,009     $ 2,807,084     $ 883,057      $ 1,719,853      $ 2,602,910  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Increase (decrease)

     (16 )%      20     8        

 

Gross margin    Gas     Electricity     Total     Gas      Electricity      Total  

Canada

   $ 61,529     $ 103,174     $ 164,703     $ 85,222      $ 93,151      $ 178,373  

United States

     64,245       237,721       301,966       54,918        223,081        277,999  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
   $ 125,774     $ 340,895     $ 466,669     $ 140,140      $ 316,232      $ 456,372  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Increase (decrease)

     (10 )%      8     2        
  

 

 

   

 

 

   

 

 

         

For the year ended March 31, 2013, sales were $2,807.1 million, an increase of 8% from $2,602.9 million in the prior year. Gross margin was $466.7 million for the year ended March 31, 2013, an increase of 2% from $456.4 million earned in the prior year. For the year ended March 31, 2013, gas and electricity gross margin consisted of 27% and 73%, respectively, of total energy marketing gross margin. In fiscal 2012, gas and electricity gross margin represented 31% and 69% of total energy marketing gross margin, respectively.

The total customer base increased by 9% during fiscal 2013. The 8% increase in sales was reflective of the increase in customer base however the increase in gross margin was lower at 2%. Commercial customers increased their proportion of the energy marketing book by 4%, starting fiscal 2013 representing 49% of the customer base and representing 53% at March 31, 2013. Commercial customers generate lower gross margin per RCE than consumer customers.

GAS

For the year ended March 31, 2013, sales were $745.1 million, a decrease of 16% from $883.1 million in fiscal 2012. Gross margin was $125.8 million for the year ended March 31, 2013, a decrease of 10% from $140.1 million earned in the prior year. The decrease in the current year is primarily due to the lower consumption resulting from the 10% decrease in gas customer base year over year.

Weather has resulted in significant fluctuations in gross margin. During the current fiscal year, the weather for the third and fourth quarters was overall, in line with expectations. As a result, Just Energy incurred net option costs of $2.0 million in fiscal 2013. However, in the prior fiscal year, as a result of the extreme warm weather, the weather index derivatives resulted in a payout at the maximum amount of $15 million, offsetting a margin loss of approximately $28 million.

An additional impact from the extremely warm winter in fiscal 2012 was seen in losses on LDC reconciliations in the financial results of the first half of fiscal 2013. During this period, Just Energy experienced losses on the sale of excess gas released through final LDC reconciliations, resulting in a further decrease in gross margin of approximately $16 million.

Canada

For the year ended March 31, 2013 sales and gross margin were $406.3 million and $61.5 million respectively, representing decreases of 15% in sales and 28% in gross margin in comparison with fiscal 2012. The decreases are attributable to the impact from lower realized customer margins and the 9% decrease in customer base, as well as losses on the sale of excess gas resulting from the milder temperatures during the fiscal 2012 winter. The vast majority of the $15 million in weather derivative option proceeds in fiscal 2012 were attributable to Canadian gas customers and, unlike LDC reconciliation costs, were realized in that fiscal year.

 

19.


After allowance for balancing, realized average gross margin per customer (“GM/RCE”) for the year ended March 31, 2013, amounted to $132 per RCE compared to $178 per RCE for the prior year. The decline in realized GM/RCE is almost entirely attributable to financial reconciliations in the first half of fiscal 2013 to offset under consumption in the warm winter of fiscal 2012. The GM/RCE value includes an appropriate allowance for a bad debt expense in British Columbia and Alberta.

United States

For the year ended March 31, 2013, gas sales were $338.8 million, a decrease of 17% from $407.0 million in the prior year. Gross margin was $64.2 million, an increase of 17% as compared to $54.9 million for the year ended March 31, 2012. This increase in gross margin reflects higher consumption due to colder weather and a lower proportion of weather derivative option proceeds recorded in fiscal 2012 versus those received in Canada.

Total gas customers in the U.S. decreased by 11% during the fiscal year primarily due to a single low margin 75,000 RCE commercial customer that did not renew during the second quarter. However, the overall decline in the customer base did not result in any meaningful decline in margins. There was also a decline in the consumer gas customer base reflecting the continued impact of low gas prices and Just Energy’s focus on shifting resources to electricity-oriented markets. The lower commodity price environment and its impact on recently signed customers that were signed at lower contract prices also contributed to the decline in gas sales in the U.S. over the prior year.

Average realized gross margin after all balancing costs for the year ended March 31, 2013, was $149 per RCE, an increase from $113 per RCE for the prior year. The increase year over year was due to less weather derivative option proceeds being booked in the U.S. markets in fiscal 2012 thereby, reducing the comparable GM/RCE for that year. The GM/RCE value includes an appropriate allowance for bad debt expense in Illinois, Georgia, Michigan and California.

ELECTRICITY

For the year ended March 31, 2013, sales were $2,062.0 million, an increase of 20% from $1,719.9 million, and gross margin was $340.9 million, up 8% from $316.2 million in the prior year. The electricity customer base increased by 17% during fiscal 2013. The lower growth of gross margin versus customers is attributable to higher commercial net additions and price volatility in the northeast U.S., offset by improved margins per customer in Canada.

Canada

For the year ended March 31, 2013, sales were $411.8 million, a decrease of 16% from $489.0 million in fiscal 2012 due to a 6% decline in RCEs as well as new variable rate products with five-year term features offered at lower sales prices. Gross margin was $103.2 million, up 11% from $93.2 million in fiscal 2012. Gross margin increased largely due to higher margins associated with the JustGreen product offerings as well as the profitability of attractive variable rate products.

Realized average gross margin per customer in Canada after all balancing and including acquisitions for the year ended March 31, 2013, amounted to $167 per RCE, an increase from $141 per RCE in the fiscal 2012. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta.

United States

For the year ended March 31, 2013, electricity sales were $1,650.2 million, an increase of 34% from $1,230.8 million in fiscal 2012. Gross margin was $237.7 million, an increase of 7% as compared to $223.1 million recorded for the year ended March 31, 2012. Driving sales and margin growth was the 24% increase in customer base during the past year, as a result of strong additions through marketing. During fiscal 2013, margin growth was less than net customer growth as lower margin commercial customers increased at a higher rate than consumer customers. Realized margins were also reduced by the gross margin compression due to increased capacity costs, primarily for commercial customers, in the northeastern states. Historically these costs have been lower and relatively stable. Year over year these costs have increased significantly, thereby compressing margins particularly in the fourth quarter. Going forward, the company will look to structure contracts to pass through these costs as well as effectively hedge capacity costs, to mitigate future negative impact to gross margin.

Average realized gross margin per customer for U.S. electricity decreased to $100 per RCE during the year, compared to $132 per RCE in the prior year, for the reasons noted above. The GM/RCE value for Texas, Pennsylvania, Massachusetts, Illinois and California includes an appropriate allowance for bad debt expense.

 

20.


Long-term energy customer aggregation

     April 1,
2012
     Additions      Attrition     Failed to
renew
    March 31,
2013
     % increase
(decrease)
 

Electricity

               

Canada

     698,000        92,000        (57,000     (79,000     654,000        (6 )% 

United States

     2,063,000        991,000        (269,000     (234,000     2,551,000        24

United Kingdom

     —          19,000        —         —         19,000     
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total electricity

     2,761,000        1,102,000        (326,000     (313,000     3,224,000        17
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Natural gas

               

Canada

     558,000        85,000        (48,000     (85,000     510,000        (9 )% 

United States

     551,000        168,000        (118,000     (113,000     488,000        (11 )% 
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total gas

     1,109,000        253,000        (166,000     (198,000     998,000        (10 )% 
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Combined

     3,870,000        1,355,000        (492,000     (511,000     4,222,000        9
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Gross customer additions for the year were 1,355,000, up 24% from the 1,091,000 customers added through marketing in fiscal 2012. Net additions from marketing were 352,000 for the year, up 11% versus 316,000 net customers added through marketing in the prior year.

Consumer customer additions amounted to 631,000 for fiscal 2013, a 47% increase from 429,000 gross customer additions recorded in the prior fiscal year. Commercial customer additions were 724,000 for the current year, an 9% increase from 662,000 gross customer additions in the prior fiscal year. The increase in additions was a result of strong results from independent contractors, brokers and internet marketing.

Total gas customers decreased by 111,000 RCEs, a 10% reduction over the prior fiscal year. U.S. gas customers decreased by 11%, primarily due to the failure to renew a single 75,000 RCE customer (Just Energy’s largest in terms of volume). The Canadian gas customer base decreased by 9% during the fiscal year, primarily as a result of a high number of customers failing to renew. The extended period of low, stable gas prices has reduced the consumer customer appetite for the stability of higher priced long-term fixed contracts. As a result, Just Energy has moved to a variety of consumer products that provide different value propositions in the current environment, with variable and monthly flat rate contracts being well received while spot market prices remain stable. Management believes that holding the overall gas customer base flat in this environment will be a positive result.

Total electricity customers were up 17% during fiscal 2013. The U.S. electricity market increased by 24%, primarily due to strong customer additions in the Texas market for both the Consumer and Commercial divisions. The Canadian electricity market, particularly in Ontario, continues to face competitive challenges due to low utility pricing, and as a result, the customer base decreased by 6%. The Commercial division launched its U.K. operations during the second quarter of fiscal 2013 with customer additions of 19,000 RCEs as at March 31, 2013. The Company believes that the appropriate focus of marketing efforts is, and will remain, electricity given the challenging gas price environment and strong receptivity to electricity offerings.

At the end of fiscal 2013, the gas and electricity segments accounted for 24% and 76% of the energy marketing customer base, respectively. At the end of the prior fiscal year, the gas and electricity segments represented 29% and 71% of the energy marketing customer base, respectively.

JUSTGREEN

Sales of JustGreen products remain stable despite premium pricing in a low-price environment. The JustGreen program allows customers to choose to purchase units of green energy in the form of renewable energy or carbon offsets, in an effort to reduce greenhouse gas emissions. When a customer purchases a unit of green energy, it creates a contractual obligation for Just Energy to purchase a supply of green energy at least equal to the demand created by the customer’s purchase. Grant Thornton LLP conducted a review of Just Energy’s Renewable Energy and Carbon Offsets Sales and Purchases Report for the period from January 1, 2012, through December 31, 2012, validating the match of Just Energy’s renewable energy and carbon offset purchases against customer contracts. Just Energy has contracts with over 90 carbon offset and renewable energy projects across North America and is actively pursuing new projects to meet our growing demand for green energy alternatives. Just Energy purchases help developers finance their projects.

 

21.


The Company currently sells JustGreen gas in the eligible markets of Ontario, Quebec, British Columbia, Alberta, Michigan, New York, Ohio, Illinois, New Jersey, Maryland and Pennsylvania. JustGreen electricity is sold in Ontario, Alberta, New York, Texas and Pennsylvania. Of all consumer customers who contracted with Just Energy in the past year, 28% took JustGreen for some or all of their energy needs. On average, these customers elected to purchase 82% of their consumption as green supply. For comparison, in fiscal 2012, 29% of consumer customers who contracted with Just Energy chose to include JustGreen for an average of 84% of their consumption. Overall, JustGreen now makes up 9% of the Consumer gas portfolio, down from 10% a year ago. JustGreen makes up 13% of the Consumer electricity portfolio, up from 12% a year ago.

ATTRITION

 

     Fiscal 2013     Fiscal 2012     Fiscal 2011  

Natural gas

      

Canada

     9     10     10

United States

     24     24     23

Electricity

      

Canada

     9     9     10

United States

     12     13     17

Total attrition

     12     13     15
  

 

 

   

 

 

   

 

 

 

Attrition rates have seen a steady annual decrease. In fiscal 2011, attrition rates were 15%, declining to 13% in fiscal 2012. In fiscal 2013, total attrition rates further decreased to 12%. The majority of customers signed in the past three years are on prices consistent with current market prices. The attrition from these customers and their eventual renewal will be assisted by this pricing. In addition, there are generally lower attrition rates among the growing base of commercial customers.

Natural gas

The annual natural gas attrition in Canada was 9% for fiscal 2013, a decrease from the attrition rate of 10% reported one year ago. In the U.S., annual gas attrition was 24%, consistent with the rate reported for fiscal 2012.

Electricity

The annual electricity attrition rate in Canada was 9% for fiscal 2013, equal to the attrition rate reported in the prior year. Electricity attrition in the U.S. was 12% for fiscal 2013, a decrease of 1% from the attrition reported in fiscal 2012 due to the increasing commercial customer base, which has historically experienced lower attrition rates.

RENEWALS

     Consumer     Commercial  
     Fiscal 2013     Fiscal 2012     Fiscal 2011     Fiscal 2013     Fiscal 2012     Fiscal 2011  

Natural gas

            

Canada

     41     52     69     64     61     49

United States

     85     85     73     19     62     77

Electricity

            

Canada

     55     51     63     62     59     58

United States

     90     87     75     79     64     60

Total renewals—Consumer and Commercial divisions

     69     64     65      
  

 

 

   

 

 

   

 

 

       

The Just Energy renewal process is a multifaceted program that aims to maximize the number of customers who choose to renew their contract prior to the end of their existing contract term. Efforts begin up to 15 months in advance, allowing a customer to renew for an additional period. Management’s targeted renewal rates for consumer customers are approximately 70% overall, assuming commodity price volatility remains low. Overall, renewal rates were in range of this target at 69%, up from 64% in fiscal 2012 and 65% in fiscal 2011.

 

22.


The renewal rates for Canadian gas and electricity continue to be impacted by the current large spread between the Just Energy five-year price and the utility spot price. The renewal rates for Canada gas decreased from 52% in fiscal 2012 to 41% in fiscal 2013 due to a difficult renewal environment in British Columbia and Ontario. The long period of stable low prices has reduced customer interest in renewing at higher fixed prices. Just Energy is focused on variable-price offerings in order to improve renewal rates. It is anticipated that Canadian renewal rates will improve towards target levels as more customers begin to renew their current market priced contracts.

Renewal rates for commercial customers are expected to be more volatile than those of consumer customers as a commercial renewal is often a function of a competitive bid process and these customers regularly change suppliers. This was the case for the U.S. gas market, where the renewal rate was 19%, primarily due to one low margin customer representing 75,000 RCEs, failing to renew its contract during the second quarter of fiscal 2013.

Gas and electricity contract renewals

This table shows the percentage of customers up for renewal in each of the following fiscal periods:

 

     Canada—gas     Canada—electricity     U.S.—gas     U.S.—electricity  

2014

     24     17     19     36

2015

     19     12     9     15

2016

     23     23     12     14

2017

     13     17     19     10

Beyond 2017

     21     31     41     25
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

 

Note: All month-to-month customers, which represent 383,000 RCEs, are excluded from the table above.

Gross margin earned through marketing efforts

The table below depicts the annual margins on contracts of consumer and commercial customers signed during the year. This table reflects all margin earned on new additions and renewals including both the brown commodity and JustGreen.

ANNUAL GROSS MARGIN PER CUSTOMER

 

      Fiscal 2013      Number of
customers
 

Consumer customers added and renewed in the year

   $ 178        1,023,000  

Consumer customers lost in the year

     180        558,000  

Commercial customers added and renewed in the year

     74        1,245,000  

Commercial customers lost in the year

     82        445,000  
  

 

 

    

 

 

 

 

1

Customer sales price less cost of associated supply and allowance for bad debt.

Home Services division (“NHS”)

NHS provides Ontario and Quebec residential customers with long-term water heater rental programs that offer conventional tanks, power vented tanks and tankless water heaters in a variety of sizes as well as high efficiency furnaces and air conditioners. NHS continued its customer growth with installations for the year of 37,000 water heaters and 6,000 air conditioners and furnaces, compared with 40,000 water heaters and 6,000 air conditioner and furnace units installed in the prior year. NHS currently markets through approximately 270 independent contractors.

 

23.


During the year, NHS completed the acquisition of the equipment and related customer contracts from morEnergy Services Inc. (“morEnergy”) for approximately $9.7 million. The acquisition was primarily financed through additional funding from Home Trust Company (“HTC”). Included in the acquisition were the equipment and customer contracts related to 26,000 water heaters and 1,000 air conditioner and furnace units with an average remaining life of seven years.

Total installed customer base at the end of fiscal 2013, including water heaters, furnaces and air conditioners, amounted to 235,000, an increase of 42% from the installed customer base of 165,000 as at March 31, 2012. Excluding the acquired customers from morEnergy, the number of installed units added through marketing increased by 26% during fiscal 2013.

As NHS is a high growth, relatively capital-intensive business, Just Energy’s management believes that, in order to maintain stability of dividends, separate non-recourse financing of this capital is appropriate. NHS holds a long-term financing agreement with HTC for the funding of the water heaters, furnaces and air conditioners in Ontario. Under the HTC agreement, NHS receives funds equal to the amount of the five-, seven—or ten-year cash flow (at its option) of the water heater, furnace and air conditioner contracts discounted at the contracted rate, which is 7.89% to 7.99%. HTC is then paid an amount that is equal to the customer rental payments on the water heaters for the next five, seven or ten years as applicable. As at March 31, 2013, the balance outstanding was $226.7 million, with an average term of 6.1 years.

Management’s strategy for NHS is to self-fund the business through its growth phase, building value within the customer base. This way, NHS will not require significant cash from Just Energy’s core operations nor will Just Energy rely on NHS’s cash flow to fund dividends. The result will be an asset that will generate strong cash returns following repayment of the HTC financing. The embedded gross margin within the NHS contracts grew 52% to $597.6 million during the year, up from $393 million as at March 31, 2012.

Just Energy has started selling SmartStat thermostats through its Consumer division and NHS. The thermostats are currently being marketed through a cross-sell opportunity to Just Energy’s existing customer base in Ontario and Texas as well as in bundled product offerings with commodity or air conditioner/furnace rentals. This new initiative was launched late in the third quarter of fiscal 2013 with approximately 7,000 installations completed as of March 31, 2013.

RESULTS OF OPERATIONS

For the year ended March 31, 2013, NHS had gross margin of $42.0 million, an increase of 50% from $28.0 million reported in the prior year. Administrative costs, which relate primarily to administrative staff compensation and warehouse expenses, were $19.2 million for the year ended March 31, 2013, an increase of 49% year over year due to the larger customer base, the expansion into Quebec as well as a restructuring of management compensation.

Base EBITDA for the Home Services division for fiscal 2013 amounted to $27.9 million, an increase from $17.8 million in the prior year. This increase is attributable to the increase in gross margin associated with the continued strong growth in the installed customer base.

Finance costs amounted to $15.8 million for the year ended March 31, 2013, an increase from $10.0 million recorded in prior year. NHS outstanding debt was $257.4 million as at March 31, 2013, up from $147.2 million in the year prior.

Other divisions (Network Marketing and Solar)

Adjusted EBITDA generated by Just Energy’s other divisions amounted to $(18.2) million, compared to $(25.6) million in the prior fiscal year.

NETWORK MARKETING (MOMENTIS)

Gross margin decreased by 4% to $15.5 million. This figure does not include gross margin on energy contracts sold through Momentis. The gross margin for Momentis relates to revenue generated by initial registration fees and website fees paid by new independent representatives as well as revenue generated by the sale of third party products such as wireless internet and satellite television services, less the related cost of sales. During fiscal 2013, the growth in the network marketing division slowed compared to the growth experienced in the second half of fiscal 2012. In addition to the energy contracts sold, Momentis has sold other related products equivalent to 24,000 RCEs.

Selling and marketing expenses amounted to $30.1 million for the year ended March 31, 2013, representing the commission earned by independent representatives as well as other overhead costs, a decrease from the $37.3 million expensed in fiscal 2012, a significant portion of which related to upfront costs for building this channel.

 

24.


SOLAR (HES)

As at March 31, 2013, the division has made cumulative commitments of $106.8 million, with projects ranging from contracted to completed. The number of total projects completed in fiscal 2013 was valued at $33.9 million. During fiscal 2013, HES entered into an additional financing agreement consisting of construction financing and debt financing. As of March 31, 2013, $21.2 million has been financed using the HES credit facility and construction financing.

Overall consolidated results from continuing operations

ADMINISTRATIVE EXPENSES

 

     Fiscal 2013      Fiscal 2012      % increase
(decrease)
 

Energy marketing

   $ 111,314      $ 97,085        15

NHS

     19,197        12,901        49

Other

     8,344        4,182        100
  

 

 

    

 

 

    

 

 

 

Total administrative expenses

   $ 138,855      $ 114,168        22
  

 

 

    

 

 

    

 

 

 

For the year ended March 31, 2013, administrative expenses were $138.9 million, an increase of 22% from $114.2 million in the prior fiscal year.

Energy marketing administrative costs were $111.3 million for fiscal 2013, an increase of 15% from $97.1 million for the year ended March 31, 2012. The increase year over year was partially a result of the inclusion of a full year of administrative expenses relating to the Fulcrum acquisition, which occurred at the midway point of fiscal 2012. Excluding the Fulcrum-related expenses, energy marketing expenses increased by 11% in fiscal 2013. The increase was driven by a 9% increase in customers from a year earlier as well as increased expenses relating to expansion into new markets including the U.K. commercial launch.

Administrative expenses for NHS and Other (Network Marketing and Solar divisions) for fiscal 2013 were $19.2 million and $8.3 million, respectively, both reflecting an increase from the prior year as a result of the growth in operations. The increase in administrative expenses at NHS also included a restructuring of management compensation.

SELLING AND MARKETING EXPENSES

Selling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and independent representatives as well as sales-related corporate costs, were $208.0 million, an increase of 17% from $177.3 million in fiscal 2012.

New customers signed by the sales force totalled 1,355,000 during fiscal 2013, an increase of 24% compared to 1,091,000 customers added through our sales channels in fiscal 2012. The increase in selling and marketing costs was less than the increase in customers due to the increased use of lower cost marketing channels and lower unrecovered marketing expenses associated with the Network Marketing division.

Commissions related to obtaining and renewing broker commercial contracts are paid all or partially upfront or as residual payments over the life of the contract. If the commission is paid all or partially upfront, the amortization is included in selling and marketing expenses at the time the associated revenue is earned. If the commission is paid as a residual payment, the amount is expensed as earned. Of the current total commercial customer base, approximately 84% are commercial broker customers and approximately 66% of these commercial brokers are being paid recurring residual payments.

During the year ended March 31, 2013, $11.5 million in commission-related expenses for energy marketing were capitalized to contract initiation costs. Of the capitalized commissions, $2.4 million represents commissions paid to maintain gross margin and therefore is included in the maintenance capital deducted in the Adjusted EBITDA calculation.

Selling and marketing expenses to maintain gross margin were $98.5 million for the year ended March 31, 2013, an increase of 18% from $83.3 million for fiscal 2012 as a result of more customers up for renewal and associated costs offset by the lower commission per customer and higher commercial customer additions.

 

25.


Selling and marketing expenses to add new gross margin represents the portion of costs that were required to create the increase in embedded gross margin during the year. Embedded gross margin increased $292.1 million in fiscal 2013. Expenditures from home services, energy marketing and network marketing resulted in this net growth. Selling and marketing expenses to add new gross margin in the year ended March 31, 2013, totalled $92.1 million, an increase of 15% year over year matching the 15% growth in embedded margin. In the prior fiscal year, $80.0 million was spent to increase embedded gross margin.

Selling and marketing expenses included in Base EBITDA exclude amortization related to the contract initiation costs for Hudson, Fulcrum and NHS. For the year ended March 31, 2013, the amortization amounted to $17.4 million, an increase of 24% from $14.0 million reported in the prior fiscal year.

Aggregation costs per customer for the year ended March 31, 2013, for residential and commercial customers signed by independent representatives and commercial customers signed by brokers were as follows:

 

     Residential      Commercial      Commercial
Broker (annual)
 

Natural gas

        

Canada

   $ 233/RCE       $ 104/RCE       $ 23/RCE   

United States

   $ 150/RCE       $ 129/RCE       $ 27/RCE   

Electricity

        

Canada

   $ 227/RCE       $ 163/RCE       $ 40/RCE   

United States

   $ 138/RCE       $ 143/RCE       $ 31/RCE   
  

 

 

    

 

 

    

 

 

 

Average aggregation costs

   $ 155/RCE       $ 133/RCE       $ 31/RCE   
  

 

 

    

 

 

    

 

 

 

The $31/RCE average aggregation cost for the commercial broker customers is based on the expected average annual cost for the respective customer contracts. It should be noted that commercial broker contracts are paid further commissions averaging $31/RCE per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $56 (1.8 x $31/RCE) to the year’s $31/RCE average aggregation cost for commercial broker customers reported above. For the prior year, total aggregation costs per residential, commercial and commercial brokers were $181/RCE, $135/RCE and $35/RCE, respectively.

BAD DEBT EXPENSE

In Illinois, Alberta, Texas, California, Massachusetts, Michigan and Georgia, Just Energy assumes the credit risk associated with the collection of customer accounts. In addition, for commercial direct-billed accounts in British Columbia, Just Energy is responsible for the bad debt risk. NHS has also assumed credit risk for customer account collection for certain territories within Ontario. HES also assumes the credit risk for its customers once projects are completed and interconnected. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above-noted markets. During the year ended March 31, 2013, Just Energy was exposed to the risk of bad debt on approximately 51% of its sales, compared with 43% of sales during the year ended March 31, 2012. The increase in the amount of sales exposed to bad debt is due to the increase in customer base in markets such as Texas where Just Energy bears the bad debt risk as well as a full year of sales associated with the Fulcrum acquisition.

Bad debt expense is included in the consolidated income statement under other operating expenses. Bad debt expense for the year ended March 31, 2013, was $30.9 million, an increase of 8% from $28.5 million expensed for the year ended March 31, 2012. The bad debt expense increase was a result of a 23% increase in total revenues for the current year for the markets where Just Energy bears the credit risk including the increase in customer base and additional revenue earned in Texas from the customers acquired from Fulcrum. Management integrates its default rate for bad debts within its margin targets and continuously reviews and monitors the credit approval process to mitigate customer delinquency. For the year ended March 31, 2013, the bad debt expense of $30.9 million represents 2.1% of relevant revenue, lower than the bad debt for fiscal 2012, which represented 2.4% of relevant revenue.

Management expects that bad debt expense will remain in the range of 2% to 3% of relevant revenue. For each of Just Energy’s other markets, the LDCs provide collection services and assume the risk of any bad debt owing from Just Energy’s customers for a regulated fee.

 

26.


FINANCE COSTS

Total finance costs for the year ended March 31, 2013 amounted to $75.2 million, an increase of 38% from $54.5 million recorded in fiscal 2012. The increase is a result of a full year of interest associated with the $100m convertible shares issued to fund the Fulcrum acquisition in September 2011, the interest on the $105 million unsecured note issued in November 2012 as well as higher borrowing costs for the credit facility and NHS and HES financing.

FOREIGN EXCHANGE

Just Energy has an exposure to U.S. dollar exchange rates as a result of its U.S. operations and any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income. For the year ended March 31, 2013, a foreign exchange unrealized gain of $3.3 million was reported in other comprehensive income gain versus $2.4 million in fiscal 2012.

Overall, a weaker U.S. dollar decreases the value of sales and gross margin in Canadian dollars but this is partially offset by lower operating costs denominated in U.S. dollars. Just Energy retains sufficient funds in the U.S. to support ongoing growth and surplus cash is repatriated to Canada. U.S. cross border cash flow is forecasted annually, and hedges for cross border cash flow are placed. Just Energy hedges between 25% and 90% of the next 12 months’ cross border cash flows depending on the level of certainty of the cash flow.

PROVISION FOR INCOME TAX

For the years ended March 31

(thousands of dollars)

 

     Fiscal 2013      Fiscal 2012  

Current income tax expense

   $ 2,061      $ 662  

Future tax expense

     84,324        36,865  
  

 

 

    

 

 

 

Provision for income tax

   $ 86,385      $ 37,527  
  

 

 

    

 

 

 

Just Energy recorded a current income tax expense of $2.1 million for the year, versus a $0.7 million of expense in fiscal 2012. The increase in current tax expense is mainly due to higher U.S. state income tax expense recorded during fiscal 2013.

During this fiscal year, a deferred tax expense of $84.3 million has been recorded, versus a deferred tax expense of $36.9 million in fiscal 2012. The additional deferred tax expense is mainly a result of a further decline of the cumulative mark to market losses from financial instruments as a result of a change in fair value of these derivative instruments during this year.

Just Energy is taxed as a taxable Canadian corporation. Therefore, the deferred tax asset or liability associated with Canadian assets and liabilities recorded on the consolidated balance sheets as at that date will be realized over time as the temporary differences between the carrying value of assets in the consolidated financial statements and their respective tax bases are realized. Current Canadian income taxes are accrued to the extent that there is taxable income in Just Energy and its underlying corporations. For fiscal 2013, Canadian corporations under Just Energy are subject to a tax rate of approximately 26%.

Under IFRS, Just Energy recognized income tax liabilities and assets based on the estimated tax consequences attributable to the temporary differences between the carrying value of the assets and liabilities on the consolidated financial statements and their respective tax bases, using substantively enacted income tax rates. A deferred tax asset will not be recognized if it is not anticipated that the asset will be realized in the foreseeable future. The effect of a change in the income tax rates used in calculating deferred income tax liabilities and assets is recognized in income during the period in which the change occurs.

 

27.


Discontinued Operations

Ethanol Division (TGF)

In March 2013, Just Energy formally commenced the process to dispose of TGF. The business of TGF has been operating in an unpredictable product environment, making it difficult for management to derive real growth and profitability from the segment. The disposal of TGF is due to be completed within the next 12 months. At March 31, 2013, TGF was classified as held for sale. Accordingly, it has been identified as a discontinued operation along with its related non-recourse debt. Just Energy has no expectation of cash recovery above outstanding debt on the sale.

For the year ended March 31, 2013, the plant achieved an average production capacity of 73%, a decrease from average production capacity of 80% in the prior fiscal year. During the current year, production was impacted by plant shutdowns for both scheduled and unscheduled maintenance.

Ethanol prices were, on average, $0.66 per litre, a decrease of 8% from the prior comparable year and wheat prices averaged $257 per metric tonne for year ended March 31, 2013 up 21% from $213 for fiscal 2012.

RESULTS OF OPERATIONS

For the year ended March 31, 2013, TGF had sales of $107.1 million, a decrease of 18% from $130.5 million in the prior year. The decrease in sales is a result of lower ethanol prices and lower production during the year. Gross margin amounted to $8.2 million, a decrease of 54% from $17.8 million in the prior year as a result of lower sales and higher wheat prices. In fiscal 2013, the plant produced 109.1 million litres of ethanol and 100,680 metric tonnes of DDG, resulting in a productive capacity of 73%. In the prior fiscal year, TGF produced 119.3 million litres of ethanol and 111,104 metric tonnes of DDG and experienced an average production capacity of 80%.

TGF receives a federal subsidy based on the volume of ethanol produced related to the ecoEnergy for Biofuels Agreement initially signed on February 17, 2009. The subsidy was $0.07 per litre for fiscal 2013. The subsidy amount declines through time to $0.05 per litre of ethanol produced in fiscal 2015, the last year of the agreement.

Liquidity and capital resources from continuing operations

SUMMARY OF CASH FLOWS

For the years ended March 31

(thousands of dollars)

 

     Fiscal 2013     Fiscal 2012  

Operating activities from continuing operations

   $ 99,762     $ 147,191  

Investing activities from continuing operations

     (162,130     (204,983

Financing activities from continuing operations, excluding dividends

     206,987       170,010  

Effect of foreign currency translation

     (2,690     326  
  

 

 

   

 

 

 

Increase in cash before dividends

     141,929       112,544  

Dividends (cash payments)

     (156,651     (146,822
  

 

 

   

 

 

 

Decrease in cash

     (14,722     (34,278

Increase (decrease) in cash from discontinued operations and cash reclassified to assets held for sale

     —         (10,135 )

Cash and cash equivalents – beginning of year

     53,220       97,633  
  

 

 

   

 

 

 

Cash and cash equivalents – end of year

   $ 38,498     $ 53,220  
  

 

 

   

 

 

 

OPERATING ACTIVITIES FROM CONTINUING OPERATIONS

Cash flow from continuing operating activities for the period ended March 31, 2013, was $99.8 million, a decrease from $147.2 million in fiscal 2012. Cash flow from continuing operations decreased as the increase in gross margin was offset by higher selling and marketing and administrative expenses. Gross margin increased by 5% year over year while administrative and selling and marketing costs increase by 22% and 17%, respectively.

INVESTING ACTIVITIES FROM CONTINUING OPERATIONS

Just Energy purchased capital assets totalling $101.4 million during the year, an increase from $74.6 million in the prior year. Just Energy’s capital spending related primarily to the installations for the Home Services and Solar divisions. In addition, the purchase of intangible assets and water heater contracts was $14.6 million in fiscal 2013, an increase from $5.9 million in fiscal 2012 as a result of the morEnergy acquisition amounting to $9.7 million. Contract initiation costs increased to $31.1 million in fiscal 2013, compared to $28.2 million in the year ended March 31, 2012.

 

28.


FINANCING ACTIVITIES FROM CONTINUING OPERATIONS

Financing activities, excluding dividends/distributions, relates primarily to the issuance and repayment of long-term debt. During the year ended March 31, 2013, $492.8 million in long-term debt was issued primarily to fund capital investments made by the Home Services and Solar divisions. Long-term debt amounting to $277.6 million was repaid during fiscal 2013. In the prior comparable year, $464.5 million was issued in long-term debt relating to the credit facility and NHS financing with $282.2 million being repaid.

As of March 31, 2013, Just Energy had a credit facility of $370 million expiring on December 31, 2013. As Just Energy continues to expand in the U.S. markets, the need to fund working capital and collateral posting requirements will increase, driven primarily by the number of customers aggregated, and to a lesser extent, by the number of new markets. Based on the markets in which Just Energy currently operates and others that management expects the Company to enter, funding requirements will be fully supported through the credit facility.

Just Energy’s liquidity requirements are primarily driven by the delay from the time that a customer contract is signed until cash flow is generated. For consumer customers, approximately 60% of an independent sales contractor’s commission payment is made following reaffirmation or verbal verification of the customer contract, with most of the remaining 40% being paid after the energy commodity begins flowing to the customer. For commercial customers, commissions are paid either as the energy commodity flows throughout the contract or partially upfront once the customer begins to flow.

The elapsed period between the time a customer 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 nine months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Just Energy. In Alberta and Texas, Just Energy receives payment directly from the customer.

DIVIDENDS/DISTRIBUTIONS (CASH PAYMENTS)

For fiscal years 2013 and 2012, the annual dividend rate was $1.24 per share. During the year ended March 31, 2013, Just Energy paid dividends/distributions to its shareholders and holders of restricted share grants and deferred share grants in the amount of $156.7 million, compared to $146.8 million in fiscal 2012. For the year ended March 31, 2013, $21.6 million of the dividends were paid in shares under the dividend reinvestment plan (“DRIP”), compared with $28.4 million in fiscal 2012.

Just Energy has an annual dividend rate of $0.84 per share effective April 2013. The current dividend policy provides that shareholders of record on the 15th day of each month or the first business day thereafter receive dividends at the end of the month. Investors should note that due to the DRIP, a portion of dividends declared are not paid in cash. Under the program, shareholders can elect to receive their dividends in shares at a 2% discount on the prevailing market price rather than the cash equivalent. Effective May 1, 2013, the DRIP plan is available to both Canadian and US resident shareholders. For the period of February through September 2012, Just Energy suspended its DRIP program, in conjunction with the approval of the normal course issuer bid.

Just Energy will continue to utilize its cash resources for expansion into new markets and, grow its existing energy marketing customer base and product offerings, expand its Solar and Home Services divisions, and make accretive acquisitions of customers as well as pay dividends to its shareholders.

Balance Sheet as at March 31, 2013, compared to March 31, 2012

Cash decreased from $53.2 million as at March 31, 2012, to $38.5 million. The utilization of the credit facility increased from $98.5 million to $110.1 million. The increase in the utilization of the credit facility is a result of the growth in the energy marketing operations as well as the funding requirements of the Solar and Network Marketing divisions.

As at March 31, 2013, trade receivables and unbilled revenue amounted to $315.6 million and $129.2 million, respectively, compared to March 31, 2012, when the trade receivables and unbilled revenue amounted to $294.3 million and $130.8 million, respectively. The increase is related to the 10% increase in the total customer base. Trade payables have increased by 5% from $287.1 million to $301.8 million during the year.

As at March 31, 2013, Just Energy had delivered more gas to the LDCs than had been consumed by customers in Ontario, Manitoba, Quebec and Michigan, resulting in gas delivered in excess of consumption and deferred revenue of $5.2 million and $13.0 million respectively. This build-up of inventory at the LDCs is lower than at March 31, 2012 due to

 

29.


higher consumption during the comparatively colder winter weather in the current fiscal year. At March 31, 2012, Just Energy had gas delivered in excess of consumption and deferred revenue amounting to $12.8 million and $12.0 million, respectively. In addition, gas in storage decreased slightly from $11.5 million as at March 31, 2012 to $11.1 million as at March 31, 2013 due to lower seasonal consumption in fiscal 2012.

Other assets and other liabilities relate entirely to the fair value of the financial derivatives. The mark to market gains and losses can result in significant changes in profit and, accordingly, shareholders’ equity from year to year due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash quarterly changes are not meaningful.

Intangible assets include the goodwill and acquired customer contracts, as well as other intangibles such as brand, broker network and information technology systems, primarily related to the Hudson, Fulcrum and Universal purchases. The total intangible asset balance decreased to $447.3 million, from $549.4 million as at March 31, 2012, as a result of amortization.

Long-term debt (excluding the current portion) has increased from $679.1 million to $795.2 million in the year ended March 31, 2013, primarily as a result of additional funding related to the Home Services division and the issuance of indenture notes and HES financing.

Shareholders’ equity remains in a deficit position of $1.3 billion, lower than the deficit of $1.7 billion at March 31, 2012. Just Energy’s profit includes an amount relating to the change in fair value of derivative instruments. 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 non-cash gains or losses depending upon current supply pricing.

Long-term debt and financing for continuing operations

(thousands of dollars)

 

     March 31, 2013      March 31, 2012  

Just Energy credit facility

   $ 110,121      $ 98,455  

$105 million senior unsecured note

     105,000        —    

NHS financing

     257,427        147,220  

$90m convertible debentures

     87,610        86,101  

$330m convertible debentures

     297,928        291,937  

$100m convertible debentures

     87,579        85,879  

HES financing

     

Credit facility

     11,431        —    

Construction loan

     9,776        —    
  

 

 

    

 

 

 

JUST ENERGY CREDIT FACILITY

Just Energy holds a $370 million credit facility to meet working capital requirements. The credit facility expires December 31, 2013. The syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Société Générale, The Bank of Nova Scotia, Toronto Dominion Bank and Alberta Treasury Branches. Under the terms of the credit facility, Just Energy is able to make use of Bankers’ Acceptances and LIBOR advances at stamping fees that vary between 2.88% and 4.00%, prime rate advances at rates of interest that vary between bank prime plus 1.88% and 3.00%, and letters of credit at rates that vary between 2.88% and 4.00%. Interest rates are adjusted quarterly based on certain financial performance indicators.

Just Energy’s obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates, excluding, among others, TGF, NHS and HES, and secured by a pledge of the assets of Just Energy and the majority of its operating subsidiaries and affiliates. Just Energy is required to meet a number of financial covenants under the credit facility agreement. During the fiscal year, the credit facility agreement was amended pursuant to which certain covenants were renegotiated to facilitate the growth of the business. As at March 31, 2013, all of the covenants had been met.

 

30.


$105 MILLION SENIOR UNSECURED NOTE

The $105 million senior unsecured note bears interest at 9.75% and matures in May 2018. The $105 million senior unsecured note is subject to certain financial and other covenants. As of March 31, 2013, all of these covenants have been met.

In conjunction with the covenant requirements associated with the issuance of senior unsecured notes, the following represents select financial disclosure for the “Restricted Subsidiaries” as defined within the Note Indenture, which generally excludes NHS, TGF, HES, Momentis and the UK operations.

 

     Three months ended
March 31, 2013
     Year ended
March 31, 2013
 

Base EBITDA

   $ 95,352       $ 156,757   

Adjusted EBITDA

     134,288         210,124   

Share-based compensation

     7,547         10,041   

Maintenance capital expenditures

     5.751         5,910   

NHS FINANCING

NHS has a long-term financing agreement with HTC for the funding of new and existing rental water heater, furnace and air conditioner contracts. Pursuant to the agreement, NHS will receive financing of an amount equal to the net present value of the five, seven or ten years (at its option) of monthly rental income, discounted at the agreed upon financing rate of 7.25% to 7.99%, and is required to remit an amount equivalent to the rental stream from customers on the water heater, air conditioner and furnace contracts for the five, seven or ten years, respectively. Under the agreement, up to one-third of new rental agreements may be financed for each of the seven—or ten-year terms. As at March 31, 2013, the average term of the HTC funding was 6.1 years.

The financing agreement is subject to a holdback provision of 3–5%. Once all of the obligations of NHS are satisfied or expired, the remaining funds in the holdback account will immediately be released to NHS. HTC holds security over the contracts and equipment it has financed. NHS is required to meet a number of non-financial covenants under the agreement and, as at March 31, 2013, all of these covenants had been met.

With the acquisition of the 27,000 MorEnergy contracts, NHS also assumed debt related to the original funding of contracts. Under the agreement, customer payments flow directly to a restricted bank account which is swept monthly in order to pay the current outstanding debt of $30.8 million. The debt bears interest between 7.5% to 11% and is secured by the underlying assets. The debt will be satisfied in August of 2022.

$90M CONVERTIBLE DEBENTURES

In conjunction with the acquisition of Universal on July 1, 2009, Just Energy assumed the obligations of the convertible unsecured subordinated debentures issued by Universal in October 2007, which have a face value of $90 million. The fair value of the convertible debenture was estimated by discounting the remaining contractual payments at the time of acquisition. This discount will be accreted using an effective interest rate of 8%. These instruments 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 March 31, 2013, each $1,000 principal amount of the $90m 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 38.64 Just Energy common shares, representing a conversion price of $25.88 per share. Pursuant to the $90m convertible debentures, if Just Energy fixes a record date for the payment of a dividend on its shares, the conversion price shall be adjusted in accordance therewith.

On and after September 30, 2012, but prior to the maturity date, the $90m convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy’s sole option on not more than 60 days’ and not less than 30 days’ prior notice.

$330M CONVERTIBLE DEBENTURES

To fund the acquisition of Hudson, 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. The $330m convertible debentures bear an interest rate of 6.0% per annum payable semi-annually in arrears on June 30 and December 31 in

 

31.


each year, with maturity on June 30, 2017. Each $1,000 of principal amount of the $330m 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 shares of Just Energy, representing a conversion price of $18 per share.

The $330m 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 Just Energy, 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 Just Energy, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest.

$100M CONVERTIBLE DEBENTURES

On September 22, 2011, Just Energy issued $100 million of convertible unsecured subordinated debentures, which were used to purchase Fulcrum. The $100 million convertible debentures bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and September 30 in each year, commencing March 31, 2012, and have a maturity date of September 30, 2018. Each $1,000 principal amount of the $100 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption, into 56.0 common shares of Just Energy, representing a conversion price of $17.85.

The $100 million convertible debentures are not redeemable at the option of the Company on or before September 30, 2014. After September 30, 2014, and prior to September 30, 2016, the $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after September 30, 2016, the $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days’ and not less than 30 days’ prior notice, at a price equal to their principal amount plus accrued and unpaid interest.

HES FINANCING

Effective August 1, 2012, HES, through a subsidiary, entered into a US$30 million financing agreement to assist with the construction of certain solar projects. The credit facility matures August 1, 2014, with no prepayment permitted, bearing interest, and payable quarterly, at U.S. prime plus 6.9% or Eurodollar rate plus 7.9%. The facility is subject to certain financial and other covenants and is secured by the assets financed under this agreement. As at March 31, 2013, all of the covenants had been met.

HES, through a subsidiary, has entered into an arrangement providing access to a construction loan for up to approximately $12 million, to fund certain specified projects. As at March 31, 2013, $9.8 million has been advanced under this loan. The construction loan bears interest at 10% and is due upon completion of certain solar projects. Upon completion of the solar projects, the construction loan will be settled from the proceeds of a term loan to be received from the same counterparty and an investment from an institutional investor. The term loan for approximately $6.5 million will bear interest at 8% and mature in six years. The investment will be for approximately $7 million and will provide the institutional investor with a significant portion of the tax incentives generated by the projects funded. This arrangement is subject to certain financial covenants and warranties, all of which have been met as of March 31, 2013.

Contractual obligations

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

 

32.


PAYMENTS DUE BY PERIOD

(thousands of dollars)

     Total      Less than 1
year
     1 – 3 years      4 – 5 years      After 5
years
 

Trade and other payables

   $ 301,820      $ 301,820      $ —        $ —        $ —    

Long-term debt (contractual cash flow)

     1,014,227        162,474        189,801        403,946        258,006  

Interest payments

     247,255        60,452        102,084        71,948        12,771  

Premises and equipment leasing

     31,600        7,550      $ 10,755      $ 7,037      $ 6,258  

Royalty payments

     53,041        662        11,082        9,647        31,650  

Long-term gas and electricity contracts

     2,549,866        1,372,855        993,719        182,020        1,272  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 4,197,809      $ 1,905,813      $ 1,307,441      $ 674,598      $ 309,957  

OTHER OBLIGATIONS

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

Transactions with related parties

Just Energy does not have any material transactions with any individuals or companies that are not considered independent of Just Energy or any of its subsidiaries and/or affiliates.

Off Balance Sheet items

The Company has issued letters of credit in accordance with its credit facility totalling $115.5 million to various counterparties, primarily utilities in the markets it operates as well as suppliers.

Pursuant to separate arrangements with Westchester Fire Insurance Company, Travelers Casualty and Surety Company of America, and The Hanover Insurance Group, Just Energy has issued surety bonds to various counterparties including States, regulatory bodies, utilities and various other surety bond holders in return for a fee and/or meeting certain collateral posting requirements. Such surety bond postings are required in order to operate in certain states or markets. Total surety bonds issued as at March 31, 2013 was $35.3 million.

Critical accounting estimates

The preparation of the consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, income, expenses and the disclosure of contingent liabilities. The estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances, the results of which form the basis of making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. Judgments made by management in the application of IFRS that have significant impact on the consolidated financial statements relate to the following:

Impairment of non-financial assets

To determine the recoverable amount of an impaired asset, the Company estimates expected future cash flows at the CGU level and determines a suitable discount rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, the Company makes assumptions about future sales, gross margin rates, expenses, capital expenditures, and working capital investments which are based upon past and expected performance. Determining the applicable discount rate involves estimating appropriate adjustments to market risk and to Company-specific risk factors. An impairment loss is recognized for the amount by which the carrying amount of an asset or a cash-generating unit (“CGU”) exceeds its recoverable amount. The Company uses judgment when identifying CGUs and when assessing for indicators of impairment. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different CGUs, including a sensitivity analysis, are disclosed and further explained in Note 21.

 

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Deferred taxes

Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable income realized, including the usage of tax-planning strategies.

Useful life of key property, plant and equipment and intangible assets

The amortization method and useful lives reflect the pattern in which management expects the asset’s future economic benefits to be consumed by Just Energy.

Provisions for litigation

The State of California has filed a number of complaints to the Federal Energy Regulatory Commission (“FERC”) against many suppliers of electricity, including Commerce Energy Inc. (“CEI”), a subsidiary of Just Energy, with respect to events stemming from the 2001 energy crisis in California. Pursuant to the complaints, the State of California is challenging FERC’s enforcement of its market-based rate system. At this time, the likelihood of damages or recoveries and the ultimate amounts, if any, with respect to this litigation are not certain; however, an estimated amount has been recorded in these consolidated financial statements as at March 31, 2013. In the general course of operations, Just Energy has made additional provisions for litigation matters that have arisen.

Trade receivables

Just Energy reviews its individually significant receivables at each reporting date to assess whether an impairment loss should be recorded in the consolidated statement of income (loss). In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, Just Energy makes judgments about the borrower’s financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors. Actual results may differ, resulting in future changes to the allowance.

Fair value of financial instruments

Where the fair value of financial assets and financial liabilities recorded in the consolidated statements of financial position cannot be derived from active markets, they are determined using valuation techniques including discounted cash flow models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgment includes consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to Note 12 for further details about the assumptions as well as a sensitivity analysis.

Acquisition accounting

For acquisition accounting purposes, all identifiable assets, liabilities and contingent liabilities acquired in a business combination are recognized at fair value on the date of acquisition. Estimates are used to calculate the fair value of these assets and liabilities as at the date of acquisition.

Fair value of derivative financial instruments and risk management

Just Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply. Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation or carbon destruction. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce the exposure to the commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed-price commodity supply to cover its estimated fixed-price delivery or green commitment.

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

Just Energy’s U.S. operations introduce foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows.

The consolidated financial statements are in compliance with IAS 32, Financial Instruments: Presentation; IAS 39, Financial Instruments: Recognition and Measurement; and IFRS 7, Financial Instruments: Disclosure. Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting. Accordingly, all the mark to market changes on Just

 

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Energy’s derivative instruments are recorded on a single line on the consolidated income statement. Due to commodity volatility and to the size of Just Energy, the quarterly swings in mark to market on these positions will increase the volatility in Just Energy’s earnings.

Just Energy common shares

As at May 16, 2013, there were 142,249,269 common shares of Just Energy outstanding.

Normal course issuer bid

During the 12-month period of February 14, 2013 and ending February 13, 2014, Just Energy has the ability to make a normal course issuer bid to purchase for cancellation up to 10,000,000 shares, representing approximately 7.4% of the public float. The maximum number of shares that Just Energy may purchase is 107,182 shares, or approximately 25% of the average daily trading volume of the previous six-months trading activity on the Toronto Stock Exchange. As at May 16, 2013, Just Energy has not repurchased any shares for cancellation.

In addition, Just Energy has approval to make a normal course issuer bid for the $330M convertible debentures and $100M convertible debentures during the 12-month period of February 22, 2013 through to February 21, 2014. For the $330M convertible debentures, a total of $33 million, representing 10% of the public float may be purchased for cancellation with up to $158,993 being available to purchase on a daily basis. For the $100M convertible debentures, the daily limit is set at $24,548 with up to $10 million being available for cancellation, representing 10% of the public float. As of May 16, 2013, Just Energy has not repurchased any of the convertible debentures for cancellation.

During the 12-month period of December 16, 2011 to December 15, 2012, Just Energy had approval to make a normal course issuer bid to purchase for cancellation up to 13,200,917 of its common shares, approximately 10% of the public float. During fiscal 2012, Just Energy purchased and cancelled 84,100 shares at an average price of $11.36 for total cash consideration of $1.0 million. There were no additional shares purchased for cancellation during fiscal 2013.

Recently issued accounting standards

RECENT PRONOUNCEMENTS ISSUED

IAS 1, Presentation of Items of Other Comprehensive Income – Amendments to IAS 1

The amendments to IAS 1 change the grouping