Form 10-Q Just Energy Group Inc. For: Sep 30
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the three months ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Transition Period FromTo
Commission file number:
(Exact name of registrant as specified in its charter)
(State of Other Jurisdiction of incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
Registrant's telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Name Of Each Exchange | ||
Title of Each Class | Trading Symbol(s) | On Which Registered |
N/A |
* Just Energy Group Inc.’s common stock currently trades on the OTC Pink Market under the symbol “JENGQ”.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☐
Indicate by check mark whether the registrant has submitted electronically; every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.0405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
Based on the closing price as reported on the OTC Pink Market, the aggregate market value of the registrant's Common Stock held by non-affiliates on September 30, 2021 (the last business day of the registrant's most recently completed second fiscal quarter) was approximately $38,462,910. Shares of Common Stock held by each executive officer and director and by each shareholder affiliated with a director or an executive officer or the registrant have been excluded from this calculation because such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant's Common Stock as of November 29, 2022 was
TABLE OF CONTENTS
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3 | ||
6 | ||
6 | ||
Management's Discussion And Analysis Of Financial Condition And Results Of Operations | 7 | |
32 | ||
33 | ||
33 | ||
33 | ||
33 | ||
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34 | ||
1
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 may contain forward-looking statements, including statements with respect to timing for court approvals, applications to cease to be a reporting issuer and delist from exchanges and the anticipated timing to close the Stalking Horse Transaction. These statements are based on current expectations that involve several risks and uncertainties which could cause actual results to differ from those anticipated. These risks include consummation of the Stalking Horse Transaction and the anticipated results thereof; the timing for applications to the Court for required approvals; satisfaction of the conditions precedent to consummation of the Stalking Horse Transaction, including approval thereof by the Court and the U.S. Court and receipt of all required regulatory approvals; the ability of the Just Energy Entities to continue as a going concern following consummation of the Stalking Horse Transaction; the outcome of any potential litigation with respect to the February 2021 extreme weather event in Texas, the outcome of any invoice dispute with the Electric Reliability Council of Texas, Inc.; the impact of the COVID-19 pandemic on the Company’s business, operations and sales; the Company’s ability to access sufficient capital to provide liquidity to manage its cash flow requirements; general economic, business and market conditions; the ability of management to execute its business plan; levels of customer natural gas and electricity consumption; extreme weather conditions; rates of customer additions and renewals; customer credit risk; rates of customer attrition; fluctuations in natural gas and electricity prices; interest and exchange rates; actions taken by governmental authorities including energy marketing regulation; increases in taxes and changes in government regulations and incentive programs; changes in regulatory regimes; results of litigation and decisions by regulatory authorities; competition; and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations or financial results are included in Just Energy’s Form 10K and other reports on file with the U.S. Securities and Exchange Commission which can be accessed at www.sec.gov and with the Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or through Just Energy’s website at investors.justenergy.com.
2
GLOSSARY OF KEY TERMS
Annual Report | Annual report on Form 10-K |
ASC | Accounting Standards Codification |
Base EBITDA | Base Earnings Before Interest, Tax, Depreciation and Amortization adjusted for various items as defined in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” |
Base Gross Margin | The gross margin adjusted for the effect of various items as defined in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” |
Base Gross Margin per RCE | Base Gross Margin realized on Just Energy’s RCE customer base, including gains (losses) from the sale of excess commodity supply excluding the impacts of the Weather Event or Reorganization Costs |
BP Claim | Certain pre-filing secured claims in the aggregate principal amounts of approximately $229.5 million and CAD 0.2 million, plus accrued and unpaid interest |
CAD | Canadian dollars |
CCAA | Companies' Creditors Arrangement Act |
Chapter 15 | Chapter 15 of the U.S. Bankruptcy Code |
Claims Procedure Order | Order of Ontario Court dated September 15, 2021 establishing the process to identify and determine claims against the Company under the CCAA proceedings |
Commodity RCE attrition | Percentage of energy customers whose contracts were terminated prior to the end of the term either at the option of the customer or by Just Energy |
Company | Just Energy Group Inc. and/or its consolidated subsidiaries depending on context |
Court Orders | Orders approved by the Ontario Court under CCAA and the Houston Court under Chapter 15 in the U.S. Bankruptcy Code that provide creditor protection |
COVID-19 | Coronavirus pandemic |
Credit Facility | Just Energy’s credit facility as described in Part I, Item 1, “Interim Condensed Consolidated Financial Statements and Notes”, Note 9(c), Long Term Debt and Financing |
Customer count | Number of customers with a distinct address rather than RCEs |
DIP Facility | $125 million Debtor-in-possession facility entered into March 9, 2021 between PIMCO and the Company |
EBITDA | Earnings Before Interest, Tax, Depreciation and Amortization and is non-U.S. GAAP measure that reflects the operational profitability of the business |
ECL | Expected credit losses |
Embedded Gross Margin | Embedded Gross Margin (“EGM”) represents the gross margin based on management's estimates for the future as defined in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” |
ERCOT | Electric Reliability Council of Texas, Inc |
ERCOT Lawsuit | Litigation by the Just Energy Parties and certain of its affiliates against ERCOT in the Houston Court on commenced on November 12, 2021 |
FASB | Financial Accounting Standards Board |
Failed to renew | Customers who did not renew expiring contracts at the end of their term |
Filter Group | Filter Group Inc. |
Final Order | Financing order issued by the PUCT in October 2021 authorizing the securitization of these costs by ERCOT under HB 4492 |
Free Cash Flow | Cash flow from operations less maintenance capital expenditures as defined in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” |
HB 4492 | Texas House Bill 4492 which provides a mechanism for recovery of the costs, incurred by various parties, including the Company, during the Weather Event, through certain securitization structures |
Houston Court | Bankruptcy Court of the Southern District of Texas, Houston Division |
HTC | Home Trust Company |
3
ICFR | Internal Control over Financial Reporting |
Interim Condensed Consolidated Financial Statements | Interim Condensed Consolidated Balance Sheets for the years ended September 30, 2022 and Audited Consolidated Balance Sheets for the years ended March 31, 2021, the related Interim Condensed Consolidated Statements of Operations, Interim Condensed Statements of Comprehensive Loss, Interim Condensed Consolidated Statements of Cash Flows, and Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity, for the three and six months ended September 30, 2022 and 2021, and related notes |
ISO | Independent System Operator |
Just Energy | Just Energy Group Inc. and/or its consolidated subsidiaries depending on context |
Just Energy Entities | Just Energy and certain subsidiaries that filed under the CCAA |
Just Energy Parties | Just Energy Texas LP, Just Energy Texas I, Corp., Fulcrum Retail Energy LLC, and Hudson Energy Services LLC |
KERP | Key employee retention plan |
LC Facility | Letter of credit facility described in Part I, Item 1, "Interim Condensed Consolidated Financial Statements and Notes", Note 9(c), Long Term Debt and Financing |
LDC | A local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area |
Lender Support Agreement | Accommodation and support agreement entered into with Lenders of the Credit Facility |
Liquidity | Cash and cash equivalents |
MD&A | Management Discussion and Analysis of Financial Condition and Results of Operations |
NEX | Board of the TSX Venture Exchange |
Non-U.S. GAAP financial measures | All measures defined in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Note Indenture | CAD $15.0 million principal amount of 7.0% subordinated notes to holders of the subordinated convertible debentures, which has a six-year maturity |
NYMEX | New York Mercantile Exchange |
Ontario Court | Ontario Superior Court of Justice (Commercial List) |
PIMCO | Pacific Investment Management Company, Inc. |
PUCT | Public Utility Commission of Texas |
RCE | Residential customer equivalent, which is a unit of measurement equivalent to a customer using 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis or 10 MWh (or 10,000 kWh) of electricity on an annual basis |
REC | Renewable energy certificates |
Reorganization Costs | The amounts incurred related to the filings under the CCAA Proceedings. These costs include professional and advisory costs, key employee retention plan, contract terminations, prepetition claims, and other costs |
Reverse Vesting Order | An order of the Ontario Court approving the Transaction |
S.E.C. | U.S. Securities and Exchange Commission |
Selling commission | Expenses customer acquisition costs amortized under ASC 606, “Revenue from contracts with customers”, or directly expensed within the current period and consist of commissions paid to independent sales contractors, brokers and sales agents and is reflected on the Consolidated Statements of Operations as part of selling and marketing expenses |
Selling non-commission and marketing expenses | The cost of selling overhead, including digital marketing cost not directly associated with the costs of direct customer acquisition costs within the current period and is reflected on the Consolidated Statements of Operations as part of selling and marketing expenses |
September 2020 Recapitalization | The recapitalization transaction that the Company completed on September 28, 2020 |
SISP | The Sale and Investment Solicitation Process announced on August 4, 2022, approved by the Ontario Court on August 18, 2022 and the Houston Court on August 30, 2022, concluded on October 17, 2022 |
4
SISP Support Agreement | An agreement between the Just Energy Entities, the Purchaser and certain other parties under which the parties agree to support the Transaction and the SISP process |
Purchaser | Collectively, the lenders under the Company’s debtor-in-possession financing facility, one of their affiliates and the holder of the BP Claim |
Transaction | The transaction contemplated by the Transaction Agreement under which the Purchaser will become the sole owner of the Just Energy Entities |
Transaction Agreement | The agreement between the Purchaser and the Just Energy EntitiesCompany dated August 4, 2022, as amended from time to time, under which the Purchaser will become the sole owner of the Just Energy Entities with the key terms described in Part I, Item I, Business Overview |
Term Loan | The $206 million senior unsecured 10.25% term loan facility entered into on September 28, 2020 pursuant to the September 2020 Recapitalization, which has a maturity date of March 31, 2024 |
Unlevered Free Cash Flow | Free cash flow plus interest expense excluding the non-cash portion as defined in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” |
U.S. | United States of America |
U.S. GAAP | U.S. Generally Accepted Accounting Principles |
Weather Event | The extreme weather event in Texas in February 2021 |
Weather Event Costs | (i) ancillary service charges above $9,000/MWh during the Weather Event; (ii) reliability deployment price adders charged by ERCOT during the Weather Event; and (iii) amounts owed to ERCOT due to defaults of competitive market participants, which were subsequently “short-paid” to market participants, including Just Energy |
5
PART I – FINANCIAL INFORMATION
ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
INDEX TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
Interim Condensed Consolidated Balance Sheets
As at September 30
(in thousands of U.S. dollars)
|
| As at |
| As at |
| ||||
September 30, 2022 | March 31, 2022 |
| |||||||
| Notes |
| (Unaudited) |
| (Audited) |
| |||
ASSETS |
|
|
|
|
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| |||
Current assets |
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | | $ | | ||||
Restricted cash |
|
|
| |
| | |||
Trade and other receivables, net |
| 4(a) |
| |
| | |||
Securitization proceeds receivable from ERCOT | – | | |||||||
Gas in storage |
|
|
| |
| | |||
Derivative instruments |
| 6 |
| |
| | |||
Income taxes recoverable |
|
|
| |
| | |||
Other current assets |
| 5(a) |
| |
| | |||
Total current assets | | | |||||||
Non-current assets |
|
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Property and equipment, net |
|
| |
| | ||||
Intangible assets, net |
|
| |
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Goodwill |
|
| |
| | ||||
Derivative instruments |
| 6 |
| |
| | |||
Deferred income taxes |
|
| |
| | ||||
Other non-current assets |
| 5(b) |
| |
| | |||
Total non-current assets |
| |
| | |||||
TOTAL ASSETS |
|
| $ | | $ | | |||
LIABILITIES |
|
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| |||
Current liabilities |
|
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| |||
Trade and other payables |
| 7 | $ | | $ | | |||
Deferred revenue |
|
|
| |
| | |||
Income taxes payable |
|
|
| |
| | |||
Derivative instruments |
| 6 |
| |
| | |||
Current portion of long-term debt |
| 9 |
| |
| | |||
Total current liabilities | | | |||||||
Liabilities subject to compromise | 8 | | | ||||||
Non-current liabilities |
|
|
|
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Long-term debt |
| 9 |
| |
| | |||
Derivative instruments |
| 6 |
| |
| | |||
Deferred income taxes |
|
| |
| | ||||
Other non-current liabilities |
|
|
| |
| | |||
Total non-current liabilities |
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TOTAL LIABILITIES |
|
| $ | | $ | | |||
Commitments and contingencies | 15 | ||||||||
SHAREHOLDERS’ EQUITY |
|
|
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| ||||
Common shares, |
| 12 | $ | | $ | | |||
Contributed deficit |
|
|
| ( |
| ( | |||
Accumulated deficit |
|
|
| ( |
| ( | |||
Accumulated other comprehensive income |
|
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| |
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Non-controlling interest |
|
|
| ( |
| ( | |||
TOTAL SHAREHOLDERS’ EQUITY |
|
|
| |
| | |||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
| $ | | $ | | |||
See accompanying notes to the Interim Condensed Consolidated Financial Statements
Interim Condensed Consolidated Statements of Operations
(in thousands of U.S. dollars, except per share amounts)
| For the three months ended September 30, | For the six months ended September 30, | |||||||||||||
Notes |
| 2022 | 2021 |
| 2022 |
| 2021 | ||||||||
Revenue |
| 10 | $ | | $ | | $ | | $ | | |||||
Cost of goods sold |
|
| | |
| |
| | |||||||
GROSS MARGIN |
|
|
| ( | |
| ( |
| | ||||||
INCOMES (EXPENSES) |
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Administrative |
|
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| ( | ( |
| ( |
| ( | ||||||
Selling and marketing |
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|
| ( | ( |
| ( |
| ( | ||||||
Provision for expected credit loss |
|
| ( | ( |
| ( |
| ( | |||||||
Depreciation and amortization | ( | ( | ( | ( | |||||||||||
Interest expense | 9 | ( | ( | ( | ( | ||||||||||
Reorganization costs |
| 13 |
| ( | ( |
| ( |
| ( | ||||||
Unrealized gain (loss) on derivative instruments |
| 6 |
| ( | |
| ( |
| | ||||||
Realized gain on derivative instruments |
|
| | |
| |
| | |||||||
Realized gain on investment | – | | – | | |||||||||||
Other income (expenses), net |
|
|
| | ( |
| |
| ( | ||||||
Income (loss) from operations before income taxes |
|
|
| ( | |
| ( |
| | ||||||
Income tax benefit |
| 11 |
| ( | ( |
| ( |
| ( | ||||||
NET INCOME (LOSS) |
|
| $ | ( | $ | | $ | ( | $ | | |||||
Less: Net income (loss) attributable to non-controlling interest |
|
|
| ( |
| |
| ( |
| ( | |||||
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS |
|
| $ | ( | $ | | $ | ( | $ | |
| ||||
Earnings (loss) per share | 14 | ||||||||||||||
Basic | $ | ( | $ | | $ | ( | $ | | |||||||
Diluted | $ | ( | $ | | $ | ( | $ | | |||||||
Weighted average shares outstanding |
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Basic |
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Diluted |
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See accompanying notes to the Interim Condensed Consolidated Financial Statements
F-2 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Interim Condensed Consolidated Statements of Comprehensive Income
(in thousands of U.S. dollars)
| Three months ended September 30, | Six months ended September 30, | |||||||||||||
2022 | 2021 |
| 2022 |
| 2021 | ||||||||||
NET INCOME (LOSS) |
|
| $ | ( | $ | | $ | ( | $ | | |||||
Other comprehensive income (loss), net of income tax: | |||||||||||||||
Unrealized loss on translation of foreign operations, net of income tax |
| ( |
| ( |
| ( |
| ( | |||||||
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD, NET OF INCOME TAX |
|
| $ | ( | $ | | $ | ( | $ | |
| ||||
Total comprehensive income (loss) attributable to: |
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Less: Net income (loss) attributable to non-controlling interest |
|
|
| ( |
| |
| ( |
| ( | |||||
TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS, NET OF INCOME TAX |
|
| $ | ( | $ | | $ | ( | $ | |
| ||||
See accompanying notes to the Interim Condensed Consolidated Financial Statements
F-3 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Interim Condensed Consolidated Statements of Shareholders’ Equity
(in thousands of U.S. dollars)
| For the six months ended September 30, | |||||||
Notes | 2022 |
| 2021 | |||||
| ||||||||
ATTRIBUTABLE TO THE SHAREHOLDERS |
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Accumulated earnings | ||||||||
Accumulated earnings (loss), beginning of period |
|
| $ | | $ | ( | ||
Net income (loss) for the period, attributable to shareholders |
|
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| ( |
| | ||
Accumulated earnings, beginning and end of period |
|
| $ | | $ | | ||
DIVIDENDS AND DISTRIBUTIONS |
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Dividends and distributions, end of period |
|
| $ | ( | $ | ( | ||
ACCUMULATED DEFICIT |
|
| $ | ( | $ | ( | ||
ACCUMULATED OTHER COMPREHENSIVE INCOME |
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Accumulated other comprehensive income, beginning of period |
|
| $ | | $ | | ||
Other comprehensive loss |
|
|
| ( |
| ( | ||
Accumulated other comprehensive income, end of period |
|
| $ | | $ | | ||
SHAREHOLDERS’ EQUITY |
|
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| |||||
Common shares, beginning and end of period |
| 12 | $ | | $ | | ||
CONTRIBUTED DEFICIT |
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Balance, beginning of period |
|
| $ | ( | $ | ( | ||
Add: Share-based compensation expense |
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| |
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Balance, end of period |
|
| $ | ( | $ | ( | ||
NON-CONTROLLING INTEREST |
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| ||||
Contributed deficit, beginning of period |
|
| $ | ( | $ | ( | ||
Foreign exchange impact on non-controlling interest |
|
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| |
| | ||
Net loss attributable to non-controlling interest |
|
|
| ( |
| ( | ||
Contributed deficit, end of period |
|
| $ | ( | $ | ( | ||
TOTAL SHAREHOLDERS’ EQUITY |
|
| $ | | $ | | ||
See accompanying notes to the Interim Condensed Consolidated Financial Statements
F-4 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Interim Condensed Consolidated Statements of Cash Flows
(in thousands of U.S. dollars)
| For the six months ended September 30, | |||||||
Notes | 2022 |
| 2021 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES |
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Net income (loss) |
|
| $ | ( | $ | | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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| |
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Share-based compensation expense |
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| |
| | |||
Interest expense, non-cash portion |
|
|
| |
| – | ||
Reorganization items (non-cash) | | | ||||||
Unrealized loss (gain) on derivative instruments |
| 6 |
| |
| ( | ||
Operating leased asset payments | ( | ( | ||||||
Net change in non-cash working capital balances |
|
| ( |
| ( | |||
Securitization proceeds receivable from ERCOT | | – | ||||||
Liabilities subject to compromise | | ( | ||||||
Income and deferred income taxes | ( | ( | ||||||
Net cash provided by operating activities |
|
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| |
| | ||
CASH FLOWS FROM INVESTING ACTIVITIES |
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| ||||
Purchase of property and equipment |
|
|
| ( |
| ( | ||
Purchase of intangible assets |
|
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| ( |
| ( | ||
Net cash used in investing activities |
|
|
| ( |
| ( | ||
CASH FLOWS FROM FINANCING ACTIVITIES |
|
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| ||||
Proceeds from (repayment) DIP Facility |
| 9 |
| ( |
| | ||
Repayment of Filter Group financing |
| 9 |
| ( |
| ( | ||
Debt issuance costs | – | ( | ||||||
Finance leased asset payments |
|
| ( |
| ( | |||
Credit Facility payments |
|
| ( |
| ( | |||
Net cash used in financing activities |
|
|
| ( |
| ( | ||
Effect of foreign currency translation on cash balances |
|
|
| ( |
| ( | ||
Net increase (decrease) in cash and cash equivalents and restricted cash |
|
|
| |
| ( | ||
Cash and cash equivalents and restricted cash, beginning of period |
|
| |
| | |||
Cash and cash equivalents and restricted cash, end of period |
|
| $ | | $ | | ||
Supplemental cash flow information: |
|
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| ||||
Interest paid |
|
| $ | | $ | | ||
Income taxes paid |
|
| ( | | ||||
See accompanying notes to the Interim Condensed Consolidated Financial Statements
F-5 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Notes to the Interim Condensed Consolidated Financial Statements
For the six months ended September 30, 2022
(in thousands of U.S. dollars, except where indicated and per share amounts)
1.ORGANIZATION
Just Energy is a corporation established under the laws of Canada to hold securities of its directly or indirectly owned operating subsidiaries. The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The Interim Condensed Consolidated Financial Statements consist of Just Energy and its subsidiaries. The Interim Condensed Consolidated Financial Statements were approved by the Board of Directors on November 29, 2022.
Companies’ creditors arrangement and Chapter 15 proceedings
In February 2021, the State of Texas experienced the Weather Event. The Weather Event led to increased electricity demand and sustained high prices from February 13, 2021 through February 20, 2021. As a result of the losses sustained and without sufficient liquidity to pay the corresponding invoices from the ERCOT when due, and accordingly, on March 9, 2021, Just Energy applied for and received Court Orders under the CCAA from the Ontario Court and under Chapter 15 in the U.S. from the Houston Court. Protection under the Court Orders allows Just Energy to operate while it restructures its capital structure.
As part of the CCAA filing, the Company entered into a $
On September 15, 2021, the Ontario Court approved the Company’s request to establish a claims process to identify and determine claims against the Company and its subsidiaries that are subject to the ongoing Claims Procedure Order. On August 18, 2022, the Ontario Court suspended the Claims Procedure Order with (i) the barring of claims pursuant to the applicable provisions of such order remaining in effect and (ii) the Company’s ability, with the consent of the Monitor, to refer claims for adjudication for the purposes of determining entitlement to proceeds to be distributed in accordance with a transaction completed pursuant to the SISP. As part of item (ii) above, Just Energy continues to review and determine which claims will be allowed, modified or disallowed, which may result in additional liabilities subject to compromise that are not currently reflected in the Interim Condensed Consolidated Financial Statements (refer to Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes” Note 15(b) Commitments and Contingencies).
Sale and Solicitation Process and Stalking Horse Transaction
On August 4, 2022, the Company entered into the Transaction Agreement and the SISP Support Agreement in connection with the SISP to facilitate its exit from the CCAA proceedings as a going concern. On August 18, 2022, the Ontario Court granted an order, among other things, authorizing the Company to conduct the SISP. On October 17, 2022, the Company announced that the transaction (the “Transaction”) contemplated by the Transaction Agreement was the successful bid pursuant to the SISP.
On November 3, 2022, the Ontario Court issued an order (the “Reverse Vesting Order”) that approves the Transaction contemplated by the Transaction Agreement.
The Just Energy Entities are seeking recognition in the U.S. of the Reverse Vesting Order in their Chapter 15 case in the Houston Court on December 1, 2022.
Subject to the satisfaction or waiver of the other conditions to closing, upon the closing of the Transaction, the Purchaser will own all of the outstanding equity of Just Energy (U.S.) Corp., which will be the new parent company
F-6 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
of all of the Just Energy Entities (other than those excluded pursuant to the terms of the Transaction Agreement), including the Company, and the Just Energy Entities will continue their business and operations in the ordinary course. All currently outstanding shares, options and other equity of Just Energy will be cancelled or redeemed for no consideration and without any vote or other action of the existing shareholders.
Key terms of the Transaction include:
| ● | The purchase price payable pursuant to the Transaction is (i) $ |
| ● | Applicable post-filing claims, the Credit Facility Remaining Debt, claims by energy regulators, and certain other liabilities enumerated in the Transaction Agreement (“Assumed Liabilities”) will continue to be liabilities of the Just Energy Entities following consummation of the Transaction. |
| ● | Excluded liabilities and excluded assets of the Just Energy Entities will be discharged from the Just Energy Entities pursuant to the Reverse Vesting Order. |
The consummation of the Transaction is subject to satisfaction or waiver of a number of conditions precedent set forth in the Transaction Agreement including, among other things, receipt of all required regulatory approvals, and the recognition of such Reverse Vesting Order by the Houston Court. The outside date for completion of the Transaction is December 16, 2022, subject to extension in certain circumstances set forth in the Transaction Agreement.
Under the Transaction,
On November 3, 2022, the Ontario Court extended the stay until January 31, 2023. The stay extension allows the Company to continue to operate in the ordinary course of business while pursuing its proposed restructuring.
Common shares
On May 19, 2022, the common shares of the Company were transferred from the TSX Venture Exchange to the NEX and are trading under the symbol “JE.H.”. The Company’s common shares continue to trade on the OTC Pink Market under the symbol “JENGQ”.
Implementation of the Transaction is subject to the condition that Just Energy, and the other Just Energy Entities, will have ceased to be a reporting issuer under any Canadian or U.S. securities laws, and that no Just Energy Entity will become a reporting issuer under any Canadian or U.S. securities laws as a result of completion of the Transaction. In connection with the completion of the Transaction, the Company intends to: (i) apply for an order from Canadian securities administrators that it will cease to be a reporting issuer under Canadian securities laws immediately prior to the effective date of the Transaction; and (ii) file to suspend its reporting obligations under U.S. securities laws. Additionally, the Company intends to submit an application to delist its common shares from trading on the NEX on or before the closing of the Transaction. The Company’s common shares are also quoted on the OTC Pink Sheets. Concurrent with the delisting from the NEX, the Company expects that the common shares will cease trading on the OTC Pink Market.
F-7 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Weather-event related uplift securitization proceeds
On June 16, 2021, HB 4492 became law in Texas. HB 4492 provides a mechanism for recovery of certain Weather Event Costs incurred by various parties, including the Company during the Weather Event through certain securitization structures.
On October 13, 2021, the PUCT approved the Final Order authorizing the securitization of certain Weather Event Costs by ERCOT. On December 7, 2021, ERCOT filed its calculation with the PUCT in accordance with the PUCT Final Order implementing HB 4492. The Company received $
2.OPERATIONS
Just Energy is a retail energy provider specializing in electricity and natural gas commodities and bringing energy efficient solutions, carbon offset and renewable energy options to customers. Operating in the U.S. and Canada, Just Energy serves both residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, Filter Group, Hudson Energy, Interactive Energy Group, Tara Energy and Terrapass.
Just Energy’s current commodity product offerings include fixed, variable, index and flat rate options. By fixing the price of electricity or natural gas under its fixed-price or price-protected program contracts for a period of up to
Just Energy has
Just Energy offers green products through Terrapass and its JustGreen program. Green products offered through Terrapass 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. The JustGreen electricity product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, solar, hydropower or biomass, via power purchase agreements and renewable energy certificates. The JustGreen gas product offers carbon offset credits that allow customers to reduce or eliminate the carbon footprint of their homes or businesses.
Through Filter Group, Just Energy provides subscription-based home water filtration systems to residential customers, including under-counter and whole-home water filtration solutions.
Just Energy markets its product offerings through multiple sales channels including digital, retail, door-to-door, brokers and affinity relationships.
3.BASIS OF PRESENTATION
(a) Compliance with U.S. GAAP
These Interim Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, ASC 270, Interim Reporting, as issued by the FASB. In the opinion of management, the unaudited Interim Condensed
F-8 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Consolidated Financial Statements include all adjustments that are of a recurring nature and necessary for a fair presentation of the results of interim operations.
(b) Basis of presentation and interim reporting
These Interim Condensed Consolidated Financial Statements should be read in conjunction with and follow the same accounting policies and methods of application as those used in the most recent March 31, 2022 annual audited Consolidated Financial Statements under U.S. GAAP.
The interim operating results are not necessarily indicative of the results that may be expected for the full fiscal year ending March 31, 2023, due to seasonal variations resulting in fluctuations in quarterly results. Gas consumption by customers is typically highest in October through March and lowest in April through September. Electricity consumption is typically highest in January through March and July through September and lowest in October through December and April through June.
Going concern
Due to the Weather Event and associated CCAA filing, the Company’s ability to continue as a going concern for the next 12 months is dependent on the Company emerging from CCAA protection and maintaining liquidity. The material uncertainties arising from the CCAA filings cast substantial doubt upon the Company's ability to continue as a going concern and, accordingly the ultimate appropriateness of the use of accounting principles applicable to a going concern. These Interim Condensed Consolidated Financial Statements do not reflect the adjustments to carrying values of assets and liabilities and the reported expenses and Interim Condensed Consolidated Balance Sheets classifications that would be necessary if the going concern assumption was deemed inappropriate. These adjustments could be material. There can be no assurance that the Company will be successful in emerging from CCAA as a going concern.
(c) Significant accounting judgments, estimates and assumptions
The preparation of the Interim Condensed Consolidated Financial Statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amount of assets, liabilities, income and expenses. The estimates and related assumptions based on previous experience and other factors are considered reasonable under the circumstances, the results of which form the basis for making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. There have been no material changes from the disclosures from the most recent March 31, 2022 annual audited Consolidated Financial Statements and notes to the March 31, 2022 annual audited Consolidated Financial Statements with respect to significant accounting judgments, estimates and assumptions.
4.TRADE AND OTHER RECEIVABLES, NET
As at September 30, | As at March 31, | |||||
| 2022 | 2022 | ||||
Trade accounts receivable, net | $ | | $ | | ||
Unbilled revenue, net |
| |
| | ||
Accrued gas receivable |
| – |
| | ||
Commodity receivables |
| |
| | ||
Total trade and other receivables, net | $ | | $ | | ||
F-9 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
(b)Aging of accounts receivable
Customer credit risk
The lifetime ECL reflects Just Energy’s best estimate of losses on the accounts receivable and unbilled revenue balances. Just Energy determines the lifetime ECL by using historical loss rates and forward-looking factors, if applicable. The Company accrues an allowance for current ECL based on (i) estimates of uncollectable revenues by analyzing accounts receivable aging and current and reasonable forecasts of expected economic factors including weather-related events; and (ii) historical collections and delinquencies.
Just Energy is exposed to customer credit risk on its operations in Alberta, Texas, Illinois (gas), California and Ohio (electricity). Credit review processes have been implemented to perform credit evaluations of customers and manage customer default. If a significant number of customers were to default on their payments, it could have a material adverse effect on the operations and cash flows of Just Energy.
In the remaining markets, the LDCs provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee that is recorded in cost of goods sold. Although there is no assurance that the LDCs providing these services will continue to do so in the future, management believes that the risk of the LDCs failing to deliver payment to Just Energy is minimal.
The aging of the trade accounts receivable, excluding the provision for expected credit losses, from the markets where the Company bears customer credit risk was as follows:
As at September 30, | As at March 31, | |||||
| 2022 | 2022 | ||||
Current | $ | | $ | | ||
1–30 days |
| |
| | ||
31–60 days |
| |
| | ||
61–90 days |
| |
| | ||
Over 90 days |
| |
| | ||
Total trade receivables | $ | | $ | | ||
(c)Provision for expected credit losses
Changes in the provision for expected credit losses related to the balances in the table above were as follows:
| As at September 30, | As at March 31, | ||||
2022 | 2022 | |||||
Balance, beginning of period | $ | | $ | | ||
Provision for expected credit loss |
| |
| | ||
Bad debts written off |
| ( |
| ( | ||
Recoveries | | | ||||
Foreign exchange | ( |
| | |||
Balance, end of period | $ | | $ | | ||
The unbilled revenue subject to customer credit risk is $
(d)Securitization proceeds receivable from ERCOT
The Company expected to receive the proceeds of $
F-10 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
were determinable and ERCOT was directed by its governing body, the PUCT, to take all actions required to effectuate the funding approved in the Final Order. The associated Weather Event Cost Recovery is reflected in cost of goods sold within the Interim Condensed Consolidated Statements of Operations as that is where the initial costs, which are being compensated for, were recorded. The Company received the proceeds of $
5.OTHER CURRENT AND NON-CURRENT ASSETS
(a)Other current assets
| As at September 30, | As at March 31, | ||||
| 2022 | 2022 | ||||
Prepaid expenses and deposits | $ | | $ | | ||
Customer acquisition costs |
| |
| | ||
Green certificates assets |
| |
| | ||
Gas delivered in excess of consumption |
| |
| | ||
Inventory |
| |
| | ||
Total other current assets | $ | | $ | | ||
| (b) | Other non-current assets |
| As at September 30, | As at March 31, | ||||
| 2022 | 2022 | ||||
Customer acquisition costs | $ | | $ | | ||
Other long-term assets |
| |
| | ||
Total other non-current assets | $ | | $ | | ||
6.DERIVATIVE INSTRUMENTS
(a)Fair value of derivative instruments
The fair value of derivative instruments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Management has estimated the value of financial swaps, physical forwards and option contracts for electricity, natural gas, carbon offsets and RECs, using a discounted cash flow method, which employs market forward curves that are either directly sourced from third parties or developed internally based on third-party market data. These curves can be volatile, thus leading to volatility in the mark to market with no immediate impact to cash flows. Gas options and green power options have been valued using the applicable market forward curves and the implied volatility from other market traded options.
The following table illustrates unrealized gains (losses) related to Just Energy’s derivative instruments classified as fair value through the Interim Condensed Consolidated Statements of Operations and recorded on the Interim Condensed Consolidated Balance Sheets as derivative instrument assets and derivative instrument liabilities, with their offsetting values recorded in unrealized gain (loss) of derivative instruments on the Interim Condensed Consolidated Statements of Operations:
F-11 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
For the three months ended September 30, | For the six months ended September 30, | ||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||
Physical forward contracts and options (i) | $ | ( | $ | | $ | ( | $ | | |||||
Financial swap contracts and options (ii) |
| |
| |
| |
| | |||||
Foreign exchange forward contracts |
| |
| |
| |
| | |||||
Other derivative options |
| – |
| |
| – |
| | |||||
Unrealized gain (loss) on derivative instruments | $ | ( | $ | | $ | ( | $ | | |||||
The following table summarizes certain aspects of the derivative instrument assets and liabilities recorded in the Interim Condensed Consolidated Balance Sheet as at September 30, 2022:
Derivative | Derivative | Derivative | Derivative | |||||||||
instrument | instrument | instrument | instrument | |||||||||
assets | assets | liabilities | liabilities | |||||||||
| (current) |
| (non-current) |
| (current) |
| (non-current) | |||||
Physical forward contracts and options (i) | $ | | $ | | $ | | $ | | ||||
Financial swap contracts and options (ii) |
| |
| |
| |
| | ||||
Foreign exchange forward contracts |
| |
| |
| – |
| – | ||||
Other derivative options |
| |
| |
| – |
| | ||||
As at September 30, 2022 | $ | | $ | | $ | | $ | | ||||
The following tables summarize certain aspects of the derivative instrument assets and liabilities recorded in the Interim Condensed Consolidated Balance Sheet as at March 31, 2022:
Derivative | Derivative | Derivative | Derivative | |||||||||
instrument | instrument | instrument | instrument | |||||||||
assets | assets | liabilities | liabilities | |||||||||
| (current) |
| (non-current) |
| (current) |
| (non-current) | |||||
Physical forward contracts and options (i) | $ | | $ | | $ | | $ | | ||||
Financial swap contracts and options (ii) |
| |
| |
| |
| | ||||
Foreign exchange forward contracts |
| – |
| – |
| |
| | ||||
Other derivative options |
| |
| |
| – |
| – | ||||
As at March 31, 2022 | $ | | $ | | $ | | $ | | ||||
Individual derivative asset and liability transactions are offset and the net amount reported in the Interim Condensed Consolidated Balance Sheets if, and only if, there is currently an enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously. Individual derivative transactions are typically offset at the legal entity and counterparty level. The impact of netting derivative assets and liabilities is presented in the table below:
| Gross basis amount |
| Netting impact |
| Net basis amount | |||||
Derivative instrument assets |
| $ | | $ | ( | $ | | |||
Derivative instrument liabilities |
| ( |
| |
| ( | ||||
As at September 30, 2022 | $ | | $ | | $ | | ||||
| Gross basis amount |
| Netting impact |
| Net basis amount | |||||
Derivative instrument assets |
| $ | | $ | ( | $ | | |||
Derivative instrument liabilities |
| ( |
| |
| ( | ||||
As at March 31, 2022 | $ | | $ | | $ | | ||||
F-12 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Below is a summary of the derivative instruments classified through the Interim Condensed Consolidated Statement of Operations as at September 30, 2022, to which Just Energy has committed:
Total remaining volume | Weighted average price | Expiry date | |||||||
(i) | Physical forward contracts and options | ||||||||
Electricity contracts | MWh | $ | /MWh | December 31, 2029 | |||||
Natural gas contracts | MMBtu | $ | /MMBtu | March 31, 2027 | |||||
RECs | MWh | $ | /REC | December 31, 2029 | |||||
Green Gas Certificates | ( | tonnes | $ | /tonnes | June 1, 2023 | ||||
Electricity generation capacity contracts | MWCap | $ | /MWCap | May 31, 2026 | |||||
Ancillary contracts | MWh | $ | /MWh | December 31, 2025 | |||||
(ii) | Financial swap contracts and options | ||||||||
Electricity contracts | MWh | $ | /MWh | December 31, 2026 | |||||
Natural gas contracts | MMBtu | $ | /MMBtu | December 31, 2027 | |||||
Ancillary contracts | MWh | $ | /MWh | December 31, 2025 | |||||
These derivative instruments create a credit risk for Just Energy since they have been transacted with a limited number of counterparties. Should any counterparty be unable to fulfill its obligations under the contracts, Just Energy may not be able to realize the derivative instruments asset balance recognized in the Interim Condensed Consolidated Financial Statements.
Fair value hierarchy of derivatives
Level 1
The fair value measurements are classified as Level 1 in the fair value hierarchy if the fair value is determined using quoted unadjusted market prices. Currently, there are no derivatives carried in this level.
Level 2
Fair value measurements that require observable inputs other than quoted prices in Level 1, either directly or indirectly, are classified as Level 2 in the fair value hierarchy. This could include the use of statistical techniques to derive the fair value curve from observable market prices. However, in order to be classified under Level 2, significant inputs must be directly or indirectly observable in the market. Just Energy values its NYMEX financial gas fixed-for-floating swaps under Level 2.
Level 3
Fair value measurements that require unobservable market data or use statistical techniques to derive forward curves from observable market data and unobservable inputs are classified as Level 3 in the fair value hierarchy. For the electricity supply contracts, Just Energy uses quoted market prices as per available market forward data and applies a price-shaping profile to calculate the monthly prices from annual strips and hourly prices from block strips for the purposes of mark-to-market calculations. The profile is based on historical settlements with counterparties or with the system operator and is considered an unobservable input for the purposes of establishing the level in the fair value hierarchy.
For the natural gas supply contracts, Just Energy uses
F-13 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
The unobservable inputs could range from $
Fair value measurement input sensitivity
The main cause of changes in the fair value of derivative instruments is changes in the forward curve prices used for the fair value calculations. Just Energy provides a sensitivity analysis of these forward curves under the “Market risk” section of this note.
The following table illustrates the classification of derivative instrument assets (liabilities) in the fair value hierarchy as at September 30, 2022:
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Physical forward contracts |
| $ | – | $ | – | $ | | $ | | |||
Financial swap contracts | – | | | | ||||||||
Foreign exchange forward contracts | – | – | | | ||||||||
Other derivative options |
| – |
| – | | | ||||||
Total net derivative instrument assets | $ | – | $ | | $ | | $ | | ||||
The following table illustrates the classification of derivative instrument assets (liabilities) in the fair value hierarchy as at March 31, 2022:
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Physical forward contracts and options |
| $ | – | $ | – | $ | | $ | | |||
Financial swap contracts and options |
| – |
| |
| |
| | ||||
Foreign exchange forward contracts | – | – | ( | ( | ||||||||
Other derivative options |
| – | – | | | |||||||
Total net derivative instrument assets | $ | – | $ | | $ | | $ | | ||||
Commodity price sensitivity — Level 3 derivative instruments
If the energy prices associated with only Level 3 derivative instruments including natural gas, electricity, and RECs had risen by
On the contrary, if the energy prices associated with only Level 3 derivative instruments including natural gas, electricity, and RECs had fallen by
The following table illustrates the changes in net fair value of derivative instrument assets (liabilities) classified as Level 3 in the fair value hierarchy for the following periods:
As at September 30, | As at March 31, | |||||
| 2022 | 2022 | ||||
Balance, beginning of period | $ | | $ | ( | ||
| |
| | |||
Purchases |
| ( |
| | ||
Sales |
| |
| ( | ||
Settlements |
| ( |
| ( | ||
Balance, end of period | $ | | $ | | ||
F-14 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
(b)Classification of non-derivative financial assets and liabilities
As at September 30, 2022 and March 31, 2022, the carrying value of cash and cash equivalents, restricted cash, trade and other receivables, and trade and other payables approximates their fair value due to their short-term nature.
The risks associated with Just Energy’s derivative instruments are as follows:
(i)Market risk
Market risk is the potential loss that may be incurred as a result of changes in the market or fair value of a particular instrument or commodity. Components of market risk to which Just Energy is exposed are discussed below.
Foreign currency risk
Foreign currency risk is created by fluctuations in the fair value or cash flows of derivative instruments due to changes in foreign exchange rates and exposure as a result of investments in Canadian operations.
The performance of the U.S. dollar relative to the Canadian dollar could positively or negatively affect Just Energy’s Interim Condensed Consolidated Statements of Operations, as a significant portion of Just Energy’s income or loss is generated in Canadian dollars and is subject to currency fluctuations upon translation to U.S. dollars. Just Energy has a policy to economically hedge between
Just Energy may, from time to time, experience losses resulting from fluctuations in the values of its foreign currency transactions, which could adversely affect its operating results. Translation risk is not hedged.
Interest rate risk
Just Energy is only exposed to interest rate fluctuations associated with its floating rate Credit Facility.
A
Commodity price risk
Just Energy is exposed to market risks associated with commodity prices and market volatility where estimated customer requirements do not match actual customer requirements. Management actively monitors these positions on a daily basis in accordance with its risk management policy. This policy sets out a variety of limits, most importantly thresholds for open positions in the gas and electricity portfolios, which also feed a value at risk limit. Should any of the limits be exceeded, they are closed expeditiously or express approval to continue to hold is obtained. Just Energy’s exposure to market risk is affected by a number of factors, including accuracy of estimation of customer commodity requirements, commodity prices, volatility and liquidity of markets. Just Energy enters into derivative instruments in order to manage exposures to changes in commodity prices. The derivative instruments that are used are designed to fix the price of supply for estimated customer commodity demand and thereby fix margins. Derivative instruments are generally transacted over the counter. The inability or failure of Just Energy to manage and monitor commodity price risk could have a material adverse effect on the operations and cash flows of Just Energy. Just Energy mitigates the exposure to variances in customer requirements that are driven by changes in expected weather conditions through active management of the underlying 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 degree to which weather conditions deviate from normal.
F-15 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Commodity price sensitivity — all derivative instruments
If all the energy prices associated with derivative instruments including natural gas, electricity and RECs had risen by
On the contrary, a fall of
(ii)Physical supplier risk
Just Energy purchases the majority of the gas and electricity delivered to its customers through long-term contracts entered into with various suppliers. Just Energy has an exposure to supplier risk as the ability to continue to deliver gas and electricity to its customers is reliant upon the ongoing operations of these suppliers and their ability to fulfill their contractual obligations.
(iii)Counterparty credit risk
Counterparty credit risk represents the loss that Just Energy would incur if a counterparty fails to perform under its contractual obligations. This risk would manifest itself in Just Energy replacing contracted supply at prevailing market rates, thus impacting the related customer margin. Counterparty limits are established within the risk management policy. Any exceptions to these limits require approval from the Risk Committee of the Board of Directors of Just Energy. The risk department and Risk Committee of the Board of Directors monitor current and potential credit exposure to individual counterparties and also monitor overall aggregate counterparty exposure. However, the failure of a counterparty to meet its contractual obligations could have a material adverse effect on the operations and cash flows of Just Energy.
As at September 30, 2022, Just Energy has applied an adjustment factor to determine the fair value of its derivative instruments in the amount of $
As at September 30, 2022, the estimated net counterparty credit risk exposure amounted to $
As at September 30, 2022, the Company recorded $
7.TRADE AND OTHER PAYABLES
As at September 30, | As at March 31, | ||||||
| 2022 | 2022 |
| ||||
Commodity suppliers' accruals and payables | $ | | $ | | |||
Green provisions |
| |
| | |||
Sales tax payable |
| |
| | |||
Non-commodity trade accruals and accounts payable |
| |
| | |||
Accrued gas payable |
| – |
| | |||
Other payables |
| |
| | |||
Total trade and other payables | $ | | $ | | |||
F-16 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
8.LIABILITIES SUBJECT TO COMPROMISE
| As at September 30, | As at March 31, | ||||
2022 | 2022 | |||||
Commodity suppliers' accruals and payables | $ | | $ | | ||
Non-commodity trade accruals and accounts payable | | | ||||
Debts and financings |
| |
| | ||
Total liabilities subject to compromise | $ | | $ | | ||
9.LONG-TERM DEBT AND FINANCING
As at September 30, | As at March 31, | ||||||
2022 | 2022 | ||||||
DIP Facility (a) | $ | | $ | | |||
Filter Group financing (b) |
| |
| | |||
Total debt |
| | | ||||
Less: Current portion |
| ( |
| ( | |||
Total long-term debt | $ | | $ | | |||
Future annual minimum principal repayments are as follows:
Less than |
|
|
|
| More than | ||||||||||
| 1 year |
| 1–3 years |
| 4–5 years |
| 5 years |
| Total | ||||||
DIP Facility (a) | $ | | $ | – | $ | – | $ | – | $ | | |||||
Filter Group financing (b) |
| | | – | – | | |||||||||
Total principal repayment | $ | | $ | | $ | – | $ | – | $ | | |||||
The following table details interest expense. Interest is expensed based on the effective interest rate.
Three months ended September 30, | Six months ended September 30, |
| |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 |
| ||||||
DIP Facility (a) | $ | | $ | | $ | | $ | | |||||
Filter Group financing (b) |
| | |
| | | |||||||
Credit Facility (c) | | | | | |||||||||
Term Loan (d) | – | – | - | ( | |||||||||
Note Indenture (e) | – | – | - | ( | |||||||||
Collateral cost and other | | ( | | | |||||||||
Supplier finance and others |
| – | – |
| ( | – | |||||||
Total interest expense | $ | | $ | | $ | | $ | | |||||
| (a) | As discussed in Note 1, Just Energy filed and received the Court Order under the CCAA on March 9, 2021. In conjunction with the CCAA filing, the Company entered into the DIP Facility for $ |
F-17 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
| accrued interest of the DIP Facility. The outstanding principal remaining under the DIP Facility as at September 30, 2022 is $ |
| (b) | Filter Group has a $ |
| (c) | On March 18, 2021, Just Energy Ontario L.P, Just Energy (U.S.) Corp. and Just Energy Group Inc. entered into the Lender Support Agreement with the lenders under the Credit Facility. Under the Lender Support Agreement, the lenders agreed to allow issuance or renewals of Letters of Credit under the Credit Facility during the pendency of the CCAA proceedings within certain restrictions. In return, the Company has agreed to continue paying interest and fees at the non-default rate on the outstanding advances and Letters of Credit under the Credit Facility. The amount of Letters of Credit that may be issued is limited to the lesser of CAD $ |
Certain amounts outstanding under the LC Facility are guaranteed by Export Development Canada under its Account Performance Security Guarantee Program. As at September 30, 2022, the Company had $
The outstanding advances are all prime rate advances at a rate of bank prime (Canadian bank prime rate or U.S. prime rate) plus
As at September 30, 2022, the Canadian prime rate was
As a result of the CCAA filing, the Credit Facility is reflected as a liability subject to compromise.
| (d) | As part of the September 2020 Recapitalization, Just Energy issued the Term Loan maturing on March 31, 2024. The Term Loan bears interest at |
| (e) | As part of the September 2020 Recapitalization, Just Energy issued the Note Indenture. The principal amount was reduced through a tender offer for no consideration on October 19, 2020 to CAD $ |
F-18 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
10.REPORTABLE BUSINESS SEGMENTS
Just Energy has
The chief operating decision-maker monitors the operational results of the mass market and commercial segments for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on certain non-U.S. GAAP measures such as base EBITDA, base gross margin and embedded gross margin.
Transactions between segments are in the normal course of operations and are recorded at the exchange amount.
Corporate and shared services report the costs related to management oversight of the business units, public reporting and filings, corporate governance and other shared services functions such as Human Resources, Finance and Information Technology.
The chief operating decision maker does not review the assets and liabilities for the reporting units for decision making purposes.
For the three months ended September 30, 2022:
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Revenue | $ | | $ | | $ | – | $ | | ||||
Cost of goods sold |
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Gross margin |
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Administrative expenses |
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Selling and marketing expenses |
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Provision for expected credit loss |
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Segment loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Interest expense |
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Reorganization costs |
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Unrealized loss on derivative instruments |
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For the three months ended September 30, 2021:
F-19 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
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Revenue | $ | | $ | | $ | – | $ | | ||||
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Gross margin |
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Administrative expenses | | | | | ||||||||
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Provision for expected credit loss | | | – | | ||||||||
Depreciation and amortization | | | – | | ||||||||
Segment income (loss) | $ | | $ | ( | $ | ( | $ | ( | ||||
Interest expense |
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Reorganization costs | ( | |||||||||||
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For the six months ended September 30, 2022:
Corporate and | ||||||||||||
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Revenue | $ | | $ | | $ | – | $ | | ||||
Cost of goods sold |
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Gross margin |
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Administrative expenses |
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Selling and marketing expenses |
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Provision for expected credit loss |
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Depreciation and amortization |
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Segment loss for the period | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Interest expense |
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Unrealized loss on derivative instruments |
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Realized gain on derivative instruments |
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Other income, net |
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Reorganization costs |
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Net loss |
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As at September 30, 2022 |
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Total goodwill | $ | | $ | – | $ | – | $ | | ||||
For the six months ended September 30, 2021:
F-20 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
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Mass Market | Commercial | shared services | Consolidated | |||||||||
Revenue | $ | | $ | | $ | – | $ | | ||||
Cost of goods sold |
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Gross margin |
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Administrative expenses | | | | | ||||||||
Selling and marketing expenses |
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Provision for expected credit loss |
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Depreciation and amortization |
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Segment income (loss) | $ | | $ | | $ | ( | $ | ( | ||||
Interest expense |
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Reorganization costs |
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Unrealized gain on derivative instruments |
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Other expenses, net |
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Income tax benefit |
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Net income |
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As at September 30, 2021 |
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Total goodwill | $ | | $ | – | $ | – | $ | | ||||
Revenue from external customers
The revenue is based on the location of the customer.
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Canada | $ | | $ | | $ | | $ | | |||||
United States |
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Total | $ | | $ | | $ | | $ | | |||||
11.INCOME TAXES
Three months ended September 30, | Six months ended September 30, | ||||||||||||
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Current tax expense (benefit) | $ | | $ | ( | $ | | $ | ( | |||||
Deferred tax expense (benefit) |
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Total tax expense (benefit) | $ | ( | $ | ( | $ | ( | $ | ( | |||||
For the three months ended September 30, 2022, the effective tax rate of
For the six months ended September 30, 2022, the effective tax rate of
For the three and six months ended September 30, 2021, the effective tax rate was lower than the statutory tax rate of
F-21 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
12.SHAREHOLDERS’ CAPITAL
Just Energy is authorized to issue an unlimited number of common shares with
Details of issued and outstanding shareholders’ capital:
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Common shares: |
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13.REORGANIZATION COSTS
Reorganization costs represent the amounts incurred related to the filings under the CCAA proceedings and consist of:
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Professional and advisory costs | $ | | $ | | $ | | $ | | |||||
KERP |
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Prepetition claims and other costs1 |
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Total reorganization costs | $ | | $ | | $ | | $ | | |||||
| 1 | These represent charges associated with early termination of certain agreements allowed by the CCAA filing, settlement of claims and the acceleration of deferred financing costs and other fees for the long-term debt subject to compromise and certain other related costs. |
F-22 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
14.EARNINGS (LOSS) PER SHARE
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BASIC EARNINGS (LOSS) PER SHARE |
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Income (loss) for the period available to shareholders | $ | ( | $ | | $ | ( | $ | | |||||
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Basic earnings (loss) per share from operations available to shareholders |
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Basic earnings (loss) per share available to shareholders | $ | ( | $ | | $ | ( | $ | | |||||
DILUTED EARNINGS (LOSS) PER SHARE |
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Loss for the period available to shareholders | $ | ( | $ | | $ | ( | $ | | |||||
Basic weighted average shares outstanding |
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Dilutive effect of: |
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Diluted earnings (loss) per share available to shareholders | $ | ( | $ | | $ | ( | $ | | |||||
15.COMMITMENTS AND CONTINGENCIES
Commitments as at September 30, 2022, for each of the next five years and thereafter are as follows:
| Less than 1 year |
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| 4–5 years |
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Trade and other payables | $ | | $ | – | $ | – | $ | – | $ | | |||||
Commodity suppliers' accruals and payables subject to compromise | | – | – | – | | ||||||||||
Non-commodity trade accruals and accounts payable subject to compromise | | – | – | – | | ||||||||||
Debt | | | – | – | | ||||||||||
Debt and financing subject to compromise | | – | – | – | | ||||||||||
Gas, electricity and non-commodity contracts | | | | | | ||||||||||
Total | $ | | $ | | $ | | $ | | $ | | |||||
Under the terms of the Court Orders, any actions against Just Energy to enforce or otherwise effect payment from Just Energy of pre-petition obligations were stayed during the CCAA proceedings.
F-23 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
Just Energy has entered into leasing contracts for office buildings and administrative equipment. These leases have a leasing period of between and
| (a) | Surety bonds and letters of credit |
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Under 1 year | 1-3 years | 3-5 years | Over 5 years | Total | |||||||||||
Surety bonds (i) | $ | | $ | – | $ | – | $ | – | $ | | |||||
Letters of credit (CAD) (ii) | $ | | – | – | – | $ | | ||||||||
(i) | Pursuant to separate arrangements with Surety Bond Providers, Just Energy has had surety bonds issued 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. As at September 30, 2022, Just Energy has provided cash collateral or letters of credit for all outstanding surety bonds. |
(ii) | The Company has issued letters of credit in accordance with its credit facility to various counterparties, primarily utilities, state regulatory bodies in the markets it operates in, as well as suppliers. |
(b)Legal proceedings
Just Energy and its subsidiaries are party to a number of legal proceedings. Other than as set out below, Just Energy believes that each proceeding constitutes legal matters that are incidental to the business conducted by Just Energy and that the ultimate disposition of the proceedings will not have a material adverse effect on its consolidated earnings, cash flows or financial position.
On March 9, 2021, Just Energy filed for and received creditor protection pursuant to the Court Order under the CCAA and similar protection under Chapter 15 in connection with the Weather Event. On September 15, 2021, the Ontario Court approved the Company’s request to establish a claims process to identify and determine claims against the Company and its subsidiaries that are subject to the ongoing Claims Procedure Order. On August 4, 2022, Just Energy entered into the Transaction Agreement that is intended to facilitate its exit from the Company’s ongoing insolvency proceedings as a going concern. The Transaction provides that certain secured creditors will receive cash payments and/or equity in exchange for their debt, and existing equityholders’ interests will be cancelled for no consideration. In addition, no amounts will be available for distribution to the Just Energy Entities’ general unsecured creditors. On August 18, 2022, the Ontario Court suspended the Claims Procedure Order with (i) the barring of claims pursuant to the applicable provisions of such order remaining in effect and (ii) the Company’s ability, with the consent of the Monitor, to refer claims for adjudication for the purposes of determining entitlement to proceeds to be distributed in accordance with a transaction completed pursuant to the SISP. In accordance with item (ii) noted above, Just Energy continues to review and determine which claims will be allowed, modified or disallowed which may result in additional liabilities subject to compromise that are not currently reflected in the Interim Condensed Consolidated Financial Statements (Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes”).
In connection with the previously disclosed class action against Just Energy, Just Energy Corp. and Just Energy Ontario L.P. with Haidar Omarali as named plaintiff (the “Claimant”), pursuant to a settlement made as of October 31, 2022, in accordance with the Claims Procedure Order, the Claimant agreed that, among other things, any class claimants shall only be able to recover proceeds under certain insurance policies described therein, to the extent available, without any additional rights of enforcement or recovery as against the Just Energy Entities or the current and former directors, officers, employees, legal counsel and advisors of the Just Energy Entities (or any of them).
On July 23, 2019, Just Energy announced that, as part of its Strategic Review process, management identified customer enrolment and non–payment issues, primarily in Texas. In response to this announcement, and in some cases in response to this and other subsequent related announcements, putative class action lawsuits were filed in the United
F-24 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
States District Court for the Southern District of New York, in the United States District Court for the Southern District of Texas and in the Ontario Court, on behalf of investors that purchased Just Energy Group Inc. securities during various periods, ranging from November 9, 2017 through August 19, 2019. The U.S. lawsuits have been consolidated in the United States District Court for the Southern District of Texas with one lead plaintiff and the Ontario lawsuits have been consolidated with one lead plaintiff. The U.S. lawsuit seeks damages allegedly arising from violations of the United States Securities Exchange Act. The Ontario lawsuit seeks damages allegedly arising from violations of Canadian securities legislation and of common law. The Ontario lawsuit was subsequently amended to, among other things, extend the period to July 7, 2020. On September 2, 2020, pursuant to Just Energy’s plan of arrangement, the Superior Court of Justice (Ontario) ordered that all existing equity class action claimants shall be irrevocably and forever limited solely to recovery from the proceeds of the insurance policies payable on behalf of Just Energy or its directors and officers in respect of any such existing equity class action claims, and such existing equity class action claimants shall have no right to, and shall not, directly or indirectly, make any claim or seek any recoveries from any of the released parties or any of their respective current or former officers and directors in respect of any existing equity class action claims, other than enforcing their rights to be paid by the applicable insurer(s) from the proceeds of the applicable insurance policies. Pursuant to the CCAA proceedings, these proceedings have been stayed. Just Energy denies the allegations and will vigorously defend against these claims if they proceed.
On November 12, 2021, Just Energy, along with the Just Energy Parties, initiated the ERCOT Lawsuit against ERCOT and the PUCT in the Houston Court. The ERCOT Lawsuit seeks to recover payments that were made by the Just Energy Parties to ERCOT for certain invoices relating to the Weather Event. On February 2, 2022, the Houston Court dismissed the Lawsuit against the PUCT. On November 8, 2022, the U.S. Court of Appeals for the Fifth Circuit heard an expedited appeal of the dismissal motion filed by ERCOT. To date, no decision has been rendered by the U.S. Court of Appeals for the Fifth Circuit.
F-25 | JUST ENERGY | SECOND QUARTER REPORT 2023 |
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following MD&A is a review of the financial condition and operating results of Just Energy for the three months and six months ended September 30, 2022. This MD&A should be read in conjunction with Just Energy’s Interim Condensed Consolidated Financial Statements for the three months and six months ended September 30, 2022 and related notes (Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes”) and (ii) Consolidated Financial Statements for the year ended March 31, 2022 and related notes (Part II, Item 8, “Financial Statements and Supplementary Data”) of the Annual Report. The financial information contained herein has been prepared in accordance with U.S. GAAP. All dollar amounts are expressed in US dollars unless otherwise noted. Quarterly reports, the Annual Report and supplementary information can be found on Just Energy’s corporate website at investors.justenergy.com. Additional information can be found on SEDAR at www.sedar.com or on the SEC website at www.sec.gov.
COMPANIES’ CREDITORS ARRANGEMENT AND CHAPTER 15 PROCEEDINGS
In February 2021, the State of Texas experienced the Weather Event. The Weather Event led to increased electricity demand and sustained high prices from February 13, 2021 through February 20, 2021. As a result of the losses sustained and without sufficient liquidity to pay the corresponding invoices from the ERCOT when due, and accordingly, on March 9, 2021, Just Energy applied for and received Court Orders under the CCAA from the Ontario Court and under Chapter 15 in the U.S. from the Houston Court. Protection under the Court Orders allows Just Energy to operate while it restructures its capital structure.
As part of the CCAA filing, the Company entered into a $125.0 million DIP Facility financing with certain affiliates of PIMCO (refer to Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes”, Note 9(a) Long-Term Debt and Financing). The Company also entered into qualifying support agreements with its largest commodity supplier and ISO services provider. The filings and associated DIP Facility arranged by the Company, enabled Just Energy to continue all operations without interruption throughout the U.S. and Canada and to continue making payments required by ERCOT and satisfy other regulatory obligations.
On September 15, 2021, the Ontario Court approved the Company’s request to establish a claims process to identify and determine claims against the Company and its subsidiaries that are subject to the ongoing Claims Procedure Order. On August 18, 2022 the Ontario Court suspended the Claims Procedure Order with (i) the barring of claims pursuant to the applicable provisions of such order remaining in effect and (ii) the Company’s ability, with the consent of the Monitor, to refer claims for adjudication for the purposes of determining entitlement to proceeds to be distributed in accordance with a transaction completed pursuant to the SISP. As part of item (ii) above, Just Energy may continue to review and determine which claims will be allowed, modified or disallowed, which may result in additional liabilities subject to compromise that are not currently reflected in the Interim Condensed Consolidated Financial Statements (refer to Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes” Note 15(b) Commitments and Contingencies).
SALE AND INVESTMENT SOLICITATION PROCESS AND TRANSACTION
On August 4, 2022, the Company entered into the Transaction Agreement and the SISP Support Agreement in connection with the SISP to facilitate its exit from the CCAA proceedings as a going concern. On August 18, 2022, the Ontario Court granted an order, among other things, authorizing the Company to conduct the SISP. On October 17, 2022, the Company announced that the Transaction was the successful bid pursuant to the SISP.
On November 3, 2022, the Ontario Court issued an order (the “Reverse Vesting Order”) that approved the Transaction contemplated by the Transaction Agreement.
The Just Energy Entities are seeking recognition of the Reverse Vesting Order in their Chapter 15 case in the Bankruptcy Court of the Southern District of Texas, Houston Division (the “Houston Court”) on December 1, 2022.
Subject to the satisfaction or waiver of the other conditions to closing, upon the closing of the Transaction, the Purchaser will own all of the outstanding equity of Just Energy (U.S.) Corp., which will be the new parent company of all of the Just Energy Entities (other than those excluded pursuant to the terms of the Transaction Agreement), including the Company, and the Just Energy Entities will continue their business and operations in the ordinary course. All currently outstanding shares, options and other equity of Just Energy will be cancelled or redeemed for no consideration and without any vote or other action of the existing shareholders.
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Key terms of the Transaction include:
| ● | The purchase price payable pursuant to the Transaction is (i) $184.9 million in cash, plus up to an additional CAD $10 million solely in the event that additional amounts are required to make applicable payments pursuant to the Transaction Agreement; plus (ii) a credit bid of approximately $230 million plus accrued interest of secured claims assigned to the Purchaser; plus (iii) the assumption of Assumed Liabilities (as defined below), including up to CAD $10 million owing under the Credit Facility (the “Credit Facility Remaining Debt”) to remain outstanding under an amended and restated credit agreement. |
| ● | Applicable post-filing claims, the Credit Facility Remaining Debt, claims by energy regulators, and certain other liabilities enumerated in the Transaction Agreement (“Assumed Liabilities”) will continue to be liabilities of the Just Energy Entities following consummation of the Transaction. |
| ● | Excluded liabilities and excluded assets of the Just Energy Entities will be discharged from the Just Energy Entities pursuant to the Reverse Vesting Order. |
The consummation of the Transaction is subject to satisfaction or waiver of a number of conditions precedent set forth in the Transaction Agreement including, among other things, receipt of all required regulatory approvals, and the recognition of such Reverse Vesting Order by the Houston Court. The outside date for completion of the Transaction is December 16, 2022, subject to extension in certain circumstances set forth in the Transaction Agreement.
Under the Transaction, no amounts will be available for distribution to the Just Energy Entities’ general unsecured creditors, including the holders of Just Energy’s $205.9 million Term Loan and the holders of Just Energy’s 7.0% subordinated Notes Indenture, unless expressly classified as “Assumed Liabilities” pursuant to the Transaction Agreement. Liabilities that will not be retained, including the Term Loan and the Notes Indenture, will be transferred to newly formed corporations (the “ResidualCos”), along with excluded assets, under the Transaction Agreement. The Company expects that there will not be any recoveries available from the ResidualCos.
On November 3, 2022, the Ontario Court extended the stay until January 31, 2023. The stay extension allows the Company to continue to operate in the ordinary course of business while pursuing its proposed restructuring.
COMMON SHARES
On May 19, 2022, the common shares of the Company were transferred from the TSX Venture Exchange to the NEX and are trading under the symbol “JE.H.”. The Company’s common shares continue to trade on the OTC Pink Market under the symbol “JENGQ”.
Implementation of the Transaction is subject to the condition that Just Energy, and the other Just Energy Entities, will have ceased to be a reporting issuer under any Canadian or U.S. securities laws, and that no Just Energy Entity will become a reporting issuer under any Canadian or U.S. securities laws as a result of completion of the Transaction. In connection with the completion of the Transaction, the Company intends to: (i) apply for an order from Canadian securities administrators that it will cease to be a reporting issuer under Canadian securities laws immediately prior to the effective date of the Transaction; and (ii) file to suspend its reporting obligations under U.S. securities laws. Additionally, the Company intends to submit an application to de-list its common shares from trading on the NEX on or before the closing of the Transaction. Concurrent with the delisting from the NEX, the Company expects that the common shares will cease trading on the OTC Pink Market.
WEATHER EVENT RELATED UPLIFT SECURITIZATION PROCEEDS
On June 16, 2021, HB 4492 became law in Texas. HB 4492 provides a mechanism for recovery of certain Weather Event Costs, incurred by various parties, including the Company, during the Weather Event, through certain securitization structures.
On October 13, 2021, the PUCT approved the Final Order authorizing the securitization of certain Weather Event Costs by ERCOT. On December 7, 2021, ERCOT filed its calculation with the PUCT in accordance with the PUCT Final Order implementing HB 4492. The Company received $147.5 million in June 2022.
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Forward–looking information
This MD&A may contain forward-looking statements, including, without limitation, statements with respect to timing for court approvals, applications to cease to be a reporting issuer and delist from exchanges and the anticipated timing to close the Transaction. These statements are based on current expectations that involve several risks and uncertainties which could cause actual results to differ from those anticipated. These risks include consummation of the Transaction and the anticipated results thereof; satisfaction of the conditions precedent to consummation of the Transaction, including approval thereof by the Houston Court and receipt of all required regulatory approvals; the ability of the Just Energy Entities to continue as a going concern following consummation of the Transaction; the outcome of any potential litigation with respect to the February 2021 extreme weather event in Texas; the outcome of any invoice dispute with the Electric Reliability Council of Texas, Inc.; the impact of the COVID-19 pandemic on the Company’s business, operations and sales; the Company’s ability to access sufficient capital to provide liquidity to manage its cash flow requirements; general economic, business and market conditions; the ability of management to execute its business plan; levels of customer natural gas and electricity consumption; extreme weather conditions; rates of customer additions and renewals; customer credit risk; rates of customer attrition; fluctuations in natural gas and electricity prices; interest and exchange rates; actions taken by governmental authorities including energy marketing regulation; increases in taxes and changes in government regulations and incentive programs; changes in regulatory regimes; results of litigation and decisions by regulatory authorities; competition; and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy’s operations or financial results are included in Just Energy’s Form 10K and other reports on file with the U.S. Securities and Exchange Commission which can be accessed at www.sec.gov and with the Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or through Just Energy’s website at investors.justenergy.com.
Company overview
Just Energy is a retail energy provider specializing in electricity and natural gas commodities, energy efficient solutions, carbon offsets and renewable energy options. Operating in the U.S. and Canada, Just Energy serves both residential and commercial customers, providing homes and businesses with a broad range of energy solutions that deliver comfort, convenience and control. Just Energy is the parent company of Amigo Energy, Filter Group, Hudson Energy, Interactive Energy Group, Tara Energy and Terrapass.
Operations overview
MASS MARKETS SEGMENT
The Mass Markets segment includes customers acquired and served under the Just Energy, Tara Energy, Amigo Energy and Terrapass brands. Marketing of the energy products of this segment is primarily done through the digital and retail sales channels. Mass Market customers make up 72% of Just Energy’s Base Gross Margin , which is currently focused on price–protected and flat–bill product offerings, as well as JustGreen products. To the extent that certain markets are better served by shorter–term or enhanced variable rate products, the Mass Markets segment’s sales channels offer these products.
Just Energy also provides home water filtration systems with its line of consumer product and service offerings through Filter Group.
COMMERCIAL SEGMENT
The Commercial segment includes customers acquired and served under Hudson Energy, as well as brokerage services managed by Interactive Energy Group. Hudson Energy sales are made through three main channels: brokers, in-person commercial independent contractors and inside commercial sales representatives. Commercial customers make up 28% of Just Energy’s Base Gross Margin. Products offered to Commercial customers range from standard fixed–price offerings
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to “one off” offerings, tailored to meet the customer’s specific needs. These products can be fixed or floating rate or a blend of the two, and normally have a term of less than five years. Base Gross Margin per RCE for this segment is lower than it is for the Mass Markets segment, but customer acquisition costs and ongoing customer care costs per RCE are lower as well. Commercial customers also have significantly lower attrition rates than Mass Markets customers.
ABOUT JUST ENERGY’S PRODUCTS
Just Energy offers products and services to address customers’ essential needs, including electricity and natural gas commodities, energy efficient solutions, carbon offsets and renewable energy options as well as water quality and filtration devices.
Electricity
Just Energy services various states and territories in the U.S. and Canada with electricity. A variety of electricity solutions are offered, including fixed–price, flat–bill and variable–price products on both short–term and longer–term contracts. Most of these products provide customers with price–protection programs for the majority of their electricity requirements. Just Energy uses historical usage data for enrolled customers to predict future customer consumption and to help with long–term supply procurement decisions. Flat–bill products offer customers the ability to pay a fixed amount per period regardless of usage.
Just Energy purchases electricity supply from market counterparties for Mass Markets and Commercial customers based on forecasted customer aggregation. Electricity supply is generally purchased concurrently with the execution of a contract for larger Commercial customers. Historical customer usage is obtained from LDCs, which, when normalized to average weather, provides Just Energy with expected normal customer consumption. Just Energy mitigates exposure to weather variations through active management of the electricity portfolio and the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal and the availability and costs of such options. To the extent that balancing electricity purchases are outside the acceptable forecast, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. Any supply balancing not fully covered through customer pass–throughs, active management or the options employed may increase or decrease Just Energy’s Base Gross Margin depending upon market conditions at the time of balancing.
Natural gas
Just Energy offers natural gas customers a variety of products ranging from five–year fixed–price contracts to month–to–month variable–price contracts. Gas supply is purchased from market counterparties based on forecasted consumption. For larger Commercial customers, gas supply is generally purchased concurrently with the execution of a contract. Variable rate products allow customers to maintain flexibility while retaining the ability to lock into a fixed price at their discretion. Flat–bill products offer customers the ability to pay a fixed amount per period regardless of usage or changes in the price of the commodity.
The LDCs provide historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer consumption. Just Energy mitigates exposure to weather variations through active management of the gas portfolio, which involves, but is not limited to, the purchase of options, including weather derivatives. Just Energy’s ability to successfully mitigate weather effects is limited by the degree to which weather conditions deviate from normal and the availability and costs of such options. To the extent that balancing requirements are outside the forecasted purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy’s Base Gross Margin may increase or decrease depending upon market conditions at the time of balancing.
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Territory | Gas delivery method |
Manitoba, Ontario, Quebec and Michigan | The volumes delivered for a customer typically remain constant throughout the year. Revenues are not recognized until the customer consumes the gas. During the winter months, gas is consumed at a rate that is greater than delivery, resulting in accrued gas receivables, and, in the summer months, deliveries to LDCs exceed customer consumption, resulting in gas delivered in excess of consumption. Just Energy receives cash from the LDCs as the gas is delivered. |
Alberta, British Columbia, Saskatchewan, California, Illinois, Indiana, Maryland, New Jersey, New York, Ohio and Pennsylvania | The volume of gas delivered is based on the estimated consumption and storage requirements for each month. The amount of gas delivered in the months of October to March is higher than in the months of April to September. Cash flow received from most of these markets is greatest during the fall and winter quarters, as cash is normally received from the LDCs in the same period as customer consumption. |
JustGreen
Many customers have the ability to choose an appropriate JustGreen program to supplement their electricity and natural gas, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.
JustGreen’s electricity products offer customers the option of having all or a portion of the volume of their electricity usage sourced from renewable green sources such as wind, solar, hydropower or biomass, via power purchase agreements and renewable energy certificates. JustGreen programs for gas customers involve the purchase of carbon offsets from carbon capture and reduction projects. Additional green products allow customers to offset their carbon footprint without buying energy commodity products and can be offered in all states and provinces without being dependent on energy deregulation.
Just Energy currently sells JustGreen electricity and gas in eligible markets across North America. Of all Mass Market customers who contracted with Just Energy in the past year, 36% purchased JustGreen for some or all of their energy needs. On average, these customers elected to offset 100% of their consumption as green supply. For comparison, as reported for the trailing 12 months ended September 30, 2021, 40% of Mass Market customers who contracted with Just Energy chose to include JustGreen for an average of 73% of their consumption. As at September 30, 2022, JustGreen makes up 24% of the Mass Market electricity portfolio, compared to 25% in the year ago period. As at September 30, 2022, JustGreen makes up 25% of the Mass Market gas portfolio, compared to 17% in the year ago period.
Terrapass
Through Terrapass, customers can offset their environmental impact by purchasing high quality environmental products. Terrapass supports projects throughout North America and world–wide that destroy greenhouse gases, produce renewable energy and restore freshwater ecosystems. Each project is made possible through the purchase of carbon offsets, renewable energy credits and BEF Water Restoration Certificates®. Terrapass offers various purchase options for Mass Markets or Commercial customers, enabling businesses to incorporate seamless carbon offset options by providing marketing and product integration solutions.
Non–U.S. GAAP financial measures
Just Energy’s Interim Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The financial measures that are defined below do not have a standardized meaning prescribed by U.S. GAAP and may not be comparable to similar measures presented by other companies. These financial measures should not be considered as an alternative to, or more meaningful than, net income (loss), cash flow from operating activities and other measures of financial performance as determined in accordance with U.S. GAAP; however, the Company believes that these measures are useful in providing relative operational profitability of the Company’s business.
BASE GROSS MARGIN
“Base Gross Margin” represents gross margin adjusted to exclude the effect of unrealized gains (losses) on derivative instruments and the one–time impact of the Weather Event. Base Gross Margin is a key measure used by management to assess performance and allocate resources. Management believes that the realized gains (losses) on derivative instruments reflect the long–term financial performance of Just Energy and thus have included them in the Base Gross Margin calculation.
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EBITDA
“EBITDA” refers to earnings before interest expense, income taxes, depreciation and amortization with an adjustment for discontinued operations. EBITDA is a non–U.S. GAAP measure that reflects the operational profitability of the business.
BASE EBITDA
“Base EBITDA” refers to EBITDA adjusted to exclude the impact of unrealized mark to market gains (losses) arising from U.S. GAAP requirements for derivative instruments, Reorganization Costs, Weather Event, share–based compensation, impairment of goodwill, intangible, inventory and others, gain on investment, realized gains (losses) related to gas held in storage until gas is sold, and non–controlling interest. This measure reflects operational profitability as the impact of the gain on investment, impairment of inventory and Reorganization Costs are one–time non–recurring events. Non–cash share–based compensation expense is treated as an equity issuance for the purposes of this calculation as it would be settled in Common Shares; and the unrealized mark to market gains (losses) are associated with supply already sold in the future at fixed prices.
Just Energy tries to ensure that customer margins are protected by entering into fixed–price supply contracts. Under U.S. GAAP, the customer contracts are not marked to market; however, there is a requirement to mark to market the future supply contracts. This creates unrealized and realized gains (losses) depending upon current supply pricing. Management believes that the unrealized mark to market gains (losses) do not impact the long–term financial performance of Just Energy and has excluded them from the Base EBITDA calculation.
Just Energy uses derivative instruments to hedge the gas held in storage for future delivery to customers. Under U.S. GAAP, the customer contracts are not marked to market: however, there is a requirement to report the realized gains (losses) in the current period instead of recognizing them as a cost of inventory until delivery to the customer. Just Energy excludes the realized gains (losses) to EBITDA during the injection season and includes them during the withdrawal season in accordance with the customers receiving the gas. Management believes that including the realized gains (losses) during the withdrawal season when the customers receive the gas is more reflective of the operations of the business.
Just Energy recognizes the incremental acquisition costs of obtaining a customer contract as an asset since these costs would not have been incurred if the contract was not obtained and are recovered through the consideration collected from the contract. Commissions and incentives paid for commodity contracts and value–added products contracts are capitalized and amortized over the term of the contract. Amortization of these costs with respect to customer contracts is included in the calculation of Base EBITDA (as selling commission expenses). Amortization of incremental acquisition costs on value–added product contracts is excluded from the Base EBITDA calculation as value–added products are considered to be a lease asset akin to a fixed asset whereby amortization or depreciation expenses are excluded from Base EBITDA.
FREE CASH FLOW AND UNLEVERED FREE CASH FLOW
Free cash flow represents cash flow from operations less maintenance capital expenditures. Unlevered free cash flow represents free cash flows plus interest expense excluding the non–cash portion.
EMBEDDED GROSS MARGIN (“EGM”)
EGM is a rolling five–year measure of management’s estimate of future contracted energy and product gross margin. The commodity EGM is the difference between existing energy customer contract prices and the cost of supply for the remainder of the term, with appropriate assumptions for commodity RCE attrition and renewals. The product gross margin is the difference between existing value–added product customer contract prices and the cost of goods sold on a five–year undiscounted basis for such customer contracts, with appropriate assumptions for value–added product attrition and renewals. It is assumed that expiring contracts will be renewed at target margin renewal rates.
EGM indicates the gross margin expected to be realized over the next five years from existing customers. It is intended only as a directional measure for future gross margin. It is neither discounted to present value nor is it intended to consider administrative and other costs necessary to realize this margin.
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Financial and operating highlights
For the three months ended September 30.
(thousands of dollars, except where indicated and per share amounts)
|
| % increase |
| |||||
Fiscal 2023 | (decrease) |
| Fiscal 2022 | |||||
Revenue | $ | 684,968 |
| 22 | % | $ | 559,382 | |
Base Gross Margin1 |
| 113,569 |
| 23 | % |
| 92,442 | |
Administrative expenses |
| 29,934 |
| 0 | % |
| 29,816 | |
Selling commission expenses |
| 21,132 |
| (4) | % |
| 22,102 | |
Selling non-commission and marketing expense |
| 14,111 |
| 5 | % |
| 13,436 | |
Provision for expected credit loss |
| 16,756 |
| 469 | % |
| 2,945 | |
Reorganization Costs | 26,951 | 83 | % | 14,746 | ||||
Interest expense |
| 8,921 |
| 15 | % |
| 7,754 | |
Net Income (Loss) for the period | (205,617) | NMF | 2 | 265,081 | ||||
Base EBITDA1 |
| 32,143 |
| 31 | % |
| 24,459 | |
RCE Mass Markets count |
| 1,266,000 |
| 10 | % |
| 1,149,000 | |
RCE Mass Markets net adds | 27,000 | 200 | % | 9,000 | ||||
RCE Commercial count |
| 1,530,000 |
| (8) | % |
| 1,661,000 | |
1 See “Non–U.S. GAAP financial measures” above.
2 Not a meaningful figure.
Revenue increased by 22% to $685.0 million for the three months ended September 30, 2022 compared to $559.4 million for the three months ended September 30, 2021. The increase was primarily driven by an increase in the Texas mass market customer base and warmer weather in Texas.
Base Gross Margin increased by 23% to $113.6 million for the three months ended September 30, 2022 compared to $92.4 million for the three months ended September 30, 2021. The increase was primarily driven by higher realized margins and growth in mass markets customer base.
Base EBITDA increased by 31% to $32.1 million for the three months ended September 30, 2022 compared to $24.5 million for the three months ended September 30, 2021. The increase was primarily driven by higher Base Gross Margin, partially offset by higher provision for expected credit loss.
Administrative expenses remained flat at $29.9 million for the three months ended September 30, 2022 compared to $29.8 million for the three months ended September 30, 2021.
Selling commission expenses decreased by 4% to $21.1 million for the three months ended September 30, 2022 compared to $22.1 million for the three months ended September 30, 2021. The decrease was primarily due to lower prepaid commission amortization from lower sales in prior years.
Selling non–commission and marketing expenses increased by 5% to $14.1 million for the three months ended September 30, 2022 compared to $13.4 million for the three months ended September 30, 2021. The increase was driven by investment in sales agent costs to drive customer additions and retention.
Provision for expected credit loss increased by 469% to $16.8 million for the three months ended September 30, 2022 compared to $2.9 million for the three months ended September 30, 2021. The increase was driven by regulatory requirements due to extended hot weather in Texas, as well as higher sales in Texas from an increase in the mass market customer base, and a release of reserves in the prior year.
Reorganization Costs include professional and advisory costs of $16.3 million, $0.5 million for the key employee retention plan and $10.1 million in prepetition claims, contract terminations and other costs.
Net loss was $205.6 million for the three months ended September 30, 2022 compared to net income of $265.1 million for the three months ended September 30, 2021. The net loss was driven by an unrealized mark to market loss on derivative instruments in the three months ended September 30, 2022. The net income in the three months ended September 30, 2021 was primarily driven by an unrealized mark to market gain on derivative instrument. The unrealized mark to market gains
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and losses on derivative financial instruments relate to the supply the Company has purchased to deliver in the future to existing customers at fixed contractual prices.
Mass Markets RCE Net Adds for the three months ended September 30, 2022 was a gain of 27,000 compared to a gain of 9,000 for the three months ended September 30, 2021 driven by the increase in customer additions.
Financial and operating highlights
For the six months ended September 30.
(thousands of dollars, except where indicated and per share amounts)
|
| % increase |
| |||||
Fiscal 2023 | (decrease) |
| Fiscal 2022 | |||||
Revenue | $ | 1,255,554 |
| 19 | % | $ | 1,055,743 | |
Base Gross Margin1 |
| 203,918 |
| 18 | % |
| 173,524 | |
Administrative expenses |
| 57,421 |
| 5 | % |
| 54,460 | |
Selling commission expenses |
| 40,223 |
| (6) | % |
| 42,750 | |
Selling non-commission and marketing expense |
| 27,492 |
| 9 | % |
| 25,124 | |
Provision for expected credit loss |
| 27,206 |
| 202 | % |
| 9,018 | |
Reorganization Costs | 46,082 | 48 | % | 31,232 | ||||
Interest expense |
| 17,409 |
| 5 | % |
| 16,584 | |
Net Income (Loss) for the period | (45,003) | NMF | 2 | 488,915 | ||||
Base EBITDA1 |
| 52,616 |
| 22 | % |
| 43,229 | |
Unlevered free cash flow1 |
| 146,542 |
| 338 | % |
| 33,470 | |
EGM Mass Market |
| 872,000 |
| 6 | % |
| 826,000 | |
EGM Commercial |
| 237,000 |
| (11) | % |
| 265,500 | |
RCE Mass Markets net adds | 65,000 | NMF | 2 | 3,000 | ||||
1 See “Non–U.S. GAAP financial measures” above.
2 Not a meaningful figure.
Revenue increased by 19% to $1,255.6 million for the six months ended September 30, 2022 compared to $1,055.7 million for the six months ended September 30, 2021. The increase was primarily driven by an increase in the Texas mass market customer base and warmer weather in Texas.
Base Gross Margin increased by 18% to $203.9 million for the six months ended September 30, 2022 compared to $173.5 million for the six months ended September 30, 2021. The increase was primarily driven by higher realized margins and growth in mass markets customer base.
Base EBITDA increased by 22% to $52.6 million for the six months ended September 30, 2022 compared to $43.2 million for the six months ended September 30, 2021. The increase was primarily driven by higher Base Gross Margin offset by higher provision for expected credit loss.
Administrative expenses increased by 5% to $57.4 million for the six months ended September 30, 2022 compared to $54.5 million to the six months ended September 30, 2021. The increase was primarily driven by higher employee costs and higher support cost driven by an increase in the Texas mass market customer base.
Selling commission expenses decreased by 6% to $40.2 million for the six months ended September 30, 2022 compared to $42.8 million for the six months ended September 30, 2021. The decrease was primarily due to lower prepaid commission amortization from lower sales in prior years.
Selling non–commission and marketing expenses increased by 9% to $27.5 million for the six months ended September 30, 2022 compared to $25.1 million for the six months ended September 30, 2021. The increase was driven by investment in sales agent costs to drive customer additions and retention.
Provision for expected credit loss increased by 202% to $27.2 million for the six months ended September 30, 2022 compared to $9.0 million for the six months ended September 30, 2021. The increase was driven by regulatory requirements due to extended hot weather in Texas, as well as higher sales in Texas from an increase in the mass market customer base, and a release of reserves in the prior year.
Reorganization Costs include professional and advisory costs of $29.9 million, $2.1 million for the key employee retention plan and $14.1 million in prepetition claims, contract terminations and other costs.
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Interest expense increased by 5% to $17.4 million for the six months ended September 30, 2022 compared to $16.6 million for the six months ended September 30, 2021. The increase is due to higher interest rates on credit facility debt.
Unlevered free cash flow increased by $113.1 million to an inflow of $146.5 million for the six months ended September 30, 2022 compared to an inflow of $33.5 million for the six months ended September 30, 2021. The increase is primarily due to the proceeds from HB 4492
Mass Markets EGM increased by 6% to $872.0 million as at September 30, 2022 compared to $826.0 million as at September 30, 2021. The increase is primarily due to the increase in mass market customers.
Commercial EGM decreased by 11% to $237.0 million as at September 30, 2022 compared to $265.5 million as at September 30, 2021. The decline resulted from the decline in the customer base.
Base Gross Margin
For the three months ended September 30.
(thousands of dollars)
| Fiscal 2023 | Fiscal 2022 | ||||||||||||||||
Mass | Mass | |||||||||||||||||
Market |
| Commercial |
| Total |
| Market |
| Commercial |
| Total | ||||||||
Gas | $ | 4,849 | $ | 2,615 | $ | 7,464 | $ | 5,074 | $ | 463 | $ | 5,537 | ||||||
Electricity |
| 74,972 |
| 31,133 |
| 106,105 |
| 63,567 |
| 23,338 |
| 86,905 | ||||||
$ | 79,821 | $ | 33,748 | $ | 113,569 | $ | 68,641 | $ | 23,801 | $ | 92,442 | |||||||
Increase |
| 16% |
| 42% |
| 23% |
|
| ||||||||||
For the six months ended September 30.
(thousands of dollars)
| Fiscal 2023 | Fiscal 2022 | ||||||||||||||||
Mass | Mass | |||||||||||||||||
Market |
| Commercial |
| Total |
| Market |
| Commercial |
| Total | ||||||||
Gas | $ | 15,485 | $ | 1,544 | $ | 17,029 | $ | 16,640 | $ | 1,997 | $ | 18,637 | ||||||
Electricity |
| 132,242 |
| 54,647 |
| 186,889 |
| 113,066 |
| 41,821 |
| 154,887 | ||||||
$ | 147,727 | $ | 56,191 | $ | 203,918 | $ | 129,706 | $ | 43,818 | $ | 173,524 | |||||||
Increase |
| 14% |
| 28% |
| 18% | ||||||||||||
1 See “Non–U.S. GAAP financial measures” above.
Mass Markets
Mass Markets Base Gross Margin increased by 16% to $79.8 million for the three months ended September 30, 2022 compared to $68.6 million for the three months ended September 30, 2021. The increase was primarily driven by higher mass market volumes due to increase in customer base.
Mass Markets Base Gross Margin increased by 14% to $147.7 million for the six months ended September 30, 2022 compared to $129.7 million for the six months ended September 30, 2021. The increase was primarily driven by higher mass market volumes due to increase in customer base.
Commercial
Commercial Base Gross Margin increased by 42% to $33.8 million for the three months ended September 30, 2022 compared to $23.8 million for the three months ended September 30, 2021. The increase was primarily driven by higher realized margins partially offset by lower customer base.
Commercial Base Gross Margin increased by 28% to $56.2 million for the six months ended September 30, 2022 compared to $43.8 million for the six months ended September 30, 2021. The increase was primarily driven by higher average realized margins partially offset by lower customer base.
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Mass Markets average realized Base Gross Margin
For the trailing 12 months ended September 30.
| Fiscal 2023 |
|
| Fiscal 2022 | ||||
Base GM/RCE | % Change | Base GM/RCE | ||||||
Gas | $ | 184 |
| (34) | % | $ | 277 | |
Electricity |
| 221 |
| (9) | % |
| 244 | |
Total | $ | 214 |
| (15) | % | $ | 252 | |
Mass Markets average realized Base Gross Margin for the trailing 12 months ended September 30, 2022 decreased 15% to $214 compared to $252 for the trailing 12 months ended September 30, 2021. The decrease is primarily attributable to higher supply costs and competitive market pricing to support customer growth and retention.
Commercial average realized Base Gross Margin
For the trailing 12 months ended September 30.
| Fiscal 2023 |
|
| Fiscal 2022 | ||||
Base GM/RCE | % Change | Base GM/RCE | ||||||
Gas | $ | 51 |
| (14) | % | $ | 59 | |
Electricity |
| 101 |
| 28 | % |
| 79 | |
Total | $ | 90 |
| 20 | % | $ | 75 | |
Commercial average realized Base Gross Margin for the trailing 12 months ended September 30, 2022 increased 20% to $90 compared to $75 for the trailing 12 months ended September 30, 2021.
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Base EBITDA
For the three months ended September 30.
(thousands of dollars)
| Fiscal 2023 |
| Fiscal 2022 | |||
Reconciliation to Interim Condensed Consolidated Statements of Operations | ||||||
Income for the period | $ | (205,617) | $ | 265,081 | ||
Add: |
|
|
| |||
Interest expense |
| 8,921 |
| 7,754 | ||
Recovery for income taxes |
| (81,164) |
| (191) | ||
Amortization and depreciation |
| 3,260 |
| 3,770 | ||
EBITDA | $ | (274,600) | $ | 276,414 | ||
Add (subtract): |
|
|
| |||
Unrealized (gain) loss of derivative instruments |
| 289,774 |
| (233,036) | ||
Weather Event Costs | (10) | (2,421) | ||||
Reorganization Costs |
| 26,951 |
| 14,746 | ||
Loss on investment | – | (22,887) | ||||
Non-cash adjustment to green obligations | – | (3,633) | ||||
Share-based compensation |
| 159 |
| 330 | ||
Realized gain included in cost of goods sold |
| (10,150) |
| (5,051) | ||
(Gain) loss attributable to non-controlling interest |
| 19 |
| (3) | ||
Base EBITDA | $ | 32,143 | $ | 24,459 | ||
Add(subtract) | ||||||
Gross margin | $ | (271,902) | $ | 64,770 | ||
Realized gain of derivative instruments |
| 385,481 |
| 33,726 | ||
Non-cash adjustment to green obligations | - | (3,633) | ||||
Weather Event Costs | (10) | (2,421) | ||||
Base Gross Margin | $ | 113,569 | $ | 92,442 | ||
Add (subtract): |
|
|
| |||
Administrative expenses |
| (29,934) |
| (29,816) | ||
Selling commission expenses |
| (21,132) |
| (22,102) | ||
Selling non-commission and marketing expense |
| (14,111) |
| (13,436) | ||
Provision for expected credit loss |
| (16,756) |
| (2,945) | ||
Amortization included in cost of sales |
| 166 |
| 34 | ||
Share-based compensation | 159 | 330 | ||||
Gain (loss) attributable to non-controlling interest |
| 19 |
| (3) | ||
Other income (expense) |
| 163 |
| (45) | ||
Base EBITDA | $ | 32,143 | $ | 24,459 | ||
Base EBITDA increased by 31% to $32.1 million for the three months ended September 30, 2022 compared to $24.5 million for the three months ended September 30, 2021. The increase was driven primarily by higher Base Gross Margin, partially offset by higher provision for expected credit loss.
Base Gross Margin increased by 23% to $113.6 million for the three months ended September 30, 2022 compared to $92.4 million for the three months ended September 30, 2021. The increase was primarily driven by higher realized margins and growth in mass markets customer base.
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Base EBITDA
For the six months ended September 30.
(thousands of dollars)
| Fiscal 2023 |
| Fiscal 2022 | |||
Reconciliation to Consolidated Statements of Operations | ||||||
Income (Loss) for the period | $ | (45,003) | $ | 488,915 | ||
Add: |
|
| ||||
Interest expense |
| 17,409 |
| 16,584 | ||
Recovery for income taxes |
| (15,600) |
| (984) | ||
Amortization and depreciation |
| 6,301 |
| 7,447 | ||
EBITDA | $ | (36,893) | $ | 511,962 | ||
Add (subtract): |
|
|
| |||
Unrealized (gain) loss of derivative instruments and other |
| 67,335 |
| (469,091) | ||
Weather Event | (3,997) | 579 | ||||
Reorganization Costs |
| 46,082 |
| 31,232 | ||
Gain on investment | – | (22,887) | ||||
Non-cash adjustment to green obligations | – | (3,633) | ||||
Share-based compensation |
| 324 |
| 824 | ||
Impairment of goodwill, intangible assets and other | – | 530 | ||||
Realized gain of derivative instruments included in cost of goods sold |
| (20,266) |
| (6,336) | ||
Loss attributable to non-controlling interest |
| 31 |
| 49 | ||
Base EBITDA | $ | 52,616 | $ | 43,229 | ||
Add(subtract) | ||||||
Gross margin | $ | (364,529) | $ | 130,121 | ||
Realized gain (loss) of derivative instruments and other |
| 572,444 |
| 46,457 | ||
Non-cash adjustment to green obligations | – | (3,633) | ||||
Weather Event | (3,997) | 579 | ||||
Base Gross Margin |
| 203,918 |
| 173,524 | ||
Add (subtract): |
|
|
| |||
Administrative expenses |
| (57,421) |
| (54,460) | ||
Selling commission expenses |
| (40,223) |
| (42,750) | ||
Selling non-commission and marketing expense |
| (27,492) |
| (25,124) | ||
Provision for expected credit loss |
| (27,206) |
| (9,018) | ||
Amortization included in cost of sales |
| 290 |
| 66 | ||
Share-based compensation | 324 | 824 | ||||
Loss attributable to non-controlling interest |
| 31 |
| 49 | ||
Texas residential enrollment and collections impairment | - | – | ||||
Other income |
| 395 |
| 118 | ||
Base EBITDA | $ | 52,616 | $ | 43,229 | ||
Base EBITDA increased by 22% to $52.6 million for the six months ended September 30, 2022 compared to $43.3 million for the six months ended September 30, 2021. The increase was driven primarily by higher Base Gross Margin, partially offset by higher provision for expected credit loss.
Base Gross Margin increased by 18% to $203.9 million for the six months ended September 30, 2022 compared to $173.5 million for the six months ended September 30, 2021. The increase was primarily driven by higher realized margins and growth in mass markets customer base.
18
Summary of quarterly results for operations
(thousands of dollars, except per share amounts)
Q2 | Q1 | Q4 | Q3 | |||||||||
Fiscal 2023 | Fiscal 2023 | Fiscal 2022 | Fiscal 2022 | |||||||||
Revenues | $ | 684,968 | $ | 570,586 | $ | 582,680 | $ | 516,185 | ||||
Cost of goods sold |
| 956,870 |
| 663,212 |
| 555,680 |
| 346,675 | ||||
Gross margin |
| (271,902) |
| (92,626) |
| 27,000 |
| 169,510 | ||||
Realized gain of derivative instruments |
| 385,481 |
| 186,962 |
| 54,248 |
| 63,885 | ||||
Weather Event Costs |
| (10) |
| (3,987) |
| – |
| (148,537) | ||||
Non-cash adjustment to green obligations | – | – | – | – | ||||||||
Base Gross Margin |
| 113,569 |
| 90,349 |
| 81,248 |
| 84,858 | ||||
Administrative expenses |
| 29,934 |
| 27,487 |
| 27,651 |
| 26,074 | ||||
Selling commission expenses |
| 21,132 |
| 19,091 |
| 19,437 |
| 21,582 | ||||
Selling non-commission and marketing expenses |
| 14,111 |
| 13,381 |
| 13,459 |
| 13,000 | ||||
Provision for expected credit loss |
| 16,756 |
| 10,450 |
| 8,188 |
| 7,036 | ||||
Interest expense |
| 8,921 |
| 8,488 |
| 9,394 |
| 8,890 | ||||
Income (loss) for the period |
| (205,617) |
| 160,614 |
| 300,450 |
| (110,881) | ||||
Base EBITDA from operations |
| 32,143 |
| 20,473 |
| 12,913 |
| 17,540 | ||||
Q2 | Q1 | Q4 | Q3 | |||||||||
Fiscal 2022 | Fiscal 2022 | Fiscal 2021 | Fiscal 2021 | |||||||||
Revenues | $ | 559,382 | $ | 496,361 | $ | 543,975 | $ | 481,619 | ||||
Cost of goods sold |
| 494,612 |
| 431,011 |
| 2,470,119 |
| 343,059 | ||||
Gross margin |
| 64,770 |
| 65,350 |
| (1,926,144) |
| 138,560 | ||||
Realized gain (loss) of derivative instruments |
| 33,726 |
| 12,732 |
| 1,697,835 |
| (43,573) | ||||
Weather Event Costs | (2,421) |
| 3,000 |
| 330,383 |
| – | |||||
Sales Tax settlement | – |
| – |
| 1,499 |
| 6,200 | |||||
Non-cash adjustment to green obligations | (3,633) |
|
|
| ||||||||
Base Gross Margin |
| 92,442 |
| 81,082 |
| 103,573 |
| 101,188 | ||||
Administrative expenses |
| 29,816 |
| 24,643 |
| 24,255 |
| 24,525 | ||||
Selling commission expenses |
| 22,102 |
| 20,648 |
| 22,333 |
| 23,403 | ||||
Selling non-commission and marketing expenses |
| 13,436 |
| 11,688 |
| 11,125 |
| 9,023 | ||||
Provision for expected credit loss |
| 2,945 |
| 6,073 |
| 5,753 |
| 2,579 | ||||
Interest expense |
| 7,754 |
| 8,831 |
| 13,297 |
| 13,648 | ||||
Income (loss) for the period |
| 265,082 |
| 223,834 |
| (306,558) |
| (53,499) | ||||
Base EBITDA from operations |
| 24,458 |
| 18,772 |
| 43,391 |
| 42,431 | ||||
Just Energy’s results reflect seasonality, as gas consumption by customers is typically highest in October through March and lowest in April through September. Electricity consumption is typically highest in January through March and July through September and lowest in October through December and April through June. Electricity and gas customers (RCEs) currently represent 78% and 22% of the commodity customer base, respectively. Since consumption for each commodity is influenced by weather, Just Energy believes the annual quarter over quarter comparisons are more relevant than sequential quarter comparisons.
19
Segmented Base EBITDA
For the three months ended September 30.
(thousands of dollars)
Fiscal 2023 | ||||||||||||
Corporate | ||||||||||||
Mass | and shared | |||||||||||
| Market |
| Commercial |
| services |
| Consolidated | |||||
Revenue | $ | 418,031 | $ | 266,937 | $ | – | $ | 684,968 | ||||
Cost of goods sold |
| (612,384) |
| (344,486) |
| – |
| (956,870) | ||||
Gross margin |
| (194,353) |
| (77,549) |
| – |
| (271,902) | ||||
Non-cash adjustment to green obligations | – | – | – | – | ||||||||
Weather Event Costs | (10) | – | – | (10) | ||||||||
Realized gain of derivative instruments |
| 274,184 |
| 111,297 |
| – |
| 385,481 | ||||
Base Gross Margin |
| 79,821 |
| 33,748 |
| – |
| 113,569 | ||||
Add (subtract): |
|
|
|
|
| |||||||
Administrative expenses |
| (9,271) |
| (2,750) |
| (17,913) |
| (29,934) | ||||
Selling commission expenses |
| (11,534) |
| (9,598) |
| – |
| (21,132) | ||||
Selling non-commission and marketing expense |
| (12,991) |
| (1,120) |
| – |
| (14,111) | ||||
Provision for expected credit loss |
| (15,277) |
| (1,479) |
| – |
| (16,756) | ||||
Amortization included in cost of goods sold |
| 166 |
| – |
| – |
| 166 | ||||
Share based compensation | – | – | 159 | 159 | ||||||||
Other income |
| 162 |
| 1 |
| – |
| 163 | ||||
Income attributable to non-controlling interest |
| 19 |
| – |
| – |
| 19 | ||||
Base EBITDA from operations | $ | 31,095 | $ | 18,802 | $ | (17,754) | $ | 32,143 | ||||
Fiscal 2022 | ||||||||||||
|
|
| Corporate |
| ||||||||
Mass | and shared | |||||||||||
Market | Commercial | services | Consolidated | |||||||||
Sales | $ | 319,038 | $ | 240,344 | $ | – | $ | 559,382 | ||||
Cost of goods sold |
| (269,653) |
| (224,959) |
| – |
| (494,612) | ||||
Gross margin |
| 49,385 |
| 15,385 |
| – |
| 64,770 | ||||
Non-cash adjustment to green obligations | (3,438) | (195) | (3,633) | |||||||||
Weather Event | (2,421) | – | – | (2,421) | ||||||||
Realized gain of derivative instruments |
| 25,115 |
| 8,611 |
| – |
| 33,726 | ||||
Base Gross Margin |
| 68,641 |
| 23,801 |
| – |
| 92,442 | ||||
Add (subtract): |
|
|
|
|
|
|
|
| ||||
Administrative expenses |
| (8,285) |
| (3,011) |
| (18,520) |
| (29,816) | ||||
Share based compensation | – | – | 330 | 330 | ||||||||
Selling commission expenses |
| (10,837) |
| (11,265) |
| – |
| (22,102) | ||||
Selling non-commission and marketing expense |
| (12,312) |
| (1,124) |
| – |
| (13,436) | ||||
Provision for credit loss |
| (2,868) |
| (77) |
| – |
| (2,945) | ||||
Amortization included in cost of goods sold |
| 34 |
| – |
| – |
| 34 | ||||
Other income (expense) |
| (33) |
| (12) |
| – |
| (45) | ||||
Loss attributable to non-controlling interest |
| (3) |
| – |
| – |
| (3) | ||||
Base EBITDA from operations | $ | 34,337 | $ | 8,312 | $ | (18,190) | $ | 24,459 | ||||
1 See segment definitions provided as above.
Mass Markets segment Base EBITDA decreased by 9% to $31.1 million for the three months ended September 30, 2022 compared to $34.3 million for the three months ended September 30, 2021. Higher Base Gross Margin was offset by a higher provision for expected credit losses and administrative cost to support a higher customer base.
Commercial segment Base EBITDA increased 126% to $18.8 million for the three months ended September 30, 2022 compared to $8.3 million for the three months ended September 30, 2021. The increase was primarily driven by higher Base Gross Margin.
20
Corporate and shared services costs were $17.8 million for the three months ended September 30, 2022 compared to $18.1 million for the three months ended September 30, 2021.
Segmented Base EBITDA
For the six months ended September 30.
(thousands of dollars)
Fiscal 2023 | ||||||||||||
Corporate | ||||||||||||
Mass | and shared | |||||||||||
| Market |
| Commercial |
| services |
| Consolidated | |||||
Revenues | $ | 758,608 | $ | 496,946 | $ | – | $ | 1,255,554 | ||||
Cost of goods sold |
| (1,021,588) |
| (598,495) |
| – |
| (1,620,083) | ||||
Gross margin |
| (262,980) |
| (101,549) |
| – |
| (364,529) | ||||
Non-cash adjustment to green obligations | – | – | – | – | ||||||||
Weather Event | (3,997) | – | – | (3,997) | ||||||||
Realized gain of derivative instruments and other |
| 414,704 |
| 157,740 |
| – |
| 572,444 | ||||
Base Gross Margin |
| 147,727 |
| 56,191 |
| – |
| 203,918 | ||||
Add (subtract): |
|
|
|
|
| |||||||
Administrative expenses |
| (17,041) |
| (5,469) |
| (34,911) |
| (57,421) | ||||
Selling commission expenses |
| (20,794) |
| (19,429) |
| – |
| (40,223) | ||||
Selling non-commission and marketing expense |
| (25,320) |
| (2,172) |
| – |
| (27,492) | ||||
Provision for expected credit loss |
| (25,601) |
| (1,605) |
| – |
| (27,206) | ||||
Amortization included in cost of goods sold |
| 290 |
| – |
| – |
| 290 | ||||
Share-based compensation | – | – | 324 | 324 | ||||||||
Other income |
| 392 |
| 3 |
| – |
| 395 | ||||
Income attributable to non-controlling interest |
| 31 |
| – |
| – |
| 31 | ||||
Base EBITDA from operations | $ | 59,684 | $ | 27,519 | $ | (34,587) | $ | 52,616 | ||||
Fiscal 2022 | ||||||||||||
|
|
| Corporate |
| ||||||||
Mass | and shared | |||||||||||
Market | Commercial | services | Consolidated | |||||||||
Revenue | $ | 575,904 | $ | 479,839 | $ | – | $ | 1,055,743 | ||||
Cost of goods sold |
| (478,074) |
| (447,548) |
| – |
| (925,622) | ||||
Gross margin |
| 97,830 |
| 32,291 |
| – |
| 130,121 | ||||
Non-cash adjustment to green obligations | (3,438) | (195) | ||||||||||
Weather Event | 579 | – | – | 579 | ||||||||
Realized gain of derivative instruments and other |
| 34,735 |
| 11,722 |
| – |
| 46,457 | ||||
Base Gross Margin |
| 129,706 |
| 43,818 |
| – |
| 173,524 | ||||
Add (subtract): |
|
|
|
|
|
|
|
| ||||
Administrative expenses |
| (15,863) |
| (5,775) |
| (32,822) |
| (54,460) | ||||
Share-base compensation | – | – | 824 | 824 | ||||||||
Selling commission expenses |
| (20,515) |
| (22,235) |
| – |
| (42,750) | ||||
Selling non-commission and marketing expense |
| (23,104) |
| (2,020) |
| – |
| (25,124) | ||||
Provision for expected credit loss |
| (7,731) |
| (1,287) |
| – |
| (9,018) | ||||
Amortization included in cost of goods sold |
| 66 |
| – |
| – |
| 66 | ||||
Other income |
| 94 |
| 24 |
| – |
| 118 | ||||
Income attributable to non-controlling interest |
| 49 |
| – |
| – |
| 49 | ||||
Base EBITDA from operations | $ | 62,702 | $ | 12,525 | $ | (31,998) | $ | 43,229 | ||||
1 See segment definitions provided as above.
21
Mass Markets segment Base EBITDA decreased by 5% to $59.7 million for the six months ended September 30, 2022 compared to $62.7 million for the six months ended September 30, 2021. Higher Base Gross Margin was offset by a higher provision for expected credit losses and higher selling costs to drive customer additions and retention.
Commercial segment Base EBITDA increased by 120% to $27.5 million for the six months ended September 30, 2022 compared to $12.5 million for the six months ended September 30, 2021. The increase was primarily driven by higher Base Gross Margin.
Corporate and shared services costs were $34.6 million for the six months ended September 30, 2022 compared to $32.0 million for the six months ended September 30, 2021 primarily driven by higher employee costs.
Acquisition Costs
The acquisition costs per customer for the trailing twelve months for mass market customers signed by sales agents including sales through digital channel and the commercial customers signed by brokers were as follows:
| Trailing twelve months ended | |||||
Fiscal 2023 |
| Fiscal 2022 | ||||
Mass Markets | $ | 180/RCE | $ | 192/RCE | ||
Commercial | $ | 42/RCE | $ | 35/RCE | ||
Mass markets average acquisition cost decreased by 6% to $180/RCE for the trailing twelve months ended September 30, 2022 compared to $192/RCE reported for the twelve months ended September 30, 2021, due to a change in channel mix towards lower cost channels.
Commercial average customer acquisition cost increased by 19% to $42/RCE for the trailing twelve months ended September 30, 2022 compared to 35/RCE for the twelve months ended September 30, 2021. The increase is consistent with the increase in average gross margin per RCE for Commercial adds and renewals.
Customer summary
Customer Count
| As at |
|
| As at | |||
September 30, | % Increase | September 30, | |||||
2022 | (decrease) | 2021 | |||||
Mass Markets |
| 908,000 |
| 8 | % |
| 840,000 |
Commercial |
| 89,000 |
| (7) | % |
| 96,000 |
Total customer count |
| 997,000 |
| 7 | % |
| 936,000 |
Mass markets customer count increased 8% to 908,000 compared to September 30, 2021, primarily driven by increase in the Texas customer base.
Commercial customer count decreased 7% to 89,000 compared to September 30, 2021. The decline in Commercial customers is due to competitive price pressures in the United States.
22
COMMODITY RCE SUMMARY
| July 1, |
|
|
| Failed to |
| September 30, |
| % increase | ||||
2022 | Additions | Attrition | renew | 2022 | (decrease) | ||||||||
Mass Markets |
|
|
|
|
|
|
|
|
|
|
|
| |
Gas |
| 233,000 |
| 10,000 |
| (8,000) |
| (5,000) |
| 230,000 |
| (1) | % |
Electricity |
| 1,006,000 |
| 107,000 |
| (54,000) |
| (23,000) |
| 1,036,000 |
| 3 | % |
Total Mass Markets RCEs |
| 1,239,000 |
| 117,000 |
| (62,000) |
| (28,000) |
| 1,266,000 |
| 2 | % |
Commercial |
|
|
|
|
|
| |||||||
Gas |
| 368,000 |
| 12,000 |
| (6,000) |
| (1,000) |
| 373,000 |
| 1 | % |
Electricity |
| 1,143,000 |
| 63,000 |
| (23,000) |
| (26,000) |
| 1,157,000 |
| 1 | % |
Total Commercial RCEs |
| 1,511,000 |
| 75,000 |
| (29,000) |
| (27,000) |
| 1,530,000 |
| 1 | % |
Total RCEs |
| 2,750,000 |
| 192,000 |
| (91,000) |
| (55,000) |
| 2,796,000 |
| 2 | % |
Mass Markets
Mass markets RCE additions increased by 36% to 117,000 for the three months ended September 30, 2022 compared to 86,000 for the three months ended September 30, 2021. The increase is driven by investment in digital marketing, as well as continued improvement in direct face–to–face channels.
Mass markets RCE attrition increased by 24% to 62,000 for the three months ended September 30, 2022 as compared to 50,000 for the three months ended September 30, 2021. The increase was driven by higher sales and a higher RCE customer base.
Mass markets failed to renew RCEs increased by 4% to 28,000 for the three months ended September 30, 2022 compared to 27,000 for the three months ended September 30, 2021.
As at September 30, 2022, the U.S. and Canadian operations accounted for 89% and 11% of the mass markets RCE base, respectively.
Commercial
Commercial RCE additions increased by 83% to 75,000 for the three months ended September 30, 2022 compared to 41,000 for the three months ended September 30, 2021.
Commercial RCE attrition decreased by 12% to 29,000 for the three months ended September 30, 2022 compared to 33,000 for the three months ended September 30, 2021.
Commercial Failed to renew RCEs decreased by 37% to 27,000 RCEs for the three months ended September 30, 2022 compared to 43,000 RCEs for the three months ended September 30, 2021.
As at September 30, 2022, the U.S. and Canadian operations accounted for 63% and 37% of the commercial RCE base, respectively.
Total
As at September 30, 2022, the U.S. and Canadian operations remained unchanged at 75% and 25% of the RCE base, respectively, as compared to the three months ended September 30, 2021.
COMMODITY RCE ATTRITION
| Trailing 12 months ended | |||
September 30, 2022 | September 30, 2021 | |||
Mass Markets |
| 17% | 18% | |
Commercial |
| 11% | 8% | |
The mass markets attrition rate for the trailing twelve months ended September 30, 2022 decreased by one percentage points to 17% compared to the 18% for the twelve months ended September 30, 2021.
23
The commercial attrition rate for the trailing twelve months ended September 30, 2022 increased by three percentage points to 11% compared to the 8% for the twelve months ended September 30, 2021.
| Three months ended | |||
September 30, | September 30, | |||
2022 | 2021 | |||
Mass Markets |
| 5% | 4% | |
Commercial |
| 2% | 2% | |
The mass markets attrition rate for the three months ended September 30, 2022 increased by one percentage points to 5% compared to 4% for the three months ended September 30, 2021 driven by higher sales.
COMMODITY RCE RENEWALS
The following table presents renewals for the trailing twelve months ended September 30, 2022 and the trailing twelve months ended September 30, 2021.
| Trailing 12 months ended | |||
September 30, 2022 | September 30, 2021 | |||
Mass Markets |
| 81% | 77% | |
Commercial |
| 41% | 49% | |
The following table presents renewals for the three months ended September 30, 2022 and the three months ended September 30, 2021.
| Three months ended | |||
September 30, | September 30, | |||
2022 | 2021 | |||
Mass Markets |
| 81% | 79% | |
Commercial |
| 31% | 48% | |
AVERAGE GROSS MARGIN PER RCE
The table below depicts the annual design margins on new and renewed contracts signed during the three months ended September 30, 2022 compared to the three months ended September 30, 2021 for standard commodities, which does not include non–recurring non–commodity fees.
| Fiscal |
| Number of | Fiscal |
| Number of | |||
2023 | RCEs | 2022 | RCEs | ||||||
Mass Markets added or renewed | $ | 345 |
| 195,000 | $ | 211 |
| 178,000 | |
Commercial added or renewed1 | $ | 91 |
| 111,000 | $ | 70 |
| 86,000 | |
1Annual gross margin per RCE excludes margins from Interactive Energy Group and large Commercial and Industrial customers.
For the three months ended September 30, 2022, the mass markets average gross margin per RCE for the customers added or renewed was $345/RCE, an increase of 64% from $211/RCE for the three months ended September 30, 2021 due to change in channel strategy and channel mix.
Liquidity and capital resources from operations
On March 18, 2021, Just Energy Ontario L.P, Just Energy (U.S.) Corp. and Just Energy Group Inc. entered into the Lender Support Agreement with the lenders under the Credit Facility. Under the Lender Support Agreement, the lenders agreed to allow issuance or renewals of letters of credit under the Credit Facility during the pendency of the CCAA proceedings within certain restrictions. In return, the Company has agreed to continue paying interest and fees at the non-default rate on the outstanding advances and letters of credit under the Credit Facility. The amount of letters of credit that may be issued is limited to the lesser of CAD $46.1 million (excluding the letters of credit guaranteed by Export Development Canada under its Account Performance Security Guarantee Program), plus any amount the Company has repaid and CAD $125 million. As at September 30, 2022, the Company had repaid CAD $86.3 million and had a total of CAD $120.0 million of letters of credit outstanding.
24
Certain amounts outstanding under the LC Facility are guaranteed by Export Development Canada under its Account Performance Security Guarantee Program. As at September 30, 2022, the Company had $42.0 million of letters of credit outstanding and letter of credit capacity of $2.2 million available under the LC Facility. Just Energy’s obligations under the Credit Facility are supported by guarantees of certain subsidiaries and secured by a general security agreement and a pledge of the assets and securities of Just Energy and the majority of its operating subsidiaries excluding, primarily Filter Group. Just Energy has also entered into an inter-creditor agreement in which certain commodity and hedge providers are also secured by the same collateral. As a result of the CCAA filing, the borrowers are in default under the Credit Facility. However, any potential actions by the lenders have been stayed pursuant to the Court Order.
SUMMARY OF CASH FLOWS
For the six months ended September 30.
(thousands of dollars)
| Fiscal 2023 |
| Fiscal 2022 | |||
Operating activities from operations | $ | 137,797 | $ | 20,703 | ||
Investing activities from operations |
| (6,384) |
| (3,817) | ||
Financing activities from operations |
| (72,136) |
| (28,967) | ||
Effect of foreign currency translation |
| (3,357) |
| (231) | ||
Increase (decrease) in cash |
| 55,920 |
| (12,312) | ||
Cash and cash equivalents – beginning of period |
| 128,491 |
| 172,666 | ||
Cash and cash equivalents – end of period | $ | 184,411 | $ | 160,354 | ||
Operating activities
Cash flow from operating activities was an inflow of $137.8 million for the six months ended September 30, 2022 compared to an inflow of $20.7 million for the six months ended September 30, 2021. The increase in the inflow is primarily due to the proceeds from HB 4492.
Investing activities
Cash flow from investing activities was an outflow of $6.4 million for the six months ended September 30, 2022 compared to an outflow of $3.8 million for the six months ended September 30, 2021.
Financing activities
Cash flow from financing activities was an outflow of $72.1 million for the six months ended September 30, 2022 compared to an outflow of $29.0 million for the six months ended September 30, 2021. The outflow is primarily driven by payments of $70.0 million to DIP Facility in the six months ended September 30, 2022 as compared to borrowing of $25 million under the same DIP Facility and repayment of $51.4 million on Credit Facility in the six months ended September 30, 2021.
Free cash flow and unlevered free cash flow
For the six months ended September 30.
(thousands of dollars)
| Fiscal 2023 |
| Fiscal 2022 | |||
Cash flows from operating activities | $ | 137,797 | $ | 20,703 | ||
Subtract: Maintenance capital expenditures |
| (6,384) |
| (3,817) | ||
Free cash flow |
| 131,413 |
| 16,886 | ||
Interest expense, cash portion |
| 15,129 |
| 16,584 | ||
Unlevered free cash flow | $ | 146,542 | $ | 33,470 | ||
1 See “Non–U.S. GAAP financial measures” above.
Unlevered free cash flow increased by $113.07 million to an inflow of $146.5 million for the six months ended September 30, 2022 compared to an inflow of $33.5 million for the six months ended September 30, 2021. The increase is primarily due to the proceeds from HB 4492.
25
Selected Balance sheets data as at September 30, 2022, compared to March 31, 2022
The following table shows selected data from the Interim Condensed Consolidated Financial Statements as at the following periods:
| As at |
| As at | |||
September 30, | March 31, | |||||
2022 | 2022 | |||||
Assets: |
|
|
|
| ||
Cash and cash equivalents | $ | 182,016 | $ | 125,755 | ||
Trade and other receivables, net |
| 354,992 |
| 308,941 | ||
Total fair value of derivative instrument assets |
| 635,225 |
| 671,714 | ||
Other current assets |
| 149,329 |
| 131,570 | ||
Total assets |
| 1,600,062 |
| 1,623,814 | ||
Liabilities: |
|
|
| |||
Trade and other payables | $ | 401,569 | $ | 349,923 | ||
Total fair value of derivative instrument liabilities |
| 68,735 |
| 26,086 | ||
Total debt |
| 55,386 |
| 126,419 | ||
Total liabilities |
| 1,463,707 |
| 1,429,613 | ||
Total cash and cash equivalents increased to $182.0 million as at September 30, 2022 from $125.8 million as at March 31, 2022. The increase in cash is primarily attributable to cash inflows from operating activities offset by the $70.0 million DIP facility repayment.
Trade and other receivables, net increased to $355.0 million as at September 30, 2022 from $308.9 million as at March 31, 2022. The changes are primarily due to seasonal increases in revenues.
Other current assets increased to $149.3 million as at September 30, 2022 from $131.6 million as at March 31, 2022. The change is primarily driven by increased customer acquisition cost, gas in storage and prepaid expenses.
Trade and other payables increased to $401.6 million as at September 30, 2022 from $349.9 million as at March 31, 2022. The change is primarily driven by seasonal increases in purchases from commodity suppliers.
Fair value of derivative instruments assets and fair value of derivative instruments liabilities relate entirely to the financial and physical derivatives. The unrealized mark to market gains and losses can result in significant changes in income or loss and, accordingly, shareholders’ equity from year to year due to commodity price volatility. As Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these unrealized changes do not impact the long–term financial performance of Just Energy.
Total debt not subject to compromise was $55.4 million as at September 30, 2022 compared to $126.4 million as at March 31, 2022. The change is primarily driven by the repayment of $70 million of the DIP Facility. As at September 30, 2022, $357.8 million of debt is subject to compromise under the CCAA proceedings.
Embedded gross margin
Management’s estimate of EGM is as follows:
(millions of dollars)
| As at |
| As at |
|
| ||||
September 30, | September 30, | % Increase | |||||||
2022 | 2021 | (decrease) | |||||||
Mass Markets embedded gross margin |
| 872.1 |
| 826.3 |
| 6 | % | ||
Commercial embedded gross margin |
| 237.2 |
| 265.5 |
| (11) | % | ||
Total embedded gross margin | $ | 1,109.3 | $ | 1,091.8 |
| 2 | |||
See “Non–U.S. GAAP financial measures” above.
Management’s estimate of the mass markets EGM increased by 6% to $872.1 million as at September 30, 2022 compared to $826.3 million as at September 30, 2021. The increase was primarily driven by growth in the Texas mass market customer base.
26
Management’s estimate of the commercial EGM decreased by 11% to $237.2 million as at March 31, 2023 compared to $265.5 million as at September 30, 2021. The decline resulted from the decrease in the customer base compared to the prior period.
Provision for (Recovery of) income and deferred tax
(thousands of dollars)
Three months ended September 30, | Six months ended September 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Current income tax expense (recovery) | $ | 2,126 | $ | (191) | $ | 3,015 | $ | (1,103) | ||||
Deferred income tax expense (recovery) |
| (83,290) |
| – |
| (18,615) |
| 119 | ||||
Recovery of income tax | $ | (81,164) | $ | (191) | $ | (15,600) | $ | (984) | ||||
Just Energy recorded a current income tax expense of $2.1 million for three months ended September 30, 2022, compared to $0.2 million recovery for the three months ended September 30, 2021. Just Energy continues to have a current tax expense from profitability in taxable jurisdictions however during fiscal 2022 a recovery was recognized due to the benefits of a current year loss carried back.
During the three months ended September 30, 2022, a deferred tax recovery of $83.3 million was recorded which is the result of the unrealized loss on derivative instruments reported during the three months ended September 30, 2022.
Contractual obligations
In the normal course of business, Just Energy is obligated to make future payments for contracts and other commitments that are non-cancellable.
PAYMENTS DUE BY PERIOD
(thousands of dollars)
| Less than 1 year |
| 1–3 years |
| 4–5 years |
| More than 5 years |
| Total | ||||||
Trade and other payables | $ | 401,569 | $ | – | $ | – | $ | – | $ | 401,569 | |||||
Commodity suppliers' accruals and payables subject to compromise | 454,553 | – | – | – | 454,553 | ||||||||||
Non-commodity trade accruals and accounts payable subject to compromise | 39,897 | – | – | – | 39,897 | ||||||||||
Long-term debt | 55,384 | 2 | – | – | 55,386 | ||||||||||
Debt and financing subject to compromise | 357,820 | – | – | – | 357,820 | ||||||||||
Gas, electricity and non-commodity contracts | 1,088,586 | 2,317,197 | 496,960 | 70,110 | 3,972,853 | ||||||||||
Total | $ | 2,397,809 | $ | 2,317,199 | $ | 496,960 | $ | 70,110 | $ | 5,282,078 | |||||
Under the terms of the Court Orders, any actions against Just Energy to enforce or otherwise effect payment from Just Energy of pre-petition obligations are currently stayed.
OTHER OBLIGATIONS
Subject to the CCAA proceedings, in the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included either in its accrued liabilities or in the Interim Condensed Consolidated Financial Statements. In the normal course of business, Just Energy could be subject to certain contingent obligations that become
27
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.
On September 15, 2021, the Ontario Court approved the Company’s request to establish a claims process to identify and determine claims against the Company and its subsidiaries that are subject to the ongoing Claims Procedure Order. Please see (refer to Part I, Item 1, “Interim Condensed Consolidated Financial Statements and Notes” Note 15(b) Commitments and Contingencies) of this Quarterly Report for additional information. On August 18, 2022 the Ontario Court suspended the Claims Procedure Order with (i) the barring of claims pursuant to the applicable provisions of such order remaining in effect and (ii) the Company’s ability, with the consent of the Monitor, to refer claims for adjudication for the purposes of determining entitlement to proceeds to be distributed in accordance with a transaction completed pursuant to the SISP. In accordance with item (ii) noted above, Just Energy continues to review and determine which claims will be allowed, modified or disallowed which may result in additional liabilities subject to compromise that are not currently reflected in the Interim Condensed Consolidated Financial Statements.
Transactions with related parties
Parties are considered to be related if one party has the ability to control the other party or exercise influence over the other party in making financial or operating decisions. The definition includes subsidiaries and other persons.
PIMCO through certain affiliates became a 28.9% shareholder of the Company as part of the September 2020 Recapitalization. On March 9, 2021, certain PIMCO affiliates entered into the DIP Facility with the Company as discussed in the Interim Condensed Consolidated Financial Statements. For consideration for making the DIP Facility available, Just Energy paid a 1% origination fee, a 1% commitment fee on March 9, 2021 and a 1% amendment fee on November 16, 2021.
Off balance sheet items
The Company has issued letters of credit in accordance with its credit facility totaling CAD$120.4 million as at September 30, 2022 to various counterparties, primarily utilities in the markets it operates in, as well as suppliers.
Pursuant to separate arrangements with Westchester Fire Insurance Company, Travelers Casualty and Surety Company of America, Fidelity and Deposit Company of Maryland, Chubb Group of Insurance Company, Zurich Insurance Company and Euler Hermes North America Insurance Company. 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 September 30, 2022 was $38.0 million.
Critical accounting estimates and judgments
The Interim Condensed Consolidated Financial Statements of Just Energy have been prepared in accordance with U.S. GAAP. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of goods sold, administrative expenses, selling and marketing expenses, and other operating expenses. Estimates are based on historical experience, current information and various other assumptions that are believed to be reasonable under the circumstances. The emergence of new information and changed circumstances may result in actual results or changes to estimated amounts that differ materially from current estimates.
The following assessment of critical accounting estimates is not meant to be exhaustive. Just Energy might realize different results from the application of new accounting standards promulgated, from time to time, by various rule–making bodies.
COVID–19 IMPACT
As a result of the continued COVID–19 pandemic, we have reviewed the estimates, judgments and assumptions used in the preparation of the Interim Condensed Consolidated Financial Statements and determined that no significant revisions to such estimates, judgments or assumptions were required for the three months ended September 30, 2022.
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DERIVATIVE INSTRUMENTS AND RISK MANAGEMENT
Just Energy has entered into a variety of derivative instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply and as part of the risk management practice. In addition, Just Energy uses derivative instruments to manage foreign exchange, interest rate and other risks.
Just Energy enters into contracts with customers to provide electricity and gas at fixed prices and provide comfort to certain customers that a specified amount of energy will be derived from green generation or carbon destruction. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce its exposure to commodity market price changes, Just Energy uses derivative financial and physical contracts to secure fixed–price commodity supply to cover its estimated fixed–price delivery or green commitment.
Just Energy’s objective is to minimize commodity risk, other than consumption changes, usually attributable to weather. Accordingly, it is Just Energy’s policy to hedge the estimated fixed–price requirements of its customers with offsetting hedges of natural gas and electricity at fixed prices for terms equal to those of the customer contracts. The cash flow from these supply contracts is expected to be effective in offsetting Just Energy’s price exposure and serves to fix acquisition costs of gas and electricity to be delivered under the fixed–price or price–protected customer contracts; however, hedge accounting under ASC 820, Fair Value Measurement is not applied. Just Energy’s policy is not to use derivative instruments for speculative purposes.
The Interim Condensed Consolidated Financial Statements are in compliance with ASC 815, “Derivative Instruments”. Due to commodity volatility and the size of Just Energy, the changes in fair value on these positions will increase the volatility in Just Energy’s earnings.
The Company’s derivative instruments are valued based on the following fair value hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
The main cause of changes in the fair value of derivative instruments is changes in the forward curve prices used for the fair value calculations. For a sensitivity analysis of these forward curves, see Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes”, Note 6, Derivative Instruments. Other inputs, including volatility and correlations, are driven off historical settlements.
RECEIVABLES AND LIFETIME EXPECTED CREDIT LOSSES
The lifetime expected credit loss reflects Just Energy’s best estimate of losses on the accounts receivable and unbilled revenue balances. Just Energy determines the lifetime expected credit loss by using historical loss rates and forward–looking factors if applicable. Just Energy is exposed to customer credit risk on its operations in Alberta, Texas, Illinois (gas), California (gas) and Ohio (electricity) and for certain Commercial customers in dual-billing markets including Illinois (power), Pennsylvania (power), Massachusetts (power), New York and New Jersey. Credit review processes have been implemented to perform credit evaluations of customers and manage customer default. In addition, the Company may from time to time change the criteria that it uses to determine the creditworthiness of its customers, including RCEs, and such changes could result in decreased creditworthiness of its customers and/or result in increased customer defaults. If a significant number of customers were to default on their payments, including as a result of any changes to the Company’s credit criteria, it could have a material adverse effect on the operations and cash flows of Just Energy. Management factors default from credit risk in its margin expectations for all of the above markets (see Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes”, Note 4, Trade and other receivables net).
Revenues related to the sale of energy are recorded when energy is delivered to customers. The determination of energy sales to individual customers is based on systematic readings of customer meters generally on a monthly basis. At the end of each month, amounts of energy delivered to customers since the date of the last meter reading are estimated, and corresponding unbilled revenue is recorded. The measurement of unbilled revenue is affected by the following factors: daily customer usage, losses of energy during delivery to customers and applicable customer rates.
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Increases in volumes delivered to the utilities’ customers and favourable rate mix due to changes in usage patterns in the period could be significant to the calculation of unbilled revenue. Changes in the timing of meter reading schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the measurement of unbilled revenue; however, total operating revenues would remain materially unchanged.
The measurement of the expected credit loss allowance for accounts receivable requires the use of management judgment in estimation techniques, building models, selecting key inputs and making significant assumptions about future economic conditions and credit behaviour of the customers, including the likelihood of customers defaulting and the resulting losses. The Company’s current significant estimates include the historical collection rates as a percentage of revenue and the use of the Company’s historical rates of recovery across aging buckets. Both of these inputs are sensitive to the number of months or years of history included in the analysis, which is a key input and judgment made by management.
Just Energy common shares
Just Energy is authorized to issue an unlimited number of common shares with no par value and up to 50,000,000 preferred shares. Shares outstanding have no preferences, rights or restrictions attached to them.
As at November 29, 2022, there were 48,078,637 common shares and no preferred shares of Just Energy outstanding. Under the CCAA Plan, the common shares will be cancelled and common shareholders will receive no consideration.
Legal proceedings
Just Energy and its subsidiaries are party to a number of legal proceedings. Other than as set out below, Just Energy believes that each proceeding constitutes legal matters that are incidental to the business conducted by Just Energy and that the ultimate disposition of the proceedings will not have a material adverse effect on its consolidated earnings, cash flows or financial position.
On March 9, 2021, Just Energy filed for and received creditor protection pursuant to the Court Order under the CCAA and similar protection under Chapter 15 in connection with the Weather Event. On September 15, 2021, the Ontario Court approved the Company’s request to establish a claims process to identify and determine claims against the Company and its subsidiaries that are subject to the ongoing Claims Procedure Order. On August 4, 2022 Just Energy entered into the Transaction Agreement that is intended to facilitate its exit from the Company’s ongoing insolvency proceedings as a going concern. The Transaction provides that certain secured creditors will receive cash payments and/or equity in exchange for their debt, and existing equityholders’ interests will be cancelled for no consideration. In addition, no amounts will be available for distribution to the Just Energy Entities’ general unsecured creditors. On August 18, 2022 the Ontario Court suspended the Claims Procedure Order with (i) the barring of claims pursuant to the applicable provisions of such order remaining in effect and (ii) the Company’s ability, with the consent of the Monitor, to refer claims for adjudication for the purposes of determining entitlement to proceeds to be distributed in accordance with a transaction completed pursuant to the SISP. In accordance with item (ii) noted above, Just Energy continues to review and determine which claims will be allowed, modified or disallowed which may result in additional liabilities subject to compromise that are not currently reflected in the Interim Condensed Consolidated Financial Statements (Part I, Item 1, “Interim Condensed Consolidated Financial Statements And Notes”).
In connection with the previously disclosed class action against Just Energy, Just Energy Corp. and Just Energy Ontario L.P. with Haidar Omarali as named plaintiff (the “Claimant”), pursuant to a settlement made as of October 31, 2022 in accordance with the Claims Procedure Order, the Claimant agreed that, among other things, any class claimants shall only be able to recover proceeds under certain insurance policies described therein, to the extent available, without any additional rights of enforcement or recovery as against the Just Energy Entities or the current and former directors, officers, employees, legal counsel and advisors of the Just Energy Entities (or any of them).
On July 23, 2019, Just Energy announced that, as part of its Strategic Review process, management identified customer enrolment and non–payment issues, primarily in Texas. In response to this announcement, and in some cases in response to this and other subsequent related announcements, putative class action lawsuits were filed in the United States District Court for the Southern District of New York, in the United States District Court for the Southern District of Texas and in the Ontario Court, on behalf of investors that purchased Just Energy Group Inc. securities during various periods, ranging from November 9, 2017 through August 19, 2019. The U.S. lawsuits have been consolidated in the United States District Court for the Southern District of Texas with one lead plaintiff and the Ontario lawsuits have been consolidated with one
30
lead plaintiff. The U.S. lawsuit seeks damages allegedly arising from violations of the United States Securities Exchange Act. The Ontario lawsuit seeks damages allegedly arising from violations of Canadian securities legislation and of common law. The Ontario lawsuit was subsequently amended to, among other things, extend the period to July 7, 2020. On September 2, 2020, pursuant to Just Energy’s plan of arrangement, the Superior Court of Justice (Ontario) ordered that all existing equity class action claimants shall be irrevocably and forever limited solely to recovery from the proceeds of the insurance policies payable on behalf of Just Energy or its directors and officers in respect of any such existing equity class action claims, and such existing equity class action claimants shall have no right to, and shall not, directly or indirectly, make any claim or seek any recoveries from any of the released parties or any of their respective current or former officers and directors in respect of any existing equity class action claims, other than enforcing their rights to be paid by the applicable insurer(s) from the proceeds of the applicable insurance policies. Pursuant to the CCAA proceedings, these proceedings have been stayed. Just Energy denies the allegations and will vigorously defend against these claims if they proceed.
On November 12, 2021, Just Energy, along with the Just Energy Parties, initiated the ERCOT Lawsuit against ERCOT and the PUCT in the Houston Court. The ERCOT Lawsuit seeks to recover payments that were made by the Just Energy Parties to ERCOT for certain invoices relating to the Weather Event. On February 2, 2022, the Houston Court dismissed the Lawsuit against the PUCT. On November 8, 2022, the U.S. Court of Appeals for the Fifth Circuit heard an expedited appeal of the dismissal motion filed by ERCOT. To date, no decision has been rendered by the U.S. Court of Appeals for the Fifth Circuit.
Controls and procedures
DISCLOSURE CONTROLS AND PROCEDURES
Both the chief executive officer (“CEO”) and chief financial officer (“CFO”) have designed, or caused to be designed under their supervision, the Company’s disclosure controls and procedures which provide reasonable assurance that: (i) material information relating to the Company is made known to management by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual and interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time period specified in securities legislation. The CEO and CFO are assisted in this responsibility by a Disclosure Committee composed of senior management. The Disclosure Committee has established procedures so that it becomes aware of any material information affecting Just Energy to evaluate and communicate this information to management, including the CEO and CFO as appropriate, and determine the appropriateness and timing of any required disclosure. Based on the foregoing evaluation, conducted by or under the supervision of the CEO and CFO of the Company’s Internal Control over Financial Reporting (“ICFR”) in connection with the Company’s financial year-end, it was concluded that because of the material weakness described below, the Company’s disclosure controls and procedures were not effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (2013) to evaluate the effectiveness of its ICFR as at March 31, 2022. The COSO framework summarizes each of the components of a company’s internal control system, including the: (i) control environment; (ii) control activities (process-level controls); (iii) risk assessment; (iv) information and communication; and (v) monitoring activities. The COSO framework defines a material weakness as a deficiency, or combination of deficiencies, that results in a reasonable possibility that a material misstatement of the annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis.
Identification of control deficiency and ongoing remediation of material weakness within financial statement close process
Management’s evaluation of ICFR identified an ongoing material weakness resulting from the failure to operate several controls within the financial statement close process that allowed errors to manifest, and, the failure to detect them for an extended period of time, as follows:
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Previous identification of control activities material weakness within financial statement close process
The Company did not design or maintain effective control activities to prevent or detect misstatements during the operation of the financial statement close process, including from finalization of the trial balance to the preparation of financial statements.
Ongoing remediation of previously identified control activities material weakness associated with financial statement close process
Management remains committed to the planning and implementation of remediation efforts to address the material weaknesses, as well as to foster improvement in the Company’s internal controls. These remediation efforts continue and are intended to address this identified material weakness and enhance the overall financial control environment. During fiscal 2021, management further increased the amount of personnel to perform the financial statement close process, including the hiring of a CFO and a controller, both with significant financial reporting and retail energy industry experience, promoting individuals within the team and training those individuals to perform their enhanced roles, and strengthening the managerial review process of the financial statement preparation, who remain with the Company at September 30, 2022 and through the date of these Interim Condensed Consolidated Financial Statements. These enhancements remaining ongoing, and management continues strengthening the design and operational effectiveness of the financial statement preparation process, including the financial statement disclosure checklist. For the year ended March 31, 2022, the Company changed its basis of presentation from International Financial Reporting Standards to U.S. GAAP. Due to this change in basis of presentation, not enough time has elapsed to operate the designed controls effectively to conclude that management has remediated the material weakness aforementioned.
No assurance can be provided at this time that the actions and remediation efforts the Company has taken or will implement will effectively remediate the material weaknesses described above or prevent the incidence of other significant deficiencies or material weaknesses in the Company’s internal controls over financial reporting in the future. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions.
Other changes in internal control over financial reporting
Other than as described above, there were no changes in ICFR during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, ICFR.
INHERENT LIMITATIONS
A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurance that its objectives are met. Due to these inherent limitations in such systems, no evaluation of controls can provide absolute assurance that all control issues within any company have been detected. Accordingly, Just Energy’s disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the Company’s disclosure control and procedure objectives are met.
Corporate governance
Just Energy is committed to maintaining transparency in its operations and ensuring its approach to governance meets all recommended standards. Full disclosure of Just Energy’s compliance with existing corporate governance rules is available at investors.justenergy.com https://investors.justenergy.com/. Just Energy actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of quantitative and qualitative disclosures about market risk, see Part I, Item 1, “Interim Condensed Consolidated Financial Statements”, Note 4 (b), Trade and Other Receivable Net and Note 6, Derivative Instruments, to this Form 10-Q.
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ITEM 4. CONTROLS AND PROCEDURES
For a discussion of controls and procedures, see Part I, Item II, “Management Discussion and Analysis of Financial Condition and Results of Operations”, to this Form 10-Q.
PART II – OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Information with respect to this item has been incorporated by reference from our Annual Report. There have been no material developments in legal proceedings since the filing of our Annual Report. For more information on our legal proceedings, refer to Part I, Item 1, “Interim Condensed Consolidated Financial Statements”, Note 15 (b), Commitments and Contingencies, to this Form 10-Q.
ITEM 1A.RISK FACTORS
During the six months ended September 30, 2022, there were no material changes to the Risk Factors disclosed in Part I, Item 1A, Risk Factors, of the Company’s Annual Report on Form 10-K for the year ended March 31, 2022.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.MINE SAFETY DISCLOSURE
Not applicable.
ITEM 5.OTHER INFORMATION
None
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ITEM 6.EXHIBITS
EXHIBITS
Exhibit |
| Description of Exhibit |
3.1 | ||
3.2 | ||
3.3 | ||
4.3 | ||
4.4 | ||
31.1 | * | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | * | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | ** | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 | ** | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101 | * | Interactive data files (formatted as Inline XBRL). |
104 | * | Cover page interactive data file (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed herewith |
** | Furnished herewith |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
JUST ENERGY GROUP INC. | ||
By: | /s/ Michael Carter | |
Date: November 29, 2022 | Michael Carter | |
Chief Financial Officer | ||
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ATTACHMENTS / EXHIBITS
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