Disclosure of financial instruments [text block] | 9. FINANCIAL INSTRUMENTS (a) Fair value of derivative financial instruments and other The fair value of financial 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 and renewable energy certificates, and generation and transmission capacity contracts using a discounted cash flow method, which employs market forward curves that are either directly sourced from third third no The following table illustrates gains (losses) related to Just Energy’s derivative financial instruments classified as FVTPL and recorded on the interim condensed consolidated statements of financial position as fair value of derivative financial assets and fair value of derivative financial liabilities, with their offsetting values recorded in change in fair value of derivative instruments and other on the interim condensed consolidated statements of income (loss). Three months Three months Nine months Nine months ended ended ended ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2018 2017 2018 2017 Change in fair value of derivative instruments and other Physical forward contracts and options (i) $ (13,989 ) $ 143,575 $ (71,192 ) $ 159,922 Financial swap contracts and options (ii) 9,160 36,847 47,206 52,871 Foreign exchange forward contracts 3,843 (689 ) 4,710 (2,754 ) Share swap 3,073 (3,957 ) (2,488 ) (5,764 ) Unrealized foreign exchange on 6.5% convertible bond and 8.75% loan (15,487 ) (898 ) (15,700 ) 11,199 6.5% convertible bond conversion feature - 2,840 247 7,740 Weather derivatives (iii) (4,224 ) - (34,405 ) - Other derivative options 16,109 6,041 9,619 239 Change in fair value of derivative instruments and other $ (1,515 ) $ 183,759 $ (62,003 ) $ 223,453 The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statement of financial position as at December 31, 2018: Financial assets (current) Financial (non-current) Financial liabilities (current) Financial liabilities (non-current) Physical forward contracts and options (i) $ 145,955 $ 34,831 $ 25,206 $ 25,068 Financial swap contracts and options (ii) 25,984 6,372 13,710 14,141 Foreign exchange forward contracts (94 ) 3,232 - - Share swap - - 10,888 - Weather derivatives (iii) 9,430 - - - Other derivative options 15,927 7,684 1,571 653 As at December 31, 2018 $ 197,202 $ 52,119 $ 51,375 $ 39,862 The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the interim condensed consolidated statement of financial position as at March 31, 2018: Financial assets (current) Financial assets (non-current) Financial liabilities (current) Financial liabilities (non-current) Physical forward contracts and options $ 198,891 $ 60,550 $ 32,451 $ 29,003 Financial swap contracts and options 8,133 1,342 34,369 22,117 Foreign exchange forward contracts - - 1,068 505 Share swap - - 18,400 - 6.5% convertible bond conversion feature - - - 246 Other derivative options 11,745 2,770 - - As at March 31, 2018 $ 218,769 $ 64,662 $ 86,288 $ 51,871 Below is a summary of the financial instruments classified through profit or loss as at December 31, 2018, (i) Physical forward contracts and options consist of: · Electricity contracts with a total remaining volume of 37,553,624 $51.20/MWh September 30, 2028. · Natural gas contracts with a total remaining volume of 99,308,364 $3.85/GJ December 31, 2024. · Renewable energy certificates (“RECs”) and emission-reduction credit contracts with a total remaining volume of 3,561,521 196,200 $29.12/REC $3.28/tonne, December 31, 2028 December 31, 2021. · Electricity generation capacity contracts with a total remaining volume of 4,352 $4,924.08/MWCap October 31, 2022. · Ancillary contracts with a total remaining volume of 857,880 $23.29/MWh December 31, 2020. · Heat rate contracts with a total remaining volume of 12,400 $28.02/MWh January 31, 2019. (ii) Financial swap contracts and options consist of: · Electricity contracts with a total remaining volume of 12,427,564 $47.99/MWh November 30, 2024. · Natural gas contracts with a total remaining volume of 132,840,923 $3.73/GJ December 31, 2024. · Electricity generation capacity contracts with a total remaining volume of 99 $162,000.44/MWCap October 31, 2020. · Ancillary contracts with a total remaining volume of 1,468,080 $21.98/MWh December 31, 2020. (iii) Weather derivatives consist of: · Weather swaps for HDDs with temperature strike values of 25.00 30.00 $100.00/MWh February 28, 2019. · HDD collar options with put strike values ranging from 943 4,919 1,143 5,119 · HDD natural gas swaps with strike prices based on certain natural gas futures contracts in accordance with the Intercontinental Exchange and strike values ranging from 130 1,255 · HDD natural gas swaps with strike prices ranging from $1.47 $9.05/MmBTU 273 1,255 These derivative financial 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 fulfil its obligations under the contracts, Just Energy may not Share swap agreement Just Energy has entered into a share swap agreement to manage the interim condensed consolidated statements of income (loss) volatility associated with the Company’s restricted share grant and deferred share grant plans. The value, on inception, of the 2,500,000 $33,803. August 22, 2018, $23,803 $10,000 Fair value (“FV”) hierarchy derivatives Level 1 The fair value measurements are classified as Level 1 Level 2 Fair value measurements that require observable inputs other than quoted prices in Level 1, 2 2, 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 three five 12 15 3. Weather derivatives are non-exchange traded financial instruments used as part of a risk management strategy to mitigate the impact adverse weather conditions have on gross margin. The fair values of the derivatives are determined using an internally developed model that relies upon both observable inputs and significant unobservable inputs. Accordingly, the fair values of these derivatives are classified as Level 3. For the share swap, Just Energy uses a forward interest rate curve along with a volume weighted average share price. Just Energy’s accounting policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were no 1, 2 3 three nine December 31, 2018 March 31, 2018. 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. Other inputs, including volatility and correlations, are driven off historical settlements. The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at December 31, 2018: Level 1 Level 2 Level 3 Total Derivative financial assets $ - $ - $ 249,321 $ 249,321 Derivative financial liabilities - (11,261 ) (79,976 ) (91,237 ) Total net derivative assets (liabilities) $ - $ (11,261 ) $ 169,345 $ 158,084 The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at March 31, 2018: Level 1 Level 2 Level 3 Total Derivative financial assets $ - $ - $ 283,431 $ 283,431 Derivative financial liabilities - (21,092 ) (117,067 ) (138,159 ) Total net derivative assets (liabilities) $ - $ (21,092 ) $ 166,364 $ 145,272 A key assumption used when determining the significant unobservable inputs included in Level 3 5% 12 15 The following table illustrates the changes in net fair value of financial assets (liabilities) classified as Level 3 Nine months ended Year ended Dec. 31, 2018 March 31, 2018 Balance, beginning of period $ 166,364 $ (315,110 ) Total gains 96,401 105,709 Purchases 137,420 207,531 Sales (71,012 ) (64,464 ) Settlements (159,828 ) 232,698 Balance, end of period $ 169,345 $ 166,364 (b) Classification of non-derivative financial assets and liabilities As at December 31, 2018 March 31, 2018, Long-term debt recorded at amortized cost has a fair value as at December 31, 2018 $696.7 March 31, 2018 - $570.1 8.75% 6.75% $100M 6.75% $160M 6.5% 5.75% 6.75% $100M 6.75% $160M 6.5% 5.75% 1 Investments in equity instruments have a fair value as at December 31, 2018 $37.0 March 31, 2018 - $36.3 2 2 not No The following table illustrates the classification of investments in the FV hierarchy as at December 31, 2018: Level 1 Level 2 Level 3 Total Investment in ecobee $ - $ 32,889 $ - $ 32,889 Investment in Energy Earth - 4,092 - 4,092 Total investments $ - $ 36,981 $ - $ 36,981 The risks associated with Just Energy’s financial instruments are as follows: (i) Market risk Market risk is the potential loss that may Foreign currency risk Foreign currency risk is created by fluctuations in the fair value or cash flows of financial instruments due to changes in foreign exchange rates and exposure as a result of investments in U.S. and international operations. The performance of the Canadian dollar relative to the U.S. dollar could positively or negatively affect Just Energy’s income, as a portion of Just Energy’s income is generated in U.S. dollars and is subject to currency fluctuations upon translation to Canadian dollars. Due to its growing operations in the U.S. and Europe, Just Energy expects to have a greater exposure to foreign currency fluctuations in the future than in prior years. Just Energy has economically hedged between 50% 90% 12 0% 50% 13 24 Just Energy may, not With respect to translation exposure, if the Canadian dollar had been 5% December 31, 2018, $3.2 $17.7 Interest rate risk Just Energy is only exposed to interest rate fluctuations associated with its floating rate credit facility. Just Energy’s current exposure to interest rates does not not A 1% $630 three December 31, 2018 ( 2017 $496 Commodity price risk Just Energy is exposed to market risks associated with commodity prices and market volatility where estimated customer requirements do not not Commodity price sensitivity – all derivative financial instruments If all the energy prices associated with derivative financial instruments including natural gas, electricity, verified emission-reduction credits and renewable energy certificates had risen (fallen) by 10%, three December 31, 2018 $252,121 $250,095 Commodity price sensitivity – Level 3 If the energy prices associated with only Level 3 10%, three December 31, 2018 $254,391 $252,372 (ii) Credit risk Credit risk is the risk that one two Customer credit risk In Alberta, Texas, Illinois, California, Delaware, Ohio, Georgia, the U.K. and Ireland, as well as for Interactive Energy Group and JustGreen U.S., Just Energy has customer credit risk and, therefore, 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. Management factors default from credit risk in its margin expectations for all the above markets. The aging of the accounts receivable from the above markets was as follows: Dec. 31, 2018 March 31, 2018 Current $ 104,685 $ 113,786 1–30 days 42,416 44,374 31–60 days 19,007 21,241 61–90 days 19,310 12,686 Over 90 days 113,668 69,207 $ 299,086 $ 261,294 Changes in the expected lifetime credit loss were as follows: Dec. 31, 2018 (Restated – Note 4) March 31, 2018 Balance, beginning of period $ 60,121 $ 49,431 Provision for doubtful accounts 139,999 56,300 Bad debts written off (40,958 ) (41,802 ) Adjustment from IFRS 9 adoption 23,636 - Foreign exchange 421 (3,808 ) Balance, end of period $ 183,219 $ 60,121 In the remaining markets, the local distribution companies (“LDCs”) provide collection services and assume the risk of any bad debts owing from Just Energy’s customers for a fee. Management believes that the risk of the LDCs failing to deliver payment to Just Energy is minimal. There is no 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 Board of Directors of Just Energy. The Risk Department and Risk Committee 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 December 31, 2018, $249,321 2017 $38,605 (iii) Liquidity risk Liquidity risk is the potential inability to meet financial obligations as they fall due. Just Energy manages this risk by monitoring detailed weekly cash flow forecasts covering a rolling six 12 two The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy’s financial liabilities: As at December 31, 2018: Carrying Contractual Less than More than amount cash flows 1 year 1–3 years 4–5 years 5 years Trade and other payables $ 760,659 $ 760,659 $ 760,659 $ - $ - $ - Long-term debt 1 716,133 - - - - - Gas, electricity and non-commodity contracts 91,237 3,596,873 633,606 2,388,039 448,570 126,658 $ 1,568,029 $ 4,357,532 $ 1,394,265 $ 2,388,039 $ 448,570 $ 126,658 As at March 31, 2018: Carrying Contractual Less than More than amount cash flows 1 year 1–3 years 4–5 years 5 years Trade and other payables $ 621,148 $ 621,148 $ 621,148 $ - $ - $ - Long-term debt 1 543,504 575,525 122,115 193,410 260,000 - Gas, electricity and non-commodity contracts 138,159 3,171,037 1,867,389 1,202,949 69,658 31,041 $ 1,302,811 $ 4,367,710 $ 2,610,652 $ 1,396,359 $ 329,658 $ 31,041 1 6.75% $100M 6.75% $160M 6.5% 5.75% may In addition to the amounts noted above, as at December 31, 2018, Less than 1 year 1–3 years 4–5 years More than 5 years Interest payments $ 30,077 $ 69,836 $ 33,152 $ - (iv) 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 fulfil their contractual obligations. As at December 31, 2018, $10,183 2017 $3,109 |