Disclosure of financial instruments [text block] | 8. 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 fair value through profit or loss (“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 Six months Six months ended ended ended ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 2019 2018 2019 2018 Change in fair value of derivative instruments and other Physical forward contracts and options (i) $ 95,536 $ 2,612 $ (129,438 ) $ (127,584 ) Financial swap contracts and options (ii) (27,679 ) (30,758 ) (43,314 ) 38,046 Foreign exchange forward contracts 1,926 (1,437 ) 1,698 867 Share swap (7,862 ) (2,298 ) (7,026 ) (5,561 ) Unrealized foreign exchange on 6.5% convertible bond and 8.75% loan (3,340 ) 3,784 2,475 (213 ) 6.5% convertible bond conversion feature - 14 1 246 Weather derivatives (iii) (7,916 ) (30,181 ) (10,938 ) (30,181 ) Other derivative options 14,798 (4,164 ) 10,004 (6,489 ) Change in fair value of derivative instruments and other $ 65,463 $ (62,428 ) $ (176,536 ) $ (130,869 ) 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 September 30, 2019: Financial assets (current) Financial Financial liabilities (current) Financial liabilities (non-current) Physical forward contracts and options (i) $ 57,013 $ 16,994 $ 27,847 $ 107,608 Financial swap contracts and options (ii) 10,712 9,575 45,366 22,912 Foreign exchange forward contracts - 1 608 (807 ) Share swap - - 18,933 - Weather derivatives (iii) 3,815 - - - Other derivative options 8,910 7,385 233 25 As at September 30, 2019 $ 80,450 $ 33,955 $ 92,987 $ 129,738 The following table summarizes certain aspects of the fair value of derivative financial assets and liabilities recorded in the consolidated statement of financial position as at March 31, 2019: Financial assets (current) Financial assets Financial liabilities (current) Financial liabilities (non-current) Physical forward contracts and options $ 115,483 $ 7,237 $ 49,601 $ 50,174 Financial swap contracts and options 18,212 1,876 16,142 8,583 Foreign exchange forward contracts - 56 1,555 - Share swap - - 11,907 - Other derivative options 10,817 86 182 4,901 As at March 31, 2019 $ 144,512 $ 9,255 $ 79,387 $ 63,658 Below is a summary of the financial instruments classified through profit or loss as at September 30, 2019, (i) Physical forward contracts and options consist of: · Electricity contracts with a total remaining volume of 34,930,038 $47.17/MWh May 31, 2029. · Natural gas contracts with a total remaining volume of 115,386,147 $2.68/GJ October 31, 2025. · Renewable energy certificates (“RECs”) and emission-reduction credit contracts with a total remaining volume of 3,930,129 55,000 $37.19/REC $3.43/tonne, December 31, 2028 December 31, 2021. · Electricity generation capacity contracts with a total remaining volume of 3,618 $6,045.03/MWCap May 31, 2023. · Ancillary contracts with a total remaining volume of 1,530,444 $23.09/MWh December 31, 2020. (ii) Financial swap contracts and options consist of: · Electricity contracts with a total remaining volume of 13,332,237 $46.36/MWh November 30, 2024. · Natural gas contracts with a total remaining volume of 132,873,947 $3.35/GJ October 31, 2025. · Electricity generation capacity contracts with a total remaining volume of 39 $419,333.97/MWCap October 31, 2020. · Ancillary contracts with a total remaining volume of 2,276,955 $21.63/MWh December 31, 2020. (iii) Weather derivatives consist of: · Weather swaps for CDDs with temperature strike values of 84.0 106.0 $100.00/MWh October 31, 2019. · Weather swaps for HDDs with temperature strike values of 15.00 30.00 $100.00/MWh March 31, 2020. · HDD natural gas swaps with strike prices ranging from US$1.38 US$7.56/MmBTU 1,300 6,500 March 31, 2021. · HDD collar options with HDD strike set at $0.66 March 31, 2020. 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 grants and deferred share grants plans. The value, on inception, of the 2,500,000 $33,803. August 22, 2018, $23,803 $10,000 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 fulfill its obligations under the contracts, Just Energy may not Fair value (“FV”) hierarchy of 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 to model out its value. As the inputs have no 3. 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. 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 September 30, 2019: Level 1 Level 2 Level 3 Total Derivative financial assets $ - $ - $ 114,405 $ 114,405 Derivative financial liabilities - (34,796 ) (187,929 ) (222,725 ) Total net derivative assets (liabilities) $ - $ (34,796 ) $ (73,524 ) $ (108,320 ) The following table illustrates the classification of derivative financial assets (liabilities) in the FV hierarchy as at March 31, 2019: Level 1 Level 2 Level 3 Total Derivative financial assets $ - $ - $ 153,767 $ 153,767 Derivative financial liabilities - (6,588 ) (136,457 ) (143,045 ) Total net derivative assets (liabilities) $ - $ (6,588 ) $ 17,310 $ 10,722 Commodity price sensitivity – Level 3 3 10%, September 30, 2019 $196,614 $195,525 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 Six months ended Year ended Sept. 30, 2019 March 31, 2019 Balance, beginning of period $ 17,310 $ 166,364 Total gains (losses) (189,737 ) 19,644 Purchases 3,982 11,502 Sales (8,817 ) (25,575 ) Settlements 103,738 (154,625 ) Balance, end of period $ (73,524 ) $ 17,310 (b) Classification of non-derivative financial assets and liabilities As at September 30, 2019 March 31, 2019, Long-term debt recorded at amortized cost has a fair value as at September 30, 2019 $720.5 March 31, 2019 - $740.6 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 September 30, 2019 $36.8 March 31, 2019 - $36.9 2 3 No The following table illustrates the classification of investments in the FV hierarchy as at September 30, 2019: Level 1 Level 2 Level 3 Total Investment in ecobee $ - $ - $ 32,889 $ 32,889 Investment in Energy Earth - 3,972 - 3,972 Total investments $ - $ 3,972 $ 32,889 $ 36,861 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. 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., 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% 100% 12 0% 50% 13 24 Just Energy may, not With respect to translation exposure, if the Canadian dollar had been 5% September 30, 2019, three September 30, 2019 $7.0 $4.1 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% $573 three September 30, 2019 ( September 30, 2018 - $361 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 RECs had risen (fallen) by 10%, three September 30, 2019 $189,649 $188,560 (ii) Credit risk Credit risk is the risk that one two Customer credit risk In Alberta, Texas, Illinois (gas), California, Ohio (electricity) and Georgia, 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: Sept. 30, 2019 Restated Current $ 116,079 $ 117,095 1–30 days 33,076 61,840 31–60 days 14,011 34,772 61–90 days 12,471 25,268 Over 90 days 69,752 122,345 $ 245,389 $ 361,320 The March 31, 2019 $62,617 March 31, 2019 ( $203, $19,278, $12,454, $8,916, $21,764 1 30, 31 60, 61 90 90 March 31, 2019 no March 31, 2019. Changes in the expected lifetime credit loss were as follows: Sept. 30, 2019 March 31, 2019 Balance, beginning of period $ 182,365 $ 60,121 Provision for doubtful accounts 46,857 192,202 Bad debts written off (47,507 ) (90,231 ) Adjustment from IFRS 9 adoption - 23,636 Foreign exchange 517 (3,363 ) Assets classified as held for sale (81,193 ) - Balance, end of period $ 101,039 $ 182,365 In the remaining markets, the local distribution companies (“LDC”) 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 sales. 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 September 30, 2019, $114,405 September 30, 2018 - $213,268 (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 daily cash flow forecasts covering a rolling 13 12 two The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy’s financial liabilities: As at September 30, 2019: Carrying Contractual Less than More than amount cash flows 1 year 1–3 years 4–5 years 5 years Trade and other payables $ 618,361 $ 618,361 $ 618,361 $ - $ - $ - Long-term debt 1 725,449 752,874 222,536 165,416 364,923 - Gas, electricity and non-commodity contracts 222,725 3,628,720 1,524,002 1,631,593 357,763 115,362 $ 1,566,535 $ 4,999,955 $ 2,364,899 $ 1,797,009 $ 722,686 $ 115,362 As at March 31, 2019: Carrying Contractual Less than More than amount cash flows 1 year 1–3 years 4–5 years 5 years Trade and other payables $ 714,110 $ 714,110 $ 714,110 $ - $ - $ - Long-term debt 1 725,372 781,701 39,150 210,564 531,987 - Gas, electricity and non-commodity contracts 143,045 3,500,493 1,899,713 1,439,479 119,212 42,089 $ 1,582,527 $ 4,996,304 $ 2,652,973 $ 1,650,043 $ 651,199 $ 42,089 1 6.75% $100M 6.75% $160M 6.5% 5.75% may In addition to the amounts noted above, as at September 30, 2019, Less than 1 year 1–3 years 4–5 years More than 5 years Interest payments $ 50,247 $ 90,015 $ 43,211 $ - (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 fulfill their contractual obligations. As at September 30, 2019, $10,118 September 30, 2018 - $6,626 |