14.

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

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

immediate impact to cash flows. Gas options have been valued using the Black option pricing model using the applicable market forward curves and the implied volatility from other market traded options. Management periodically uses non-exchange traded swap agreements based on cooling degree days and heating degree days measured in its utility service territories to reduce the impact of weather volatility on Just Energy’s electricity volumes, commonly referred to as “weather derivatives”. The fair value of these swaps on a given measurement station indicated in the derivative contract are determined by calculating the difference between the agreed strike and expected variable observed at the same station.

The following table illustrates gains (losses) related to Just Energy’s derivative financial instruments classified as FVTPL and recorded on the 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 consolidated statements of income (loss).

	For the year ended March 31, 2019			For the year ended March 31, 2018
Change in fair value of derivative instruments and other

Physical forward contracts and options (i)	$	(182,117	)	$	400,583
Financial swap contracts and options (ii)		39,832			59,710
Foreign exchange forward contracts		72			(1,842	)
Share swap (iii)		(3,507	)		(4,484	)
6.5% convertible bond conversion feature		247			7,764
Unrealized foreign exchange on 6.5% convertible bond		(8,061	)		6,101
Weather derivatives		7,796			-
Other derivative options		(7,488	)		6,561
Change in fair value of derivative instruments and other	$	(153,226	)	$	474,393

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 (non-current)		Financial liabilities (current)		Financial liabilities (non-current)

Physical forward contracts and options (i)	$	115,483	$	7,237	$	49,601	$	50,174
Financial swap contracts and options (ii)		18,212		1,876		16,142		8,583
Foreign exchange forward contracts		-		56		1,555		-
Share swap (iii)		-		-		11,907		-
Other derivative options		10,817		86		182		4,901
As at March 31, 2019	$	144,512	$	9,255	$	79,387	$	63,658

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, 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

March 31, 2019,

to which Just Energy has committed:

(i)

Physical forward contracts and options consist of:

Electricity contracts with a total remaining volume of

38,759,196

MWh, a weighted average price of

$51.29/MWh

and expiry dates up to

March 31, 2029.

Natural gas contracts with a total remaining volume of

92,885,570

GJs, a weighted average price of

$3.67/GJ

and expiry dates up to

December 31, 2024.

Renewable energy certificates (“RECs”) and emission-reduction credit contracts with a total remaining volume of

4,184,687

MWh and

177,000

tonnes, respectively, a weighted average price of

$32.50/REC

and

$2.68/tonne,

respectively, and expiry dates up to

December 31, 2028

and

December 31, 2021.

Electricity generation capacity contracts with a total remaining volume of

4,362

MWCap, a weighted average price of

$5,226.42/MWCap

and expiry dates up to

May 31, 2023.

Ancillary contracts with a total remaining volume of

738,532

MWh, a weighted average price of

$23.06/MWh

and expiry dates up to

December 31, 2020.

(ii)

Financial swap contracts and options consist of:

Electricity contracts with a total remaining volume of

10,333,347

MWh, an average price of

$45.19/MWh

and expiry dates up to

November 30, 2024.

Natural gas contracts with a total remaining volume of

134,711,738

GJs, an average price of

$3.53/GJ

and expiry dates up to

December 31, 2024.

Electricity generation capacity contracts with a total remaining volume of

MWCap, a weighted average price of

$304,787.72/MWCap

and expiry dates up to

October 31, 2020.

Ancillary contracts with a total remaining volume of

1,220,145

MWh, a weighted average price of

$21.52/MWh

and expiry dates up to

December 31, 2020.

(iii)

Share swap agreement

Just Energy has entered into a share swap agreement to manage the consolidated statements of income (loss) volatility associated with the Company’s RSG and DSG Plans. The value, on inception, of the

2,500,000

shares under this share swap agreement was approximately

$33,803.

August 22, 2018,

Just Energy reduced the notional value of the share swap to

$23,803

through a payment of

$10,000

and renewed the share swap agreement for an additional year. Net monthly settlements received under the share swap agreement are recorded in other income. Just Energy records the fair value of the share swap agreement in the non-current derivative financial liabilities on the consolidated statements of financial position. Changes in the fair value of the share swap agreement are recorded through the consolidated statements of income (loss) as a change in fair value of derivative instruments and other.

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

be able to realize the financial assets’ balance recognized in the consolidated financial statements.

Fair value (“FV”) hierarchy of derivatives

Level

The fair value measurements are classified as Level

in the FV hierarchy if the fair value is determined using quoted unadjusted market prices.

Level

Fair value measurements that require observable inputs other than quoted prices in Level

either directly or indirectly, are classified as Level

in the FV hierarchy. This could include the use of statistical techniques to derive the FV curve from observable market prices. However, in order to be classified under Level

significant inputs must be directly or indirectly observable in the market. Just Energy values its New York Mercantile Exchange (“NYMEX”) financial gas fixed-for-floating swaps under Level

Level

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

in the FV hierarchy. For the power 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 FV hierarchy. For the natural gas supply contracts, Just Energy uses

three

different market observable curves: (i) Commodity (predominately NYMEX), (ii) Basis and (iii) Foreign exchange. NYMEX curves extend for over

five

years (thereby covering the length of Just Energy’s contracts); however, most basis curves extend only

months into the future. In order to calculate basis curves for the remaining years, Just Energy uses extrapolation, which leads natural gas supply contracts to be classified under Level

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

Market and contractual inputs to these models vary by contract type and would typically include notional amounts, reference weather stations, strike prices, temperature strike values, terms to expiration, historical weather data and historical commodity prices. The historical weather data and commodity prices were utilized to value the expected payouts with respect to weather derivatives and, as a result, are the most significant assumptions contributing to the determination of fair value estimates, and changes in these inputs can result in a significantly higher or lower fair value measurement. There were

weather derivatives held as at

March 31, 2019.

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

observable market, it is classified as Level

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. The fair value inputs into the investment of ecobee transferred from Level

to Level

in fiscal

2019.

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

March 31, 2019:

	Level 1		Level 2			Level 3			Total
Derivative financial assets	$	-	$	-		$	153,766		$	153,766
Derivative financial liabilities		-		(6,588	)		(136,456	)		(143,044	)
Total net derivative assets (liabilities)	$	-	$	(6,588	)	$	17,310		$	10,722

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

Commodity price sensitivity – Level

derivative financial instruments

If the energy prices associated with only Level

derivative financial instruments including natural gas, electricity, verified emission-reduction credits and RECs had risen (fallen) by

10%,

assuming that all of the other variables had remained constant, profit (loss) before income taxes for the year ended

March 31, 2019

would have increased (decreased) by

$241,661

(

$239,419

), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

Key assumptions used when determining the significant unobservable inputs for all commodity supply contracts included in Level

of the FV hierarchy consist of up to

price extrapolation to calculate monthly prices that extend beyond the market observable

- to

-month forward curve.

The following table illustrates the changes in net fair value of financial assets (liabilities) classified as Level

in the FV hierarchy for the following periods:

	Year ended March 31, 2019			Year ended March 31, 2018
Balance, beginning of year	$	166,364		$	(315,110	)
Total gains		19,644			105,709
Purchases		11,502			207,531
Sales		(25,575	)		(64,464	)
Settlements		(154,625	)		232,698
Balance, end of year	$	17,310		$	166,364

(b)

Classification of non-derivative financial assets and liabilities

As at

March 31, 2019

and

March 31, 2018,

the carrying value of cash and cash equivalents, restricted cash, current trade and other receivables, and trade and other payables approximates their fair value due to their short-term nature.

Long-term debt recorded at amortized cost has a fair value as at

March 31, 2019

$740.6

million (

March 31, 2018 -

$570.1

million) and the interest payable on outstanding amounts is at rates that vary with Bankers’ Acceptances, LIBOR, Canadian bank prime rate or U.S. prime rate, with the exceptions of the

8.75%

loan,

6.75%

$100M

convertible debentures,

6.75%

$160M

convertible debentures,

6.5%

convertible bonds and

5.75%

convertible debentures, which are fair valued based on market value. The

6.75%

$100M

convertible debentures,

6.75%

$160M

convertible debentures,

6.5%

convertible bonds and

5.75%

convertible debentures are classified as Level

in the FV hierarchy.

Investments in equity instruments have a fair value as at

March 31, 2019

$36.9

million (

March 31, 2018 -

$36.3

million) and are measured based on Level

of the fair value hierarchy for the investment in Energy Earth and Level

of the fair value hierarchy for the investment in ecobee.

adjustments were made in the year in valuing the investment in ecobee or Energy Earth. Movements are related to foreign exchange revaluations.

The following table illustrates the classification of investments in the FV hierarchy as at

March 31, 2019:

	Level 1		Level 2		Level 3		Total
Investment in ecobee	$	-	$	-	$	32,888	$	32,888
Investment in Energy Earth		-		4,009		-		4,009
Total investments	$	-	$	4,009	$	32,888	$	36,897

The risks associated with Just Energy’s financial 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 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 USD 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%

and

90%

of forecasted cross border cash flows that are expected to occur within the next

months and between

and

50%

of certain forecasted cross border cash flows that are expected to occur within the following

months. The level of economic hedging is dependent on the source of the cash flows and the time remaining until the cash repatriation occurs.

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.

With respect to translation exposure, if the Canadian dollar had been

stronger or weaker against the U.S. dollar for the year ended

March 31, 2019,

assuming that all the other variables had remained constant, loss for the year would have been

$3.8

million lower/higher and OCI would have been

$14.2

million lower/higher.

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

economically warrant the use of derivative instruments. Just Energy’s exposure to interest rate risk is relatively immaterial and temporary in nature. Just Energy does

not

currently believe that its long-term debt exposes the Company to material interest rate risks but has set out parameters to actively manage this risk within its Risk Management Policy.

increase (decrease) in interest rates would have resulted in a decrease (increase) of approximately

$1,939

in profit before income taxes for the year ended

March 31, 2019 (

2018

$758

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 such that shareholder dividends can be appropriately established. Derivative instruments are generally transacted over the counter. The inability or failure of Just Energy to manage and monitor the above market risks 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.

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%,

assuming that all of the other variables had remained constant, profit before income taxes for the year ended

March 31, 2019

would have increased (decreased) by

$240,332

(

$238,089

), primarily as a result of the change in fair value of Just Energy’s derivative financial instruments.

(ii) Credit risk

Credit risk is the risk that

one

party to a financial instrument fails to discharge an obligation and causes financial loss to another party. Just Energy is exposed to credit risk in

two

specific areas: customer credit risk and counterparty credit risk.

Customer credit risk

In Alberta, Texas, Illinois, California, Delaware, Ohio, Georgia and the U.K., 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:

	March 31, 2019		March 31, 2018

Current	$	116,892	$	113,786
1–30 days		42,562		44,374
31–60 days		22,317		21,241
61–90 days		16,352		12,686
Over 90 days		100,580		69,207
	$	298,703	$	261,294

Changes in the expected lifetime credit loss were as follows:

	March 31, 2019
	(Restated – Note 5)			March 31, 2018

Balance, beginning of year	$	60,121		$	49,431
Provision for doubtful accounts		192,202			56,300
Bad debts written off		(90,231	)		(41,802	)
Adjustment from IFRS 9 adoption		23,636			-
Foreign exchange		(3,363	)		(3,808	)
Balance, end of year	$	182,375		$	60,121

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. Management believes that the risk of the LDCs failing to deliver payment to Just Energy is minimal. There is

assurance that the LDCs providing these services will continue to do so in the future.

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

March 31, 2019,

the estimated counterparty credit risk exposure amounted to

$153,767

(

2018

$283,431

), representing the risk relating to Just Energy’s exposure to derivatives that are in an asset position.

(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

-week period, cash forecasts for the next

months, and quarterly forecasts for the following

two

-year period to ensure adequate and efficient use of cash resources and credit facilities.

The following are the contractual maturities, excluding interest payments, reflecting undiscounted disbursements of Just Energy’s financial liabilities:

As at

March 31, 2019:

	Carrying amount		Contractual cash flows		Less than 1 year		1–3 years		4–5 years		More than 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

As at

March 31, 2018:

	Carrying amount		Contractual cash flows		Less than 1 year		1–3 years		4–5 years		More than 5 years
Trade and other payables	$	622,797	$	622,797	$	622,797	$	-	$	-	$	-
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
	$	1,304,460	$	4,369,359	$	2,612,301	$	1,396,359	$	329,658	$	31,041

Included in long-term debt are the

6.75%

$100M

convertible debentures,

6.75%

$160M

convertible debentures,

6.5%

convertible bonds and

5.75%

convertible debentures, which

may

be settled through the issuance of shares at the option of the holder or Just Energy upon maturity.

In addition to the amounts noted above, as at

March 31, 2019,

the contractual net interest payments over the term of the long-term debt with scheduled repayment terms are as follows:

		Less than 1 year				1–3 years				4–5 years				More than 5 years
Interest payments		$	40,765			$	80,234			$	40,600			$	-

(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

March 31, 2019,

Just Energy has applied an adjustment factor to determine the fair value of its financial instruments in the amount of

$8,307

(

2018

$4,737

) to accommodate for its counterparties’ risk of default.