Just Energy Updates Negative Impact From Texas Weather Event, May Be Significantly Reduced Based On Initial Settlement Data

Reports Fiscal Third Quarter 2021 Results

February 26, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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Just Energy Group Inc. announced its third quarter results for fiscal year 2021 and updated its previous announcement advising that management is continuing to assess the impact of the extreme cold weather experienced in the State of Texas commencing on or about February 13, 2021 continuing through February 19, 2021 (the 'Weather Event') [all $ Canadian unless otherwise noted].

"The Weather Event resulted in the Company having to balance its power supply through the Electric Reliability Council of Texas (ERCOT) at artificially mandated high electricity prices and significantly increased ancillary service costs as described in the Company’s Management Discussion and Analysis filed today. As at February 22, 2021, the Company reviewed the available information regarding the Company’s customer load for the Weather Event and estimated that the Company may have incurred a loss of CAD $315 million (approximately USD $250 million). This week, the Company received initial settlement statements from ERCOT, which are subject to resettlements, that may be material, showing lower customer load. The initial statements from ERCOT, without any resettlement, would result in significantly lowering the Company’s exposure to approximately CAD $50 million (approximately USD $40 million). Given the material differences between the load information, the Company continues to investigate the differences in load information. Under normal ERCOT protocols resettlements occur 55 days after the operating day. However, ERCOT has indicated that it may resettle earlier. The total financial impact may materially change due to ERCOT final settlement data as it becomes available, any government or regulatory actions or potential litigation with respect thereto, failure of other parties to pay amounts owing to ERCOT and the impact of customer credit losses," Just Energy said

"Regardless of uncertainty created by the Weather Event, our customers of Just Energy, Amigo Energy, Hudson Energy and Tara Energy can be certain that we are committed to doing all we can to be there for them in this extraordinary time. If you have a residential or small business fixed rate plan, our customers can rest assured that your fixed energy rate is locked in for the duration of your contracted term. Variable rate (month-to-month) residential customers will not see their rates impacted by the high settlement prices of the Weather Event," said Scott Gahn, Just Energy’s President and Chief Executive Officer.

In reporting third fiscal quarter earnings (ending Dec. 31, 2020), Just Energy said that it ended the quarter with $91.2 million of total liquidity available, comprised of cash and cash equivalents of $66.6 million and available borrowing capacity of $24.6 million under the senior secured credit facility.

Quarterly Base EBITDA increased by 47% to $55.8 million in the third quarter of fiscal year 2021 compared to $38.0 million in the year ago period, primarily driven by lower bad debt and lower expenses offsetting the lower Base gross margin and increased investment in digital marketing.

Base gross margin was $131.6 million in the third quarter of fiscal year 2021, an 8% decrease as compared to $142.5 million in the year ago period. The decrease was primarily driven by a decline in the customer base, partially offset by higher realized margins across several markets.

Bad debt expense decreased by 83% to $3.4 million in the third quarter of fiscal year 2021 compared to $20.0 million in the year ago period, with lower expenses in all areas.

Sales for Q3 2021 was $540 million, versus $658 million a year ago

Loss from continuing operations of $52.3 million in the third quarter, inclusive of $71.6 million of unrealized losses of derivative instruments and other.

In its commodity business, Just Energy reported 2,963,000 RCEs as of December 31, 2020, versus 3,086,000 RCEs as of October 1, 2020 and 3,515,000 RCEs a year ago

Gross Consumer (mass market) RCE additions decreased by 24% to 42,000 for the three months ended December 31, 2020 compared to 55,000 for the three months ended December 31, 2019. The decrease in customer additions are primarily driven by selling constraints posed by the COVID-19 pandemic in the retail and door-to-door channel offset by increases in digital sales channels. Consumer RCE additions increased by 24% over the three months ended September 30, 2020 due to continued investment in digital marketing as well as some improvements in the retail sales channel

Consumer attrition RCEs decreased 39% to 44,000 for the three months ended December 31, 2020 compared to 72,000 for the three months ended December 31, 2019. The improvements in attrition are a result of enhanced enrolment processes and reflecting the flattening of departures from the prior comparable quarter when pricing actions were taken to improve profitability per customer. Consumer failed to renew RCEs remained consistent at 16,000 RCEs for the three months ended December 31, 2020 compared to the three months ended December 31, 2019

Gross Commercial RCE additions decreased by 75% to 41,000 for the three months ended December 31, 2020 compared to 165,000 for the three months ended December 31, 2019. The decrease is primarily due to the selling constraints posed by the COVID-19 pandemic and the prior competitive pressures on pricing in the U.S. market. Commercial RCE additions increased by 46% from a low of 28,000 RCE additions for the three months ended June 30, 2020.

"As previously announced, the Company is withdrawing its Base EBITDA and unlevered free cash flow guidance for fiscal 2021 and is continuing to assess the financial impact of the Weather Event. As of the time of this press release, the Company estimates that the financial impact of the Weather Event on the Company could be a loss of between $50 million and $315 million. The total financial impact may materially change due to ERCOT final settlement data as it becomes available, any government or regulatory actions or potential litigation with respect thereto, failure of other parties to pay amounts owing to ERCOT and impacts of customer credit losses. The estimated substantial losses could be materially adverse to the Company’s liquidity and its ability to continue as a going concern. The Company is in discussions with its key stakeholders regarding the impact of the Weather Event and will provide an update as appropriate," Just Energy said

In an MD&A, Just Energy further said, "These estimated substantial losses may create significant liquidity challenges for the Company. The Company may have further discussions with market participants, including existing stakeholders, regarding any further sources of funding. However, there is no assurance that the Company will be able to address these liquidity challenges with its stakeholders or otherwise, and any inability or failure of the Company to appropriately address such liquidity challenges could materially and adversely impact the business, operations, financial condition and operating results of the Company. The Company’s ability to continue as a going concern for the next 12 months is dependent on the Company resolving these liquidity challenges. These conditions indicate the existence of material uncertainties that raise significant doubt about 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."

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