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Press release from Marketwire

Just Energy Reports Second Quarter Results

Operating Results Ahead of Guidance for Second Consecutive Quarter Margin up 9% and Adjusted EBITDA up 24% per Share Year to Date 238,000 Customers Added-Customer Base up 8% Year over Year

Tuesday, November 08, 2011

Just Energy Reports Second Quarter Results10:10 EST Tuesday, November 08, 2011TORONTO, ONTARIO--(Marketwire - Nov. 8, 2011) -Just Energy Group Inc. (TSX:JE) - Highlights for the three months ended September 30, 2011 included:Gross residential customer equivalent additions through marketing of 238,000 and net additions of 45,000, up from 227,000 and 44,000 in first quarter. Total customer base reached 3,403,000 residential customer equivalents, up 8% from a year earlier. Gross margin of $102.6 million, up 6% (4% per share). Adjusted EBITDA of $47.9 million, up 28% (25% per share) reflecting earnings before marketing expenditures to add new gross margin. Base EBITDA of $38.6 million up 23% (20% per share) reflecting earnings after all marketing. National Home Services' water heaters and HVAC units increased to 143,800 installed to date, 42% higher than a year prior. This growth has lead to a 73% increase in gross margin from $3.8 million to $6.5 million. Payout ratio on Adjusted EBITDA was 91% for the quarter versus 113% for the three months ended September 30, 2010. Highlights for the six months ended September 30, 2011 included:Gross margin of $196.8 million, up 11% (9% per share). Adjusted EBITDA of $85.3 million, up 27% (24% per share). Base EBITDA of $68.5 million up 29% (26% per share). Payout ratio on Adjusted EBITDA was 102% for the year to date, versus 125% for the six months ended September 30, 2010. Year to date results exceed published guidance of 5% growth in Gross margin and Adjusted EBITDA. In a press release dated October 3, 2011, Just Energy Management reaffirmed the 2012 Gross margin and Adjusted EBITDA growth guidance and that this will allow the Company to comfortably maintain its existing $1.24 per year dividend. Just Energy Fiscal 2012 Second Quarter ResultsJust Energy announced its results for the three months and six months ended September 30, 2011.Three months ended September 30, ($ millions except per share/unit and customers)F2012Per shareF2011Per unitSales$600.0$4.26$657.9$4.78Gross margin102.60.7396.70.70Administrative costs28.80.2026.00.19Finance costs14.30.1012.8(1)0.09Adjusted EBITDA47.90.3437.50.27Base EBITDA38.60.2731.40.23Net loss(3.5)(0.02)(133.4)(0.97)Dividends/distributions43.70.3142.30.31Payout ratio - Adjusted EBITDA91%113%Long Term RCEs3,403,0003,161,000Six months ended September 30, ($ millions except per share/unit)F2012Per shareF2011Per unitSales$1,226.2$8.72$1,267.6$9.21Gross margin196.81.40177.11.29Administrative costs57.10.4154.80.40Finance costs28.10.2022.8(1)0.17Adjusted EBITDA85.30.6167.20.49Base EBITDA68.50.4953.20.39Net profit47.60.34137.41.00Dividends/distributions87.30.6284.30.62(1) Excludes distributions paid to holders of exchangeable shares included as finance costs prior to Conversion under IFRS.Just Energy is a TSX listed corporation and it reports in its Management's Discussion and Analysis, a detailed review of its operating results as measured by gross margin, Adjusted EBITDA and Base EBITDA. Just Energy also reports the profit for the period but Management believes that the inclusion of non-cash mark to market on future supply positions makes this measure less valuable in measuring performance as this future supply has been sold at fixed prices.Second Quarter Operating PerformanceThe second quarter of fiscal 2012 shows the continued positive effects of Just Energy's diversification efforts over the last two years. Success at the Commercial division allowed the Company to add 238,000 residential customer equivalents ("RCEs"), up from 227,000 in the first quarter and caused our total RCE base to exceed 3.4 million, up 8% from a year earlier.The acquisition of Hudson has successfully expanded Just Energy's presence in the commercial gas and electricity markets. This commercial expansion has allowed the Company to exceed its past record level of customer additions (140,000 RCE additions) for six consecutive quarters. Higher customer additions and corporate diversification have offset a difficult price environment and resultant weak renewals, maintaining gross margin and EBITDA at targeted levels. A second diversification is the move into green commodity supply through the JustGreen and JustClean programs. Over the past 12-months, green takeup was 34% of new residential customers, who purchased an average of 90% as green supply. Our overall Green book is now 9% of residential natural gas needs (up from 3% a year ago) and 12% for electricity, up 1% from a year ago. In addition, the Hudson Solar division has made commitments of approximately $35 million to date. These projects generate very attractive returns on investment. Overall, Just Energy's commitment to Green strengthens long-term margins, builds a stronger customer relationship and allows Just Energy customers and employees to be proud of their contribution to a cleaner environment. The National Home Services water heater and HVAC rental and sales operation has also been a successful diversification with installations growing 42% from 101,000 units to 143,800. Margin from this business was up 73% year over year. Following quarter end, Just Energy acquired Fulcrum, a Texas marketer who specializes in affinity sales, a channel Just Energy had not previously pursued. This acquisition not only is a strategic fit but Fulcrum's existing base of customers makes the transaction immediately accretive to shareholders. The Momentis network marketing channel is now starting to see the monthly results hoped for. Network marketing does not overlap traditional sales channels and tends to generate sales to customers who would not otherwise buy from a door-to-door salesperson. The expansions of JustGreen, JustClean and National Home Services were seen both in continued marketing success in the second quarter and operating results which so far exceed growth targets for the year. Management has set targets of 5% per share growth for both Gross margin and Adjusted EBITDA for the year.In the second quarter, our $102.6 million gross margin was up 4% per share year over year. Year to date, gross margin is up 9% per share, well ahead of target. Administrative costs were up 8% per share to $28.8 million as a result of a one-tem reduction in accrued litigation expenses in the prior comparative period. Administrative costs were in line with those of the first quarter of fiscal 2012 and the fourth quarter of fiscal 2011. Higher margins combined with lower marketing and bad debt expenses resulted in a growth in Adjusted EBITDA to $47.9 million, up 25% per share. This is the second consecutive quarter with Adjusted EBITDA growth over 20%. Year to date, Adjusted EBITDA is up 24% per share, again well ahead of the 5% target. Operational measures such as bad debt remained well under control. Losses were 2.5% on the 48% of our sales where we bear this risk, down from 2.6% a year ago. Our attrition rates were in line with management's expectations and down significantly from those in fiscal 2011. Canadian attrition was 10%, down from 12% a year ago. U.S. natural gas attrition (our market most affected by the housing and employment crisis) was 21%, down from the 27% rate reported a year ago. U.S. electricity attrition was 14%, lower than the 15% reported a year ago. Renewal rates remained soft averaging 64% versus a target of 70%. The current stable low commodity price environment is the worst for our core products however we have focused on renewals by giving the customer a range of options including Blend and Extend pricing, our new JustClean products and, most recently, innovative variable price offerings. The 238,000 RCEs added in the second quarter was the sixth consecutive quarter with more than 200,000 additions. These are the only six quarters in which Just Energy has exceeded this level in its 11 year history as a publically traded entity. New commercial RCEs made up 154,000 of the 238,000 quarterly additions. In the first quarter 148,000 of the 227,000 RCEs added were commercial. These customers have lower annual margins but their aggregation cost and annual customer service costs are commensurately lower as well. Overall, as can be seen below, the customer base is up 8% year over year. This is entirely growth through marketing with no acquired customers in the total. July 1, 2011AdditionsAttritionFailed to renewSeptember 30, 2011September 30, 2010Natural gasCanada635,00011,000(18,000)(31,000)597,000689,000(13%)United States567,00036,000(29,000)(4000)570,000569,0000%Total gas1,202,00047,000(47,000)(35,000)1,167,0001,258,000(7%)ElectricityCanada704,00025,000(17,000)(24,000)688,000745,000(8%)United States1,452,000166,000(57,000)(13,000)1,548,0001,158,00034%Total electricity2,156,000191,000(74,000)(37,000)2,236,0001,903,00017%Combined3,358,000238,000(121,000)(72,000)3,403,0003,161,0008%During the quarter, rumours in the capital markets and, in management's belief, their adverse effect on our share price mandated that Just Energy issue a press release on October 3, 2011 reaffirming its guidance that the 5% targets for gross margin and Adjusted EBITDA growth are expected to be achieved in Fiscal 2012. As can be seen from these results, Just Energy remains ahead of the pace necessary to realize these goals after six months. The release also stated that, based on these operating results and those expected for the remainder of the year, Just Energy will be able to comfortably maintain its current $1.24 annual dividend for the foreseeable future. A second consecutive quarter of significantly lower payout ratio supports that conclusion. Dividends for the quarter were $0.31 per share, equal to unit distributions paid in the prior comparable quarter. Payout ratio on Adjusted EBITDA was 91%, down from 113% a year ago. Management's expectation is that the annual payout ratio on our ordinary dividends will be below 100% for fiscal 2012. As regards to the second quarter, CEO Ken Hartwick noted: "Our operating results show the benefits of diversifications we have undertaken over the past years. The past three years have seen very low stable gas and electricity prices. This makes it more difficult to convince consumers that the stability of a fixed price justifies a premium. Despite this price environment, we continue to grow our customer base quarter after quarter. This has been done through new and innovative product offerings and new businesses such as National Home Services. The result is the record levels of gross margin and EBITDA seen quarter after quarter." "The acquisition of Fulcrum completed just after quarter end is another example of a strategic move into a new marketing channel, in this case affinity sales. Past expansions such as Hudson and National Home Services have added substantial value to Just Energy. Like these acquisitions, Fulcrum's existing customer base makes the acquisition accretive day one." Chair Rebecca MacDonald added: "Our second quarter results show a continuation of the consistent track record of Just Energy since its inception. We target growth every year and every year we grow. We target a high dividend and every month, we pay that dividend. We have never missed, cut or delayed a dividend or distribution in the history of the Company. We have no intention of starting now.""Our growth year to date is ahead of the 5% per share targeted for gross margin and Adjusted EBITDA. Our payout ratio in each of the first two quarters was below that of the prior year, a year in which we comfortably paid $1.24 to our shareholders. With our track record, current results and opportunities for continued growth, there is no justification for our shares yielding over 10%. I plan to work tirelessly to convince investors that Just Energy is substantially undervalued."Just Energy Just Energy's business primarily involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price, price-protected or variable-priced contracts and green energy products. By fixing the price of natural gas or electricity under its fixed-price or price-protected program contracts for a period of up to five years, Just Energy's customers offset their exposure to changes in the price of these essential commodities. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the matched term price at which it purchases the associated volumes from its suppliers. Just Energy also offers "green" products through its JustGreen and JustClean programs. The electricity JustGreen product offers the customer the option of having all or a portion of his or her electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits which will allow the customer to reduce or eliminate the carbon footprint of their home or business. JustClean products are essentially carbon offsets from carbon capture and reduction projects as well as green power renewable energy certificates from green generators. This product can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the green products will not only add to profits, but also increase sales receptivity and improve renewal rates. In addition, through National Home Services, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and sells wheat-based ethanol. Just Energy has also launched, Hudson Solar, a solar project development platform in New Jersey. Forward-Looking Statements Just Energy's press releases may contain forward-looking statements including statements pertaining to customer revenues and margins, customer additions and renewals, customer attrition, customer consumption levels, administrative expenses, Base EBITDA, adjusted EBITDA and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, rates of customer additions and renewals, rates of customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes 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, financial results or dividends are included in Just Energy's annual information form and other reports on file with Canadian securities regulatory authorities which can be accessed through the SEDAR website at www.sedar.com or through Just Energy's website at www.justenergygroup.com. MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") – November 7, 2011OverviewThe following discussion and analysis is a review of the financial condition and results of operations of Just Energy Group Inc. ("JEGI" or "Just Energy" or the "Company") (formerly Just Energy Income Fund (the "Fund")) for the three and six months ended September 30, 2011, and has been prepared with all information available up to and including November 7, 2011. The financial information contained herein has been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board. Just Energy's date of transition to IFRS was April 1, 2010. This analysis should be read in conjunction with the unaudited consolidated financial statements for the three and six months ended September 30, 2011 as well as the interim financial statements and MD&A for the three months ended June 30, 2011 as these documents include additional disclosure related to the transition to IFRS. All dollar amounts are expressed in Canadian dollars. Quarterly reports, the annual report and supplementary information can be found on Just Energy's corporate website at www.justenergygroup.com. Additional information can be found on SEDAR at www.sedar.com.Effective January 1, 2011, Just Energy completed the conversion from the Fund to Just Energy (the "Conversion"). As part of the Conversion, Just Energy Exchange Corp. ("JEEC") was amalgamated with JEGI and, like the unitholders of the Fund, the holders of JEEC's Exchangeable Shares received common shares of JEGI on a one for one basis. JEGI also assumed all of the obligations under the $90m convertible debentures and $330m convertible debentures.Just Energy is a corporation established under the laws of Canada and holds securities and distributes the income of its directly or indirectly owned operating subsidiaries and affiliates: Just Energy Ontario L.P., Just Energy Manitoba L.P., Just Energy Quebec L.P., Just Energy (B.C.) Limited Partnership, Just Energy Alberta L.P., Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp., Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy Inc. ("Commerce" or "CEI"), National Energy Corporation (which operates under the trade name of National Home Services ("NHS")), Hudson Energy Services, LLC and Hudson Energy Canada Corp. (collectively "Hudson" or "HES"), Momentis Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels, Inc. ("TGF"), Hudson Energy Solar Corp ("Hudson Solar") and Just Energy Limited ("JEL").Just Energy's business primarily involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price, price-protected or variable-priced contracts and green energy products. By fixing the price of natural gas or electricity under its fixed-price or price-protected program contracts for a period of up to five years, Just Energy's customers offset their exposure to changes in the price of these essential commodities. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the related price at which it purchases the associated volumes from its suppliers.Just Energy also offers green products through its JustGreen and JustClean programs. The electricity JustGreen product offers customers the option of having all or a portion of their electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits which allows customers to reduce or eliminate the carbon footprint of their home or business. JustClean products allow customers in certain jurisdictions to offset their carbon footprint without purchasing commodity from Just Energy. JustClean can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the JustGreen and JustClean products will not only add to profits, but also increase sales receptivity and improves renewal rates.In addition, through National Home Services, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary Terra Grain Fuels, Just Energy produces and sells wheat-based ethanol. Just Energy has also recently launched, Hudson Solar, a solar project development platform in New Jersey.On October 3, 2011, Just Energy completed the acquisition of Fulcrum Retail Holdings LLC ("Fulcrum") with an effective date of October 1, 2011. Fulcrum is a retail electricity provider operating in Texas and focuses on residential and small to mid-size commercial customers. Fulcrum markets primarily online and through targeted affinity marketing channels under the brands, Tara Energy, Amigo Energy and Smart Prepaid Electric. Although the acquisition was completed subsequent to September 30, 2011, the financing for the acquisition was completed on September 22, 2011. Just Energy used the proceeds from the issuance of $100 million of convertible unsecured subordinated debentures, which bear interest at a rate of 5.75% per annum payable in arrears on March 31 and September 30 each year commencing March 31, 2012, to fund the Fulcrum acquisition and for other general corporate purposes.Forward-looking informationThis MD&A contains certain forward-looking information pertaining to customer additions and renewals, customer consumption levels, EBITDA, Base EBITDA, Adjusted EBITDA and treatment under governmental regulatory regimes. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to, levels of customer natural gas and electricity consumption, extreme weather conditions, rates of customer additions and renewals, customer attrition, fluctuations in natural gas and electricity prices, changes in regulatory regimes, decisions by regulatory authorities and competition, and dependence on certain suppliers. Additional information on these and other factors that could affect Just Energy's operations, financial results or distribution levels are included in the June 20, 2011 Annual Information Form and other reports on file with Canadian security regulatory authorities, which can be accessed on our corporate website at www.justenergygroup.com or through the SEDAR website at www.sedar.com.Key terms"Attrition" means customers whose contracts were terminated early or cancelled by Just Energy due to delinquent accounts."Failed to renew" means customers who did not renew expiring contracts at the end of their term."Gross margin per RCE" represents the gross margin realized on Just Energy's customer base, including both low margin customers acquired through various acquisitions and gains/losses from the sale of excess commodity supply."$90m convertible debentures" represents the $90 million of convertible debentures issued by Universal Energy Group Ltd. ("Universal") in October 2007. JEEC assumed the obligations of the debentures as part of the Universal acquisition on July 1, 2009. Just Energy assumed the obligations of the debentures as part of the Conversion. See "Long-term debt and financing" on page 22 for further details."$100m convertible debentures" represents the $100 million of convertible debentures issued by the Company to finance the purchase of Fulcrum Retail Holdings LLC, effective October 1, 2011. See "Long-term debt and financing" on page 22 for further details."$330m convertible debentures" represents the $330 million of convertible debentures issued by Just Energy Income Fund to finance the purchase of Hudson, effective May 1, 2010. Just Energy assumed the obligations of the debentures as part of the Conversion. See "Long-term debt and financing" on page 22 for further details."LDC" means a local distribution company; the natural gas or electricity distributor for a regulatory or governmentally defined geographic area."RCE" means residential customer equivalent or the "customer", which is a unit of measurement equivalent to a customer using, as regards natural gas, 2,815 m3 (or 106 GJs or 1,000 Therms or 1,025 CCFs) of natural gas on an annual basis and, as regards electricity, 10 MWh (or 10,000 kWh) of electricity on an annual basis, which represents the approximate amount of gas and electricity, respectively, used by a typical household in Ontario."Large commercial customer" means customers representing more than 15 RCEs.Non-GAAP financial measuresJust Energy's financial statements are prepared in compliance with IFRS. All non-GAAP financial measures do not have standardized meanings prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.Just Energy converted from an income trust to a corporation on January 1, 2011. Under the corporate structure, management believes that Adjusted EBITDA is the best basis for analyzing the financial results of Just Energy.EBITDA"EBITDA" represents earnings before finance costs, taxes, depreciation and amortization. This is a non-GAAP measure which reflects the pre-tax profitability of the business.Base EBITDA"Base EBITDA" represents EBITDA adjusted to exclude the impact of mark to market gains (losses) arising from IFRS requirements for derivative financial instruments on future supply positions. This measure reflects operating profitability as mark to market gains (losses) are associated with supply already sold at future fixed prices.Just Energy ensures that customer margins are protected by entering into fixed-price supply contracts. Under IFRS, the customer margins are not marked to market but there is a requirement to mark to market its future supply contracts. This creates unrealized gains (losses) depending upon current supply pricing volatility. Management believes that these short - term mark to market non-cash gains (losses) do not impact the long-term financial performance of Just Energy and have therefore excluded it from the Base EBITDA calculation.Adjusted EBITDA"Adjusted EBITDA" represents Base EBITDA adjusted to deduct selling and marketing costs sufficient to maintain existing levels of gross margin and maintenance capital expenditures necessary to sustain existing operations. This adjustment results in the exclusion of the marketing that Just Energy carried out and the capital expenditures that it had made to add to its future productive capacity. Management believes this is a useful measure of operating performance for investors.Embedded gross margin"Embedded gross margin" is a rolling five-year measure of management's estimate of future contracted gross margin. It is the difference between existing customer contract prices and the cost of supply for the remainder of term, with appropriate assumptions for customer attrition and renewals. It is assumed that expiring contracts will be renewed at target margin and renewal rates.Financial highlightsFor the three months ended September 30(thousands of dollars, except where indicated and per unit/share amounts)Fiscal 2012Fiscal 2011Per sharePer share changePer unitSales$600,043$4.26(11)% $657,878 $4.78Gross margin102,5610.734%96,7190.70Administrative expenses28,7740.208%25,9630.19Finance costs14,3400.109%12,82330.09Net loss1(3,494)(0.02)(97)%(133,436)(0.97)Dividends/distributions43,6910.310%42,2760.31Base EBITDA238,6040.2720%31,4410.23Adjusted EBITDA247,8940.3425%37,4970.27Payout ratio on Base EBITDA113%134%Payout ratio on Adjusted EBITDA91%113%For the six months ended September 30(thousands of dollars, except where indicated and per unit/share amounts)Fiscal 2012Fiscal 2011Per sharePer share changePer unitSales$1,226,243$8.72(5)% $1,267,562 $9.21Gross margin196,8221.409%177,0741.29Administrative expenses57,0580.412%54,8040.40Finance costs28,1320.2021%22,76030.17Net income147,6380.34(66)%137,3531.00Dividends/distributions87,2960.620%84,3460.62Base EBITDA268,4710.4926%53,2390.39Adjusted EBITDA285,3250.6124%67,2230.49Payout ratio on Base EBITDA127%158%Payout ratio on Adjusted EBITDA102%125%1Net income (loss) includes the impact of unrealized gains (losses), which represent the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at fixed prices, minimizing any realizable impact of mark to market gains and losses.2See discussion of Non-GAAP financial measures on page 2.3Excludes distributions paid to holders of exchangeable shares and equivalents prior to Conversion included as finance costs under IFRS.International Financial Reporting StandardsJust Energy has adopted IFRS as the basis for reporting its financial results commencing with the interim financial statements of fiscal 2012 and using April 1, 2010 as the transition date. The comparative figures for fiscal 2011 have been restated in accordance with the Company's IFRS accounting policies. The interim financial statements and MD&A for the three months ended June 30, 2011 includes additional disclosure relating to the transition to IFRS and therefore, should be read in conjunction with the MD&A and financial statements for the three and six months ended September 30, 2011.OperationsNatural gasJust Energy offers natural gas customers a variety of products ranging from month-to-month variable-price offerings to five-year fixed-price contracts. For fixed-price contracts, Just Energy purchases gas supply through physical or financial transactions with market counterparts in advance of marketing, based on forecast customer aggregation for residential and small commercial customers. For larger commercial customers, gas supply is generally purchased concurrently with the execution of a contract.The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase the expected normal customer load. Furthermore, 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 mitigate weather effects is limited by the severity of weather from normal. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for fluctuations in customer usage. Volume variances may result in either excess or short supply. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Further, customer margin is normally lower with such a decrease in consumption. In the case of greater than expected gas consumption, Just Energy must purchase the short supply in the spot market resulting in either a gain or loss compared to the weighted average cost of supply. Consequently, customer margin can increase with this increase in consumption. To the extent that supply balancing is not fully covered through active management or the options employed, Just Energy's customer gross margin may be reduced or increased depending upon market conditions at the time of balancing. Under some commercial contract terms, this balancing may be passed onto the customer. Ontario, Quebec, British Columbia and Michigan In Ontario, Quebec, British Columbia and Michigan, the volumes delivered for a customer typically remain constant throughout the year. Just Energy does not recognize sales until the customer actually consumes the gas. During the winter months, gas is consumed at a rate that is greater than delivery and, in the summer months, deliveries to LDCs exceed customer consumption. Just Energy receives cash from the LDCs as the gas is delivered, which is even throughout the year. Manitoba, Alberta and Saskatchewan In Manitoba, Alberta and Saskatchewan, the volume of gas delivered is based on the estimated consumption for each month. Therefore, the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash received from customers and LDCs will be higher in the winter months. New York, Illinois, Indiana, Ohio, California and Pennsylvania In New York, Illinois, Indiana, Ohio, California and Pennsylvania, the volume of gas delivered is based on the estimated consumption and storage requirements for each month. Therefore, the amount of gas delivered in winter months is higher than in the spring and summer months. Consequently, cash flow received from these states is greatest during the third and fourth (winter) quarters, as cash is normally received from the LDCs in the same period as customer consumption.ElectricityIn Ontario, Alberta, New York, Texas, Illinois, Pennsylvania, New Jersey, Maryland, Michigan, California and Massachusetts, Just Energy offers a variety of solutions to its electricity customers, including fixed-price and variable-price products on both short-term and longer-term electricity contracts. Some of these products provide customers with price-protection programs for the majority of their electricity requirements. The customers experience either a small balancing charge or credit (pass-through) on each bill due to fluctuations in prices applicable to their volume requirements not covered by a fixed price. Just Energy uses historical usage data for all enrolled customers to predict future customer consumption and to help with long-term supply procurement decisions.Just Energy purchases power supply through physical or financial transactions with market counterparties in advance of marketing for residential and small commercial customers based on forecast customer aggregation. Power supply is generally purchased concurrently with the execution of a contract for larger commercial customers. The LDC provides historical customer usage which, when normalized to average weather, enables Just Energy to purchase to expected normal customer load. Furthermore, Just Energy mitigates exposure to weather variations through active management of the power portfolio. The expected cost of this strategy is incorporated into the price to the customer. Our ability to mitigate weather effects is limited by the severity of weather from normal. To the extent that balancing requirements are outside the forecast purchase, Just Energy bears the financial responsibility for excess or short supply caused by fluctuations in customer usage. In the case of under consumption by the customer, excess supply is sold in the spot market resulting in either a gain or loss in relation to the original cost of supply. Further, customer margin is normally lower as a result of the decrease in consumption. In the case of greater than expected power consumption, Just Energy must purchase the short supply in the spot market resulting in either a gain or loss in relation to the fixed cost of supply. Customer margin generally increases proportionately to the increase in consumption. To the extent that supply balancing is not fully covered through customer pass-throughs or active management or the options employed, Just Energy's customer gross margin may be impacted depending upon market conditions at the time of balancing.JustGreenCustomers have the ability to choose an appropriate JustGreen program to supplement their electricity and natural gas contracts, providing an effective method to offset their carbon footprint associated with the respective commodity consumption.JustGreen programs for electricity customers involve the purchase of power from green generators (such as wind, solar, run of the river hydro 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.JustCleanIn addition to its traditional commodity marketing business, Just Energy allows customers to effectively manage their carbon footprint without buying energy commodity products by signing a JustClean contract. The JustClean products are carbon offsets purchased from carbon capture and reduction projects as well as green power renewable energy certificates purchased from green generators. This product can be offered in all states and provinces and is not dependent on energy deregulation.Blend and Extend programAs part of Just Energy's retention efforts, electricity and natural gas customers may be contacted for early renewal of their contracts under a Blend and Extend offer. These customers are offered a lower rate, compared to their current contracted rate, but the term of their contract is extended up to five more years. Consequently, Just Energy may experience a reduction in margins in the short term but will gain additional future margins.Consumer (Residential) Energy divisionThe sale of gas and electricity to customers of 15 RCEs and less is undertaken by the Consumer Energy division. The marketing of energy products of this division is primarily done door-to-door through 860 independent contractors, the Momentis network marketing operation and Internet-based and telephone marketing efforts. The total number of independent contractors increased during the quarter as a result of the expansion of sales efforts in existing offices. Approximately 56% of Just Energy's customer base resides within the Consumer Energy division, which is currently focused on longer-term price-protected and variable offerings of commodity products, JustGreen and JustClean. To the extent that certain markets are better served by shorter-term or enhanced variable rate products, the Consumer Energy independent contractors also offer these products.Commercial Energy divisionCustomers with annual consumption over 15 RCEs are served by the Commercial Energy division. These sales are made through three main channels: door-to-door commercial independent contractors; inside commercial sales representatives; and sales through the broker channel using the commercial platform acquired with the Hudson purchase. Commercial customers make up about 44% of Just Energy's customer base. Products offered to commercial customers can range from standard fixed price offerings to "one off" offerings, which are tailored to meet the customer's specific needs. These products can be either fixed or floating rate or a blend of the two, and normally have terms of less than five years. Margin per RCE for this division is lower than residential margins but customer aggregation costs and ongoing customer care costs are lower as well on a per RCE basis. Commercial customers tend to have combined attrition and failed-to-renew rates which are lower than those of residential customers.Home Services divisionNHS began operations in April 2008 and provides Ontario residential customers with a long-term water heater, furnace and air conditioning rental, offering high efficiency conventional and power vented tanks and tankless water heaters and high efficiency furnaces and air conditioners. NHS markets through approximately 260 independent contractors in Ontario. See page 15 for additional information.Ethanol divisionJust Energy owns and operates TGF, a 150-million-litre capacity wheat-based ethanol plant located in Belle Plaine, Saskatchewan. The plant produces wheat-based ethanol and high protein distillers' dried grain ("DDG"). On January 4, 2011, Just Energy acquired the 33.3% interest in TGF that was previously owned by EllisDon Design Build Inc. ("EllisDon") pursuant to a put option exercised by EllisDon. See page 16 for additional information on TGF.Network Marketing divisionJust Energy owns and operates Momentis, a network marketing company operating within Canada and the U.S. Independent representatives educate consumers about the benefits of energy deregulation and sell them products offered by Just Energy as well as a number of other products. Independent representatives are rewarded through commissions earned based on new customers added. For the three months ended September 30, 2011, there were 6,200 independent representatives added, bringing the total number to 11,100.Solar divisionHudson Solar, a solar project development platform in New Jersey, brings renewable energy directly to the consumer, enabling them to reduce their environmental impact and energy costs. Hudson Solar installs solar systems on residential or commercial sites, maintaining ownership of the system and providing maintenance and monitoring of the system for a period of up to 20 years. Hudson Solar sells the energy generated by the solar panels back to the customer. This division will contribute to operating metrics through commodity sales, renewable energy credit offset sales and tax incentives. To date, the division has made commitments of approximately $35 million with the status of the associated projects ranging from contracted to completed.Adjusted EBITDAFor the three months ended September 30(thousands of dollars)Fiscal 2012Fiscal 2011Per sharePer unitReconciliation to income statementProfit (loss) attributable to shareholders of Just Energy$(3,494)$(0.02)$(133,733)$(0.97)Add (subtract):Finance costs14,34015,605Provision for (recovery of) income tax14,925(95,203)Capital tax-26Amortization37,72940,610EBITDA$63,500$0.45$(172,695)$(1.25)Add (subtract):Change in fair value of derivative instruments(24,896)204,136Base EBITDA38,604$0.2731,441$0.23Add (subtract):Selling and marketing expenses to add gross margin10,3427,689Maintenance capital expenditures(1,052)(1,633)Adjusted EBITDA$47,894$0.34$37,497$0.27Adjusted EBITDAGross margin per financial statements$102,561$0.73$96,719$0.70Add (subtract):Administrative expenses(28,774)(25,963)Selling and marketing expenses(35,302)(36,950)Bad debt expense(6,451)(6,694)Stock based compensation(2,925)(2,573)Amortization included in cost of sales/selling and marketing expenses6,6616,463Other income/expenses2,834439Base EBITDA38,604$0.2731,441$0.23Selling and marketing expenses to add gross margin10,3427,689Maintenance capital expenditures(1,052)(1,633)Adjusted EBITDA$47,894$0.34$37,497$0.27Distributions/dividends paidDistributions and dividends$42,722$39,756Class A preference share distributions-1,632Restricted share grants/unit appreciation rights and deferred share grant/deferred unit grant distributions969888Total distributions/dividends$43,691$0.31$42,276$0.31Adjusted fully diluted average number of units/shares outstanding1140.9m137.7m1The per share/unit amounts are calculated on an adjusted fully diluted basis, removing the impact of the $330m, $100m and $90m convertible debentures as all will be anti-dilutive in future periods.Adjusted EBITDAFor the six months ended September 30(thousands of dollars)Fiscal 2012Fiscal 2011Per sharePer unitReconciliation to income statementProfit attributable to shareholders of Just Energy$47,638$0.34$139,676$1.01Add (subtract):Finance costs28,13228,360Provision for (recovery of) income tax22,146(57,745)Capital tax-159Amortization75,14874,200EBITDA$173,064$1.23$184,650$1.34Subtract:Change in fair value of derivative instruments(104,593)(131,411)Base EBITDA68,471$0.4953,239$0.39Add (subtract):Selling and marketing expenses to add gross margin20,47317,070Maintenance capital expenditures(3,619)(3,086)Adjusted EBITDA$85,325$0.61$67,223$0.49Adjusted EBITDAGross margin per financial statements$196,822$1.40$177,074$1.29Add (subtract):Administrative expenses(57,058)(54,804)Selling and marketing expenses(69,856)(66,708)Bad debt expense(13,265)(12,443)Stock based compensation(4,606)(4,583)Amortization included in cost of sales/selling and marketing expenses13,43510,961Other income/expenses2,9993,742Base EBITDA68,471$0.4953,239$0.39Selling and marketing expenses to add gross margin20,47317,070Maintenance capital expenditures(3,619)(3,086)Adjusted EBITDA$85,325$0.61$67,223$0.49Distributions/dividends paidDistributions and dividends$85,242$79,348Class A preference share distributions-3,264Restricted share grants/unit appreciation rights and deferred share grant/deferred unit grant distributions2,0541,734Total distributions/dividends$87,296$0.62$84,346$0.62Adjusted fully diluted average number of units/shares outstanding1140.6 m137.5m1The per share/unit amounts are calculated on an adjusted fully diluted basis, removing the impact of the $330m, $100m and $90m convertible debentures as all will be anti-dilutive in future periods.Base EBITDA differs from EBITDA in that the impact of the mark to market gains (losses) from the financial instruments is removed as management believes that these short-term mark to market non-cash gains (losses) do not impact the long-term financial performance. For Adjusted EBITDA, selling and marketing expenses used for increasing gross margin are also removed along with maintenance capital expenditures being deducted. With the conversion from an income trust to a corporation effective January 1, 2011, management believes that Adjusted EBITDA is the best measure of operating performance.Adjusted EBITDA amounted to $47.9 million ($0.34 per share) in the second quarter of fiscal 2012, an increase of 25% per share/unit from $37.5 million ($0.27 per unit) in the prior comparable quarter. This increase is attributable to the increase in gross margin as well as higher other income quarter over quarter. Gross margin increased 6% overall with higher margin contribution from NHS and TGF as gross margin attributable to gas and electricity marketing stayed constant quarter over quarter.Administrative expenses increased by 11% from $26.0 million to $28.8 million quarter over quarter but were in line with the amount recorded in the previous two quarters. The increase over the prior comparable quarter was due to a one-time expense reduction in the prior comparative period as well as the additional $0.7 million spent on the expansion of Momentis, our network marketing sales channel, and Hudson Solar. Selling and marketing expenses for the three months ended September 30, 2011 were $35.3 million, a 4% decrease from $37.0 million reported in the prior comparative quarter. The sales and marketing expenses representing the costs associated with maintaining gross margin, which are deducted in Adjusted EBITDA, were $21.3 million for the three months ended September 30, 2011, a decrease of 15% from $25.1 million in the prior comparable quarter. Bad debt expense was $6.5 million for the three months ended September 30, 2011, a 4% decrease from $6.7 million recorded for the prior comparable quarter. In addition, other income/expense increased from $0.4 million to $2.8 million as a result of the hedging gain on the investment of the proceeds from the issuance of the $100m convertible debentures.Dividends and distributions paid for the three months ended September 30, 2011 were $43.7 million, an increase of 3% from the prior comparative quarter as a result of the dividends paid to JEEC shareholders being only 66.67% of that which was paid to JEGI shareholders and a higher number of shares versus units outstanding. The payout ratio on Base EBITDA was 113% for the three months ended September 30, 2011, versus 134% in the prior comparative quarter. For the three months ended September 30, 2011, the payout ratio on Adjusted EBITDA was 91%, versus 113% in the prior comparative quarter.For the six months ended September 30, 2011, Adjusted EBITDA amounted to $85.3 million ($0.61 per share), an increase of 27% (24% per share/unit) from $67.2 million ($0.49 per unit) in the prior comparable period. For the current six-month-period, gross margin increased by 11% (9% per share/unit). Dividends and distributions for the six months ended September 30, 2011 were $87.3 million ($0.62 per share), an increase of 3% from the prior comparative period. The payout ratio on Base EBITDA was 127% for the six months ended September 30, 2011, versus 158% in the prior comparative quarter. For the six months ended September 30, 2011, the payout ratio on Adjusted EBITDA was 102%, versus 125% in the prior comparative quarter.For further information on the changes in the gross margin, please refer to "Gas and electricity marketing" on page 10 and "Administrative expenses", "Selling and marketing expenses", "Bad debt expense" and "Finance costs", which are further clarified on pages 17 through 19.Future embedded gross marginManagement's estimate of the future embedded gross margin is as follows:(millions of dollars)As at Sept. 30, 2011As at June 30, 2011Sept. 11 vs. June 11 VarianceAs at Sept. 30, 2010Sept. 11 vs. Sept. 10 VarianceCanada (CAD$)$603.9$622.1(3)%$708.8(15)%United States (US$)866.7851.32%778.811%Total (CAD$)1,512.41,443.15%1,510.9-Management's estimate of the future contracted gross margin amounted to $1,512.4 million at as September 30, 2011, an increase of 5% during the quarter. The future embedded gross margin for Canada decreased by 3% from $622.1 million at June 30, 2011 to $603.9 million at September 30, 2011. The embedded margins in Canada declined over the three months due to a challenging price environment for renewals and new customer additions resulting in a net customer loss of 4% during the quarter. This decline was offset by the 2% growth in U.S. future embedded gross margin from $851.3 million to $866.7 million. The growth in embedded margins is less than Just Energy's growth in customer base because commercial customers, which make up a growing percentage of new additions, have lower margins and shorter contract terms than residential customers. However, the commercial customer base also results in lower customer aggregation costs and lower annual customer servicing costs, which are not captured in embedded margin. The embedded margin calculation includes the future margin associated with the energy marketing divisions only. Any future embedded margin associated with NHS, TGF or Hudson Solar is excluded from the embedded margin outlined above.The U.S. dollar strengthened against the Canadian dollar during the quarter, resulting in an increase of $72.5 million in total future embedded gross margin.Summary of quarterly results(thousands of dollars, except per unit/share amounts)Fiscal 2012Fiscal 2012Fiscal 2011Fiscal 2011Q2Q1Q4Q3Sales$600,043$626,200$941,334$744,296Gross margin102,56194,261172,404132,084Administrative expenses28,77428,28428,36726,299Finance costs14,34013,79213,64615,6792Net income (loss)(3,494)51,13237,119178,468Net income (loss) per unit/share – basic(0.03)0.370.271.41Net income (loss) per unit/share – diluted(0.03)0.350.231.16Dividends/distributions paid43,69143,60543,20842,450Base EBITDA38,60429,867109,28268,823Adjusted EBITDA47,89437,431114,93476,800Payout ratio on Base EBITDA113%146%40%62%Payout ratio on Adjusted EBITDA91%116%38%55%Fiscal 2011Fiscal 2011Fiscal 2010Fiscal 2010Q2Q1Q41Q31Sales$657,878$609,684$838,596$629,966Gross margin96,71980,355155,815111,947Administrative expenses25,96328,84122,40524,767Finance costs12,82329,93725,5655,143Net income (loss)(133,436)270,789(79,211)97,390Net income (loss) per unit – basic(1.07)2.19(0.59)0.73Net income (loss) per unit – diluted(1.07)1.78(0.59)0.73Distributions paid42,27642,07068,161341,248Base EBITDA31,44121,798107,03658,543Adjusted EBITDA37,49729,726108,96260,564Payout ratio on Base EBITDA134%193%64%70%Payout ratio on Adjusted EBITDA113%142%63%68%1Quarterly information prepared using Canadian GAAP as prior to IFRS transition date.2Excludes distributions paid to holders of exchangeable shares prior to Conversion included as finance costs under IFRS. 3Includes special distribution of $26.7 million paid in January 2010.Just Energy's results reflect seasonality, as consumption is greatest during the third and fourth quarters (winter quarters). While year over year quarterly comparisons are relevant, sequential quarters will vary materially. The main impact of this will be higher Base and Adjusted EBITDA and lower payout ratios in the third and fourth quarters, and lower Base and Adjusted EBITDA and higher payout ratios in the first and second quarters.Analysis of the second quarterSales decreased by 9% quarter over quarter to $600.0 million from $657.9 million. Sales from gas and electricity marketing decreased by 11% quarter over quarter primarily as a result of lower commodity prices. This decrease was slightly offset by higher sales for NHS and TGF. Gross margin increased by 6% quarter over quarter due t o an increase in margin contribution from NHS and TGF. Gross margin from gas and electricity marketing did not materially change in comparison with the second quarter of fiscal 2011 as the margin was impacted by the increase in the number of commercial and variable rate customers quarter over quarter.Net loss for the three months ended September 30, 2011 was $3.5 million, representing a loss per share of $0.03, on a basic and diluted basis. For the prior comparative quarter, net loss was $133.7 million, representing a loss of $1.07, both on a basic and diluted per unit basis. The change in fair value of derivative instruments resulted in a gain of $24.9 million for the current quarter, in comparison with a loss of $204.1 million in the second quarter of the prior fiscal year. The fair value of derivative instruments represents the mark to market of future commodity supply acquired to cover future customer demand. The supply has been sold to customers at future fixed prices, minimizing any realizable impact of mark to market gains and losses.Adjusted EBITDA increased by 28% to $47.9 million for the three months ended September 30, 2011. This increase is attributable to the increase in gross margin and other income and lower sales and marketing costs. Base EBITDA (after all selling and marketing costs) increased by 23% (20% per share/unit) to $38.6 million for the three months ended September 30, 2011, up from $31.4 million in the prior comparable quarter.Dividends/distributions paid were $43.7 million, a 3% increase from $42.3 million paid in the prior comparative quarter. The increase is due to the increase in outstanding shares as the annual dividend/distribution rate was unchanged at $1.24 per year. In the prior year, JEEC exchangeable shares were paid dividends equal to 66.67% of the Fund's distributions. These shares have now been exchanged for JEGI common shares and receive the $1.24 annual dividends. Payout ratio on Adjusted EBITDA was 91% for the three months ended September 30, 2011, compared with 113% in the prior comparable quarter.Gas and electricity marketingFor the three months ended September 30(thousands of dollars)Fiscal 2012Fiscal 2011UnitedUnitedSalesCanadaStatesTotalCanadaStatesTotalGas$54,406$37,399$91,805$77,614$55,927$133,541Electricity125,662335,972461,634165,578322,075487,653$180,068$373,371$553,439$243,192$378,002$621,194Decrease(26)%(1)%(11)%UnitedUnitedGross MarginCanadaStatesTotalCanadaStatesTotalGas$7,378$2,183$9,561$2,936$(461)$2,475Electricity19,46959,02378,49227,80557,90185,706$26,847$61,206$88,053$30,741$57,440$88,181Increase (decrease)(13)%7%0%Gas and electricity marketingFor the six months ended September 30(thousands of dollars)Fiscal 2012Fiscal 2011UnitedUnitedSalesCanadaStatesTotalCanadaStatesTotalGas$177,684$116,571$294,255$207,329$128,975$336,304Electricity245,711601,270846,981326,208546,989873,197$423,395$717,841$1,141,236$533,537$675,964$1,209,501Increase (decrease)(21)%6%(6)%UnitedUnitedGross MarginCanadaStatesTotalCanadaStatesTotalGas$24,225$10,441$34,666$15,067$4,823$19,890Electricity37,939100,570138,50953,80194,671148,472$62,164$111,011$173,175$68,868$99,494$168,362Increase (decrease)(10)%12%3%Sales for the three months ended September 30, 2011 were $553.4 million, a decrease of 11% from $621.2 million in the prior comparable quarter. The sales decline was the result of a gradual reduction in average price within the customer base as new customers signed and customer renewals are at much lower prices than that of customers expiring or lost through attrition. Gross margins were $88.1 million for the quarter, in line with the $88.2 million earned during the three months ended September 30, 2010. The margin was flat quarter over quarter despite an 8% increase in customers reflecting the increase in the number of commercial and variable rate customers in the past year, which are replacing higher-margin customers lost through attrition and failure to renew.For the six months ended September 30, 2011, sales were $1,141.2 million, a decrease of 6% from $1,209.5 million reported in the prior comparable period. Gross margin was $173.2 million for the six months ended September 30, 2011, an increase of 3% from $168.4 million earned in the first half of fiscal 2010. Canada Sales were $180.1 million for the three months ended September 30, 2011, down 26% from $243.2 million in the prior comparable quarter. Gross margins were $26.8 million in the second quarter, a decrease of 13% from $30.7 million in the prior comparable period. For the six months ended September 30, 2011, sales and gross margin were $423.4 million and $62.2 million, respectively, representing decreases of 21% in sales and 10% in gross margin over the comparative period of fiscal 2011. The number of long-term customers in Canada has decreased by 10% during the past year.GasCanadian gas sales were $54.4 million, a decrease of 30% from $77.6 million in the three months ended September 30, 2010. This decrease is a result of the Canadian gas customer base falling by 13% year over year as well as the decline in commodity prices reflected in recent contract offerings. Gross margin totalled $7.4 million, up 151% from the prior comparative quarter despite the customer decline. The prior comparable quarter included significant losses on the sale of excess gas at low spot prices from the warm winter experienced in fiscal 2010.For the six months ended September 30, 2011, sales amounted to $177.7 million, a decrease of 14% from $207.3 million recorded in the prior comparable period due to the declining customer base. Gross margin increased by 61% from $15.1 million to $24.2 million as a result of the losses on the sale of excess gas experienced in the prior comparative period.After allowance for balancing and inclusive of acquisitions, realized average gross margin per customer ("GM/RCE") for the rolling 12-months ended September 30, 2011, amounted to $176/RCE compared to $177/RCE for the prior comparable quarter. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta.ElectricityElectricity sales in Canada were $125.7 million for the three months ended September 30, 2011, a decrease of 24% from the prior comparable quarter due to an 8% decline in RCEs as well as recent product offerings being at lower prices in order to remain competitive with very low current utility prices. Gross margin decreased by 29% quarter over quarter to $19.5 million versus $27.8 million in the prior three-month period. The decrease was a result of expiring higher margin customers being replaced with new lower margin customers. The customers aggregated by the Consumer Energy division continued to underperform due to competitive pressures from low utility prices in Ontario.For the six months ended September 30, 2011, sales amounted to $245.7 million, a decrease of 25% from $326.2 million recorded in the prior comparable period due to the declining customer base. Gross margin decreased by 29% to $37.9 million for the six months ended September 30, 2011 over the prior comparable period.Realized average gross margin per customer in Canada after all balancing and including acquisitions for the rolling 12-months ended September 30, 2011, amounted to $114/RCE, a decrease from $143/RCE in the prior comparative period primarily due to the cumulative effect of new lower margin contracts sold to compete against the very low utility price in the Ontario market. JustGreen sales had a positive impact on margins per customer but this was more than offset by pricing required to compete against the regulated utility floating rate in Ontario. Management believes that this lower margin level will remain for the foreseeable future. The GM/RCE value includes an appropriate allowance for the bad debt expense in Alberta. United States Sales for the second quarter of fiscal 2012 were $373.4 million, a decrease of 1% from $378.0 million in the three months ended September 30, 2010. Gross margin was $61.2 million, up 7% from $57.4 million in the prior comparable period. For the six months ended September 30, 2011, sales increased by 6% to $717.8 million over the prior comparable period. Gross margin for the six months ended September 30, 2011 was $111.0 million, an increase of 12% from $99.5 million recorded in the prior comparable period.GasFor the three months ended September 30, 2011, gas sales and gross margin in the U.S. totalled $37.4 million and $2.2 million, respectively, versus $55.9 million and $(0.5) million, respectively, in the prior comparable quarter. Total gas customers remained relatively unchanged year over year. The sales decrease of 33% was the result of a gradual reduction in average price within the customer base as renewals and new customers signed are at much lower prices than that of customers expiring or lost through attrition.Despite the 33% decline in sales, gross margin increased year over year even though the number of long-term customers remaining relatively flat year over year. In the prior comparable quarter, the U.S gas markets experienced a sharp decline in consumption due the record warm winter of fiscal 2010 and high third party losses on the sale of the excess gas. The current year reflects closer to normal weather and consumption.For the six months ended September 30, 2011, sales amounted to $116.6 million, a decrease of 10% from $129.0 million recorded in the prior comparable period due to the change in products offered to remain competitive. Gross margin more than doubled from $4.8 million to $10.4 million for the six months ended September 30, 2011 primarily as a result of closer to normal weather and consumption versus the high losses on sale of excess gas experienced in the prior comparable period.Average realized gross margin after all balancing costs for the rolling 12 months ended September 30, 2011, was $145/RCE, a decrease from $161/RCE. This is due to the inclusion of lower margin commercial customers offsetting the lower losses on sale of excess gas. The GM/RCE value includes an appropriate allowance for bad debt expense in Illinois and California.ElectricityU.S. electricity sales and gross margin for the three months ended September 30, 2011 were $336.0 million and $59.0 million, respectively, versus $322.1 million and $57.9 million, in the second quarter of fiscal 2011. Sales increased 4% due to a 34% increase in long-term customers year over year, attributable to the strong marketing growth by the Commercial Energy division. Sales increased less than the increase in customers due to an increase in commercial customers and lower commodity pricing. Gross margin increased by 2% due to increase in customers being offset by the lower margins on largely commercial customers added.For the six months ended September 30, 2011, sales amounted to $601.3 million, an increase of 10% from $547.0 million recorded in the prior comparable period. Gross margin increased from $94.7 million to $100.6 million for the six months ended September 30, 2011. Customers were up sharply but with the underperformance of the Consumer Energy division, the mix of additional commercial customers limited both sales and margin growth.Average gross margin per customer for electricity during the current quarter decreased to $131/RCE, compared to $172/RCE in the prior comparable quarter, as a result of lower margins per RCE for commercial customers added. The GM/RCE value for Texas, Pennsylvania, Massachusetts and California includes an appropriate allowance for the bad debt expense.Long-term customer aggregationJuly 1, 2011AdditionsAttritionFailed to renewSeptember 30, 2011% increase (decrease)Natural gasCanada635,00011,000(18,000)(31,000)597,000(6)%United States567,00036,000(29,000)(4,000)570,0001%Total gas1,202,00047,000(47,000)(35,000)1,167,000(3)%ElectricityCanada704,00025,000(17,000)(24,000)688,000(2)%United States1,452,000166,000(57,000)(13,000)1,548,0007%Total electricity2,156,000191,000(74,000)(37,000)2,236,0004%Combined3,358,000238,000(121,000)(72,000)3,403,0001%Gross customer additions for the quarter were 238,000, down 6% from the 254,000 customers added through marketing in the second quarter of fiscal 2011 but up 5% from the 227,000 customers added in the first quarter. Net additions were 45,000 for the quarter, resulting in a 1% growth in the customer base for the second quarter.Consumer customer additions amounted to 84,000, a 31% decrease from the 121,000 customer additions in the prior comparable quarter, however, an increase of 6% from 79,000 customer additions in the first quarter of fiscal 2012. The quarter over quarter decrease in customer additions is a result of the decrease in the number of independent contractors from 1,100 a year ago to 860 as a result of the challenging price environment. Management continues to diversify its sales platform beyond door-to-door sales to include network, telephone and Internet-based marketing channels and responded to the current price environment with a change in product offerings to include a variable-based product.Commercial additions were 154,000 for the quarter, a 16% increase from the 133,000 additions recorded in the second quarter of fiscal 2011 and a 4% increase from 148,000 additions in the first quarter of fiscal 2012. The broker sales channel continues to expand across Just Energy's existing markets. Commercial additions, which consists of customers representing 15 RCEs or higher, will fluctuate quarterly depending on the size of customers signed.Total gas customers decreased by 3% during the last three months, reflecting a difficult price environment with a large disparity between utility spot prices and the five-year prices. The extended period of low, stable gas prices has reduced the customer appetite for the stability of higher priced long-term fixed contracts. As a result, Just Energy has moved to a variety of consumer products that meet the consumer's need for stability and protection against volatility. This continues to impact new customer additions and renewals. To respond, profitable new variable rate contracts are being sold while spot market prices remain stable.Total electricity customers were up 4% during the quarter, with a 7% growth in the U.S. markets and a 2% decrease in customers in the Canadian markets. The Canadian electricity market, particularly in Ontario, continues to face competitive challenges due to low utility pricing.JustGreen and JustCleanSales of the JustGreen products remain strong despite premium pricing in a low-price environment. The JustGreen program allows customers to choose to purchase units of green energy in the form of renewable energy or carbon offsets, in an effort to reduce greenhouse gas emissions. When a customer purchases a unit of green energy, it creates a contractual obligation for Just Energy to purchase a supply of green energy at least equal to the demand created by the customer's purchase. A review was conducted by Grant Thornton LLP of Just Energy's Renewable Energy and Carbon Offsets Sales and Purchases report for the period from January 1, 2010, through December 31, 2010, validating the match of Just Energy's renewable energy and carbon offset purchases against customer contracts. Just Energy will have a similar review conducted following calendar 2011. Just Energy has contracts with over 25 carbon offset and renewable energy projects across North America and is actively pursuing new projects to meet our growing demand for green energy alternatives. Just Energy purchases carbon offsets and renewable energy credits for the current and future use of our customers. Our purchases help developers finance their projects.The Company currently sells JustGreen gas in the eligible markets of Ontario, Quebec, British Columbia, Alberta, Michigan, New York, Ohio, Illinois and Pennsylvania. JustGreen electricity is sold in Ontario, Alberta, New York, Texas and Pennsylvania. Of all consumer customers who contracted with Just Energy in the past year, 34% took JustGreen for some or all of their energy needs. On average, these customers elected to purchase 90% of their consumption as green supply. In the previous comparative period, 44% of the consumer customers who contracted with Just Energy chose to include JustGreen for an average of 88% of their consumption. Overall, JustGreen supply now makes up 9% of the overall gas portfolio, up from 3% a year ago. JustGreen supply makes up 12% of the electricity portfolio, up from 11% a year ago.In addition, JustClean products are being offered in Ontario, Quebec and Florida. JustClean products are carbon offsets from carbon capture and reduction projects as well as green power renewable energy certificates from green generators. The JustClean product can be offered in all states and provinces and is not dependent on energy deregulation. We are actively investing to expand this product offering throughout the U.S. and Canada to new markets, both regulated and deregulated.AttritionTrailing 12-month attritionTrailing 12-month attrition- September 30, 2011- September 30, 2010Natural gasCanada10%12%United States21%27%ElectricityCanada10%12%United States14%15%The past year saw an improvement in attrition rates across all markets. The primary contributing factor is that most customers signed in the past three years are on prices consistent with current market prices. The attrition from these customers and eventual renewal of the customer will benefit from this pricing. In addition, improved economic conditions and diligent credit reviews have resulted in lower attrition rates as well. We expect this trend in improving attrition rates to continue. Natural gas The annual natural gas attrition in Canada was 10% for the trailing 12-months, lower than the 12% attrition rate reported in the prior comparable quarter. In the U.S., annual gas attrition was 21%, a decrease from 27% experienced a year prior due to new product offerings and greater economic stability within the U.S customer base. Electricity The annual electricity attrition rate in Canada was 10%, lower than the 12% reported in the prior comparable quarter. Electricity attrition in the U.S. was 14% for the trailing 12-months, in line with management's ongoing expectations.RenewalsTrailing 12-month renewalsTrailing 12-month renewals- September 30, 2011- September 30, 2010Natural gasCanada63%63%United States78%78%ElectricityCanada56%65%United States68%89%The Just Energy renewal process is a multifaceted program that aims to maximize the number of customers who choose to renew their contract prior to the end of their existing contract term. Efforts begin up to 15 months in advance, allowing a customer to renew for an additional four or five years. Management's targeted renewal rates are to be in the range of 70% overall, assuming commodity price volatility remains low. The combined renewal rate for all gas and electricity markets was 64% for the trailing 12-month period. Natural gas The current trailing annual renewal rate for all Canadian gas customers was 63%, unchanged from one year prior. In the Ontario gas market, customers who do not positively elect to renew or terminate their contract receive a one-year fixed price for the ensuing year. Of the total Canadian gas customer renewals for fiscal 2012, 33% were renewed for a one-year term. The Canadian gas market continues to be challenged in renewals largely due to the current high spread between the five-year price and the utility spot price. The long period of stable low gas prices has reduced customer interest in renewing at higher fixed prices. Just Energy has introduced some enhanced variable-price offerings and products like JustGreen and JustClean to improve renewal rates.In the U.S. markets, Just Energy had primarily Illinois and New York gas customers up for renewal. Gas renewals for the U.S. were 78%. Electricity The electricity renewal rate for Canadian customers was 56% for the trailing 12 months. There continues to be solid demand for JustGreen products, supporting renewals in Canadian electricity but, due to the disparity between the spot and five-year prices and low volatility in the spot prices, customers have been reluctant to again lock into fixed-priced products. Just Energy has introduced some enhanced variable-price electricity offerings and JustClean to improve renewal rates.During the three months ended September 30, 2011, Just Energy had Texas, Illinois and New York electricity customers up for renewal. The electricity renewal rate was 68%, with strong renewals in Texas being offset by weaker renewals in Illinois and New York. In each of these markets, our green products are being developed for renewing customers, which should strengthen the profitability and the renewal rates.Gas and electricity contract renewalsThis table shows the percentage of commodity customers up for renewal in each of the following years:Canada – gasCanada - electricityU.S. - gasU.S. - electricity201213%12%31%29%201332%36%22%15%201419%18%11%14%201517%11%14%19%Beyond 201519%23%22%23%Total100%100%100%100%All variable and month-to-month customers are included in the current period, 2012.Just Energy continuously monitors its customer renewal rates and continues to modify its offering to existing customers in order to maximize the number of customers who renew their contracts. To the extent there is continued customer take-up on blend and extend offers, some renewals scheduled for 2012 and 2013 will move to 2015 and beyond.Gross margin earned through new marketing effortsAnnual gross margin per customer for new and renewed customersThe table below depicts the annual margins on contracts of residential and commercial customers signed during the quarter. This table reflects all margin earned on new additions and renewals including both the brown commodity and JustGreen. Customers added through marketing or renewed were lower than the margins of customers lost through attrition or failure to renew due to the competitive price environment. However, JustGreen is being aggressively marketed for renewals, with the expectation that rates similar to those for new customers can be achieved. Sales of the JustGreen products remained strong, with approximately 34% of all residential customers added in the past 12-months taking some or all green energy supply. Customers that have purchased the JustGreen product elected, on average, to take 90% of their consumption in green supply. For large commercial customers, the average gross margin for new customers added was $85/RCE. The aggregation cost of these customers is commensurately lower per RCE than a residential customer.Annual gross margin per customer1Q2 fiscal 2012Number of customersResidential and small commercial customers added in the quarter- Canada – gas$1747,000- Canada - electricity11912,000- United States - gas18926,000- United States – electricity15739,000Average annual margin167Residential and small commercial customers renewed in the quarter- Canada - gas$18016,000- Canada - electricity10717,000- United States - gas19012,000- United States – electricity1584,000Average annual margin148Residential and small commercial customers lost in the quarter- Canada – gas$19238,000- Canada – electricity14832,000- United States – gas21230,000- United States – electricity18040,000Average annual margin183Large commercial customers added in the quarter$85154,000Large commercial customers lost in the quarter$12553,0001Customer sales price less cost of associated supply and allowance for bad debt.Home Services division (NHS)NHS provides Ontario residential customers with long-term water heater rental programs that offer conventional tanks, power vented tanks and tankless water heaters in a variety of sizes as well as high efficiency furnaces and air conditioners. NHS had continued strong customer growth and with installations for the quarter amounting to 12,200 water heaters, air conditioners and furnaces, compared to 13,000 units installed in the prior comparable quarter. The installations for the current quarter consisted of 10,400 water heaters and 1,800 HVAC units, opposed to 12,300 water heaters and 700 HVAC units installed in the prior comparative quarter. Although there were fewer installations in the current quarter, the overall contribution to future EBITDA is greater as the average rental revenue for HVAC products is more than double that of a water heater. As of September 30, 2011, the cumulative installed customer base was 143,800 units, an increase of 42% from one year prior. Management is confident that NHS will continue to contribute to the long-term profitability of Just Energy. NHS currently markets through approximately 260 independent contractors.As NHS is a high growth, relatively capital-intensive business, Just Energy's management believes that, in order to maintain stability of dividends, separate non-recourse financing of this capital is appropriate. NHS entered into a long-term financing agreement with Home Trust Company ("HTC") for the funding of the water heaters, furnaces and air conditioners in the Enbridge Gas (January 2010) and Union Gas (July 2010) distribution territories. Under the HTC agreements, NHS receives funds equal to the amount of the five-, seven- or ten-year cash flow (at its option) of the water heater, furnace and air conditioner contracts discounted at the contracted rate, which is currently 7.99%. HTC is then paid an amount that is equal to the customer rental payments on the water heaters for the next five, seven or ten years as applicable. The funding received from HTC up to September 30, 2011, was $155.4 million.Management's strategy for NHS is to self-fund the business through its growth phase, building value within the customer base. This way, NHS will not require significant cash from Just Energy's core operations nor will Just Energy rely on NHS's cash flow to fund dividends. The result should be a valuable asset, which will generate strong cash returns following repayment of the HTC financing.Selected financial information(thousands of dollars, except where indicated)Three monthsThree monthsSix monthsSix monthsendedendedendedendedSept. 30, 2011Sept. 30, 2010Sept. 30, 2011Sept. 30, 2010Sales per financial statements$8,372$5,172$16,178$9,613Cost of sales1,8271,3863,4012,995Gross margin6,5453,78612,7776,618Selling and marketing expenses5788501,8781,664Administrative expenses3,5742,9966,3375,881Finance costs2,3661,4904,5172,831Capital expenditures9,0259,15218,55117,306Amortization4405258771,046Total cumulative number of water heaters, furnaces and air conditioners installed143,800 101,000143,800101,000Results of operationsFor the three months ended September 30, 2011, NHS had sales of $8.4 million for the quarter, up 62% from $5.2 million reported in the second quarter of fiscal 2011. Gross margin amounted to $6.5 million for the three months ended September 30, 2011, up 73% from $3.8 million reported in the comparable period. The cost of sales for the three months ended September 30, 2011 was $1.8 million, of which $1.6 million represents the non-cash amortization of the installed water heaters, furnaces and air conditioners for the customer contracts signed to date. Administrative costs, which relate primarily to administrative staff compensation, warehouse expenses and the opening of additional warehouses to support expansion throughout Ontario, were $3.6 million for the three months ended September 30, 2011, an increase of 19% quarter over quarter. The increase in administrative expenses was a result of additional spending in order to support the continued expansion of this division.Finance costs amounted to $2.4 million as a result of the financing arrangement with HTC. Capital expenditures, including installation costs, amounted to $9.0 million for the three months ended September 30, 2011.For the six months ended September 30, 2011, sales were $16.2 million, an increase of 68% over $9.6 million in sales recorded for the same period in fiscal 2011, consistent with the increase in number of units installed. Gross margin was $12.8 million for the six months ended September 30, 2011, a 93% increase over margins of $6.6 million from the prior comparable period as a result of the increase in installation base. Selling and marketing and administrative expenses for the first half of fiscal 2012 increased by 13% and 8%, respectively, over the prior comparable period due to the continued growth in customer base. Capital expenditures increased by 7% to $18.6 million for the six months ended September 30, 2011.The growth of NHS has been rapid and, combined with the HTC financing, is expected to be self-sustaining on a cash flow basis.Ethanol division (TGF)TGF continues to remain focused on improving the plant production and run time of the Belle Plaine, Saskatchewan, wheat-based ethanol facility. For the three months ended September 30, 2011, the plant achieved an average production capacity of 80%, an increase from average production capacity of 67% in the first quarter of fiscal 2012 as a result of less downtime in the quarter and improved access to wheat supply. In the first quarter of fiscal 2012, the plant completed scheduled maintenance, resulting in production downtime and also experienced wheat shortages requiring production slowdowns as a result of unusually wet conditions in Saskatchewan.Ethanol prices were, on average, $0.77 per litre and wheat prices averaged $207 per metric tonne for the three months ended September 30, 2011. For the prior comparable quarter, ethanol prices were depressed and averaged $0.57 per litre and wheat prices were $168 per metric tonne. As at September 30, 2011, ethanol was priced at $0.68 per litre. The Ethanol division has separate non-recourse financing in place such that capital requirements and operating losses will not impact Just Energy's core business and its ability to pay dividends.Selected financial information(thousands of dollars, except where indicated)Three monthsThree monthsSix monthsSix monthsendedendedendedendedSept. 30, 2011Sept. 30, 2010Sept. 30, 2011Sept. 30, 2010Sales per financial statements$36,379$31,191$66,571$47,997Cost of sales30,16726,72657,81446,321Gross margin6,2124,4658,7571,676Administrative expenses2,1503,1624,8235,629Finance costs1,6061,9023,2933,609Capital expenditures9565122179Amortization349297647593Results of operationsFor the second quarter of fiscal 2012, TGF had sales of $36.4 million, a 17% increase from $31.2 million in the prior comparable quarter. Cost of sales amounted to $30.2 million, an increase of 13% from $26.7 million in the three months ended September 30, 2010. During the quarter, the plant produced 29.8 million litres of ethanol and 30,078 metric tonnes of DDG. In the prior comparable quarter, TGF produced 30.6 million litres of ethanol and 28,386 metric tonnes of DDG and experienced an average production capacity of 81%. For the three months ended September 30, 2011, TGF incurred $2.2 million in administrative expenses and $1.6 million in finance costs.For the six months ended September 30, 2011, TGF increased sales by 39% from $48.0 million to $66.6 million over the prior comparable period. Gross margin was $8.8 million for the current six-month-period, a substantial increase over the prior comparable period due to a loss experienced in the first quarter of fiscal 2011 as a result of plant inefficiency and low ethanol and DDG prices.TGF receives a federal subsidy related to the ecoEnergy for Biofuels Agreement signed on February 17, 2009, as amended from time to time, based on the volume of ethanol produced. The subsidy is $0.08 per litre for fiscal 2012. The subsidy amount declines through time to $0.05 per litre of ethanol produced in fiscal 2015, the last year of the agreement.Overall consolidated results – Just EnergyAdministrative expensesAdministrative costs were $28.8 million for the three months ended September 30, 2011, representing an 11% increase from $26.0 million in the second quarter of the prior fiscal year but in line with the first quarter of the fiscal year as well as the fourth quarter of fiscal 2011. For the six months ended September 30, 2011, administrative expenses were $57.1 million, an increase of 4% from $54.8 million in the prior comparable period.Three months ended Sept. 30, 2011Three months ended Sept. 30, 2010% Increase (Decrease)Six months ended Sept. 30, 2011Six months ended Sept. 30, 2010% Increase (Decrease)Energy marketing$21,732$19,21513%$43,376$42,3602%NHS3,5742,99619%6,3375,8818%TGF2,1503,162(32)%4,8235,629(14)%Other1,318590123%2,522934170%Total administrative expenses$28,774$25,96311%$57,058$54,8044%Energy marketing administrative costs were $21.7 million in the second quarter of fiscal 2012, an increase of 13% from $19.2 million for the three months ended September 30, 2010. This increase is primarily attributable to the one-time reduction in expenses experienced in the prior comparable quarter with litigation settlements costs being lower than what had been previously accrued. For the six months ended September 30, 2011, administrative expenses for energy marketing were $43.4 million, an increase of 2% over the prior comparable period.Other administrative costs were $1.3 million and $2.5 million for the three and six months ended September 30, 2011. These expenses represent costs associated with the establishment of Hudson Solar and the expansion of network marketing through Momentis.Selling and marketing expensesSelling and marketing expenses, which consist of commissions paid to independent sales contractors, brokers and independent representatives for signing new customers, as well as sales-related corporate costs, were $35.3 million, a decrease of 4% from $37.0 million in the second quarter of fiscal 2011. New customers signed by our sales force were 238,000 during the second quarter of fiscal 2012, down 6% compared to 254,000 customers added through our sales channels in the prior comparable quarter. For the six months ended September 30, 2011, selling and marketing expenses amounted to $69.9 million, an increase of 5% from $66.7 million recorded in the prior comparable period.Commissions related to obtaining and renewing Hudson commercial contracts are paid all or partially upfront or as residual payments over the life of the contract. If the commission is paid all or partially upfront, the amortization is included in selling and marketing expenses as the associated revenue is earned. If the commission is paid as a residual payment, the amount is expensed as earned. Of the current total commercial customer base, approximately 60% are commercial broker customers and approximately 60% of these commercial brokers are being paid recurring residual payments. During the three months ended September 30, 2011, $3.1 million in commission-related expenses were capitalized to contract initiation costs. Of the capitalized commissions, $0.7 million represents commissions paid to maintain gross margin and therefore, is included in the maintenance capital deducted in the Adjusted EBITDA calculation.Selling and marketing expenses to maintain gross margin are allocated based on the ratio of gross margin lost from attrition as compared to the gross margin signed from new and renewed customers during the period. Selling and marketing expenses to maintain gross margin were $21.3 million for the three months ended September 30, 2011, a decrease of 15% from $25.1 million in the second quarter of fiscal 2011. For the six months ended September 30, 2011, selling and marketing expenses to maintain gross margin amounted to $41.9 million, a decrease of 3% from $43.4 million in the prior comparable period.Selling and marketing expenses to add new gross margin are allocated based on the ratio of net new gross margin earned on the customers signed, less attrition, as compared to the gross margin signed from new customers during the period. Selling and marketing expenses to add new gross margin in the three months ended September 30, 2011, totalled $10.3 million, an increase from $7.7 million in the second quarter of fiscal 2011. For the six months ended September 30, 2011, sales and marketing expenses to add new gross margin were $20.5 million, an increase of 20% from $17.1 million in the prior comparable period.Selling and marketing expenses included in Base EBITDA exclude amortization related to the contract initiation costs for Hudson and NHS. For the three months ended September 30, 2011, the amortization amounted to $3.6 million, a decrease of 13% from $4.2 million reported in the prior comparable quarter. The amortization related to the contract initiation costs for the six months ended September 30, 2011 and 2010 was $7.5 million and $6.3 million, respectively.The actual aggregation costs per customer for the six months ended September 30, 2011, for residential and commercial customers signed by independent representatives and commercial customers signed by brokers were as follows:Residential customersCommercial customersCommercial broker customersNatural gasCanada$211/RCE$138/RCE$62/RCEUnited States$210/RCE$101/RCE$27/RCEElectricityCanada$200/RCE$146/RCE$34/RCEUnited States$197/RCE$94/RCE$34/RCETotal aggregation costs$203/RCE$119/RCE$34/RCEThe actual aggregation per customer added for all energy marketing for the six months ended September 30, 2011, was $100. The $34 average aggregation cost for the commercial broker customers is based on the expected average annual cost for the respective customer contracts. It should be noted that commercial broker contracts are paid further commissions averaging $34 per year for each additional year that the customer flows. Assuming an average life of 2.8 years, this would add approximately $61 (1.8 X $34) to the quarter's $34 average aggregation cost for commercial broker customers reported above. For the prior comparable six months, total aggregation costs per residential, commercial and commercial brokers were $197/RCE, $92/RCE and $34/RCE, respectively, with a combined cost of $110/RCE.Bad debt expenseIn Illinois, Alberta, Texas, Pennsylvania, California, Massachusetts and Georgia, Just Energy assumes the credit risk associated with the collection of customer accounts. In addition, for commercial direct-billed accounts in British Columbia, New York and Ontario, Just Energy is responsible for the bad debt risk. NHS has also assumed credit risk for customer account collection for certain territories within Ontario. Credit review processes have been established to manage the customer default rate. Management factors default from credit risk into its margin expectations for all of the above-noted markets. During the three months ended September 30, 2011, Just Energy was exposed to the risk of bad debt on approximately 48% of its sales.Bad debt expense is included in the consolidated income statement under other operating expenses. Bad debt expense for the three months ended September 30, 2011 was $6.5 million, down 4% from $6.7 million expensed for the three months ended September 30, 2010. The bad debt expense decrease was despite a 9% increase in total revenues for the current three-month period to $286.5 million, due to incremental commercial customers in the markets where Just Energy assumes the risk for accounts receivable collections. Management integrates its default rate for bad debts within its margin targets and continuously reviews and monitors the credit approval process to mitigate customer delinquency.For the six months ended September 30, 2011, the bad debt expense of $13.3 million represents approximately 2.5% of revenue, slightly lower than the 2.6% reported for the prior comparable period with $12.4 million of bad debt expense.Management expects that bad debt expense will remain in the range of 2% to 3% for the fiscal year assuming that the housing market in the U.S. continues to show signs of improvement. For each of Just Energy's other markets, the LDCs provide collection services and assume the risk of any bad debt owing from Just Energy's customers for a regulated fee.Finance costsTotal finance costs for the three months ended September 30, 2011 amounted to $14.3 million, a decrease from $15.6 million recorded in the second quarter of fiscal 2011. Excluding the $2.8 million of dividend payments made to holders of exchangeable shares and equivalents classified as finance costs under IFRS in the prior comparable quarter, finance costs increased by 12%. The increase in costs primarily relates to the increase in credit facility and NHS financing.For the six months ended September 30, 2011, finance costs amounted to $28.1 million, an increase of 24% from $22.8 million in finance costs for the prior comparable period, excluding $5.6 million in dividend payments classified as finance costs. In addition to the increase in interest paid relating to the credit facility and NHS financing, finance costs relating to the $330m convertible debentures were higher in the current period. The $330m convertible debentures were issued in May 2010 to fund the Hudson acquisition, resulting in only five months of related costs in the prior comparable period.Foreign exchangeJust Energy has an exposure to U.S. dollar exchange rates as a result of its U.S. operations and any changes in the applicable exchange rate may result in a decrease or increase in other comprehensive income. For the three months ended September 30, 2011, a foreign exchange unrealized gain of $19.3 million was reported in other comprehensive income (loss) versus a $5.6 million loss reported in the prior fiscal year. For the six months ended September 30, 2011, a foreign exchange unrealized gain of $15.5 million was recorded versus a gain of $9.2 million in the prior comparable period.Overall, a weaker U.S. dollar decreases the value of sales and gross margin in Canadian dollars but this is partially offset by lower operating costs denominated in U.S. dollars. Just Energy retains sufficient funds in the U.S. to support ongoing growth and surplus cash is repatriated to Canada. U.S. cross border cash flow is forecasted annually, and hedges for cross border cash flow are entered into. Just Energy hedges between 25% and 90% of the next 12 months' cross border cash flows depending on the level of certainty of the cash flow.Provision for income tax(thousands of dollars)For the threeFor the threeFor the sixFor the sixmonths endedmonths endedmonths endedmonths endedSept. 30, 2011Sept. 30, 2010Sept. 30, 2011Sept. 30, 2010Current income tax recovery$(1,923)$(2,734)$(4,161)$(3,198)Future tax provision (recovery)16,848(92,469)26,307(54,547)Provision for (recovery of) income tax$14,925$(95,203)$22,146$(57,745)Just Energy recorded a current income tax recovery of $1.9 million for the second quarter of fiscal 2012, versus $2.7 million of recovery in the same period last year. A tax recovery of $4.2 million has been recorded for the six-month period of fiscal 2012, versus a recovery of $3.2 million for the same period last year. The change is mainly attributable to a U.S. income tax recovery generated by slightly higher operating losses incurred by the U.S. entities during the first half of this fiscal year.During the first half of this fiscal year, the mark to market losses from financial instruments decrease as a result of a change in fair value of these derivative instruments during this period and, as a result, a deferred tax expense of $26.3 million was recorded for this period. During the same period of fiscal 2011, Just Energy was an income trust and only included timing differences that were going to reverse subsequent to conversion when assessing its future tax position, as a result of fluctuations in mark to market losses on contracts that were to settle subsequent to January 1, 2011. In addition, there were additional deferred tax recoveries arising from adopting IFRS. The combined effect of such is that a deferred tax recovery of $54.5 million was recorded during that period.After the Conversion on January 1, 2011, Just Energy has been taxed as a taxable Canadian corporation. Therefore, the deferred tax asset or liability associated with Canadian liabilities and assets recorded on the consolidated balance sheets as at that date will be realized over time as the temporary differences between the carrying value of assets in the consolidated financial statements and their respective tax bases are realized. Current Canadian income taxes are accrued to the extent that there is taxable income in Just Energy and its underlying corporations. Canadian corporations under Just Energy are subject to a tax rate of approximately 28% after the Conversion.Under IFRS, Just Energy recognized income tax liabilities and assets based on the estimated tax consequences attributable to the temporary differences between the carrying value of the assets and liabilities on the consolidated financial statements and their respective tax bases, using substantively enacted income tax rates. A deferred tax asset will be recognized for the carry forward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilized. The effect of a change in the income tax rates used in calculating deferred income tax liabilities and assets is recognized in income during the period in which the change occurs.Liquidity and capital resourcesSummary of cash flows(thousands of dollars)For the threeFor the threeFor the sixFor the sixmonths endedmonths endedmonths endedmonths endedSept. 30, 2011Sept. 30, 2010Sept. 30, 2011Sept. 30, 2010Operating activities$33,680$11,061$49,374$33,937Investing activities(19,873)(19,787)(42,411)(283,373)Financing activities, excludingdistributions/dividends111,12410,023130,298309,451Effect of foreign currency translation(198)2,3441447,045Increase in cash before distributions/dividends124,7333,641137,40567,060Distributions/dividends (cash payments)(35,968)(33,598)(70,865)(66,841)Increase (decrease) in cash88,765(29,957)66,540219Cash – beginning of period76,241108,95898,46678,782Cash – end of period$165,006$79,001$165,006$79,001Operating activitiesCash flow from operating activities for the three months ended September 30, 2011, was $33.7 million, an increase from $11.1 million in the prior comparative quarter. The increase is a result of the increase in gross margin and other income and lower sales and marketing expenses quarter over quarter. For the six months ended September 30, 2011, cash flow from operating activities was $49.4 million, an increase of 45% from $33.9 million reported for the prior comparable period.Investing activitiesJust Energy purchased capital assets totalling $10.4 million during the second quarter of the fiscal year, a slight decrease from $10.8 million in the second quarter of the prior fiscal year. Just Energy's capital spending related primarily to the home services business and Hudson Solar. Contract initiation costs relating to Hudson and NHS amounted to $7.0 million for the three months ended September 30, 2011, an increase over $3.6 million recorded in the prior comparable quarter.Financing activitiesFinancing activities, excluding distributions/dividends, relates primarily to the issuance and repayment of long-term debt. During the three months ended September 30, 2011, $179.1 million in long-term debt was issued, with the majority relating to the $100m convertible debentures issued on September 22, 2011 for funding the Fulcrum acquisition on October 3, 2011. The remaining increase is primarily related to the credit facility and NHS financing with repayments of long-term debt amounting to $65.7 million for the quarter. In the prior comparable quarter, $17.8 million was issued in long-term debt relating to the credit facility and NHS financing with $0.8 million being repaid.For the six months ended September 30, 2011, $248.1 million was issued in long-term debt with repayments amounting to $119.4 million, resulting in net borrowing of $128.6 million. In addition to the $100 million issued, there were increases to the borrowings related to the credit facility and NHS financing. For the six months ended September 30, 2010, $367.0 million was issued in long term debt with $50.2 million being repaid. The issuance of long-term debt is primarily related to the $330m convertible debentures issued to finance the Hudson acquisition in May 2010.As of September 30, 2011, Just Energy had a credit facility of $350 million. In connection with the Conversion on January 1, 2011, Just Energy increased its credit facility with the term of the facility expiring on December 31, 2013. As Just Energy continues to expand in the U.S. markets, the need to fund working capital and collateral posting requirements will increase, driven primarily by the number of customers aggregated, and to a lesser extent, by the number of new markets. Based on the markets in which Just Energy currently operates and others that management expects the Company to enter, funding requirements will be fully supported through the credit facility.Just Energy's liquidity requirements are driven by the delay from the time that a customer contract is signed until cash flow is generated. For residential customers, approximately 60% of an independent sales contractor's commission payment is made following reaffirmation or verbal verification of the customer contract, with most of the remaining 40% being paid after the energy commodity begins flowing to the customer. For commercial customers, commissions are paid either as the energy commodity flows throughout the contract or partially upfront once the customer begins to flow.The elapsed period between the time when a customer is signed to when the first payment is received from the customer varies with each market. The time delays per market are approximately two to nine months. These periods reflect the time required by the various LDCs to enroll, flow the commodity, bill the customer and remit the first payment to Just Energy. In Alberta and Texas, Just Energy receives payment directly from the customer.Distributions/dividends (Cash payments)During the three months ended September 30, 2011, Just Energy made cash distributions/dividends to its shareholders and holders of restricted share grants or deferred share grants in the amount of $36.0 million, compared to $33.6 million in the prior comparable period. For the six months ended September 30, 2011, cash dividends were $70.9 million, an increase from $66.8 million paid in distributions in the prior comparable period.Just Energy maintains its annual dividend rate at $1.24 per share, the same rate that was previously paid for distributions. Investors should note that due to the dividend reinvestment plan ("DRIP"), a portion of dividends (and prior to January 1, 2011, distributions) declared are not paid in cash. Under the program, shareholders can elect to receive their dividends in shares at a 2% discount to the prevailing market price rather than the cash equivalent. For the three and six months ended September 30, 2011, dividends paid in shares under the DRIP amounted to $7.7 million and $16.4 million, respectively.Just Energy will continue to utilize its cash resources for expansion into new markets, growth in its existing energy marketing customer base, JustGreen and JustClean products, Solar and Home Services division, and also to make accretive acquisitions of customers as well as dividends to its shareholders.At the end of the quarter, the annual rate for dividends per share was $1.24. The current dividend policy provides that shareholders of record on the 15th of each month receive dividends at the end of the month.Balance sheet as at September 30, 2011, compared to March 31, 2011Cash increased from $98.5 million as at March 31, 2011, to $165.0 million. The increase is cash was primarily due to the $100m convertible debentures issued on September 22, 2011 that were utilized to fund the Fulcrum acquisition and other general corporate items on October 3, 2011. The utilization of the credit facility increased from $53.0 million to $67.2 million as a result of normal seasonal working capital requirements. Working capital requirements in the U.S. and Alberta are a result of the timing difference between customer consumption and cash receipts. For electricity, working capital is required to fund the lag between settlements with the suppliers and settlement with the LDCs.As at September 30, 2011, trade receivables and unbilled revenue amounted to $252.1 million and $98.4 million, respectively, compared to six months earlier when the trade receivables and unbilled revenue amounted to $281.7 million and $112.1 million, respectively. Trade payables have decreased from $275.5 million to $252.0 million in the past six months. Both decreases in accounts receivable and payable are related to the seasonality of energy marketing, with consumption being higher during the fourth quarter as opposed to the second quarter.As at September 30, 2011, Just Energy had delivered more gas to the LDCs than had been consumed by customers in Ontario, Manitoba, Quebec and Michigan, resulting in gas delivered in excess of consumption and deferred revenue of $66.6 million and $74.1 million, respectively. This build-up of inventory at the LDCs is in the normal course of operations and will decrease over the winter months when consumption by customers is greater than deliveries. At March 31, 2011, Just Energy had accrued gas receivable and payable amounting to $26.5 million and $19.4 million, respectively. In addition, gas in storage increased from $6.1 million as at March 31, 2011 to $50.5 million as at September 30, 2011 due to the seasonality of the customer gas consumption.Other assets and other liabilities relate entirely to the fair value of the financial derivatives. The mark to market gains and losses can result in significant changes in net income and, accordingly, shareholders' equity from quarter to quarter due to commodity price volatility. Given that Just Energy has purchased this supply to cover future customer usage at fixed prices, management believes that these non-cash quarterly changes are not meaningful.Intangible assets include the goodwill, acquired customer contracts as well as other intangibles such as brand, broker network and information technology systems, primarily related to the Hudson and Universal purchases. The total intangible asset balance decreased to $531.6 million, from $640.2 million as at March 31, 2011, primarily as a result of amortization.Long-term debt (excluding the current portion) has increased from $507.5 million to $629.0 million in the six months ended September 30, 2011 primarily as a result of the issuance of the $100m convertible debentures during the quarter as well as an increase in HTC financing.Long-term debt and financing(thousands of dollars)As at Sept. 30, 2011As at March 31, 2011Just Energy credit facility$67,223$53,000TGF credit facility34,36336,680TGF debentures35,94237,001NHS financing128,438105,716$90m convertible debentures85,39084,706$330m convertible debentures289,136286,439$100m convertible debentures85,261- Just Energy credit facility Just Energy holds a $350 million credit facility to meet working capital requirements. The syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Société Générale, Bank of Nova Scotia, Toronto Dominion Bank and Alberta Treasury Branches. Under the terms of the credit facility, Just Energy was able to make use of Bankers' Acceptances and LIBOR advances at stamping fees that vary between 3.25% and 3.75%, prime rate advances at rates of interest that vary between bank prime plus 2.25% and 2.75%, and letters of credit at rates that vary between 3.25% and 3.75%. Effective October 3, 2011, pricing on the credit facility has been reduced by 0.375%. Interest rates are adjusted quarterly based on certain financial performance indicators.Just Energy's obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates, excluding among others, TGF and NHS, and secured by a pledge of the assets of Just Energy and the majority of its operating subsidiaries and affiliates. Just Energy is required to meet a number of financial covenants under the credit facility agreement. As at September 30, 2011 and 2010, all of these covenants had been met. TGF credit facility A credit facility of up to $50 million was established with a syndicate of Canadian lenders led by Conexus Credit Union and was arranged to finance the construction of the ethanol plant in 2007. The facility was revised on March 18, 2009, and was converted to a fixed repayment term of ten years commencing March 1, 2009, which includes interest costs at a rate of prime plus 3%, with principal repayments commencing on March 1, 2010. The facility was further revised on April 5, 2010, postponing the principal payments due for April 1, 2010 to June 1, 2010, and to amortize them over the six-month period commencing October 1, 2010, and ending March 31, 2011. The credit facility is secured by a demand debenture agreement, a first priority security interest on all assets and undertakings of TGF, and a general security interest on all other current and acquired assets of TGF, all of which have no recourse to the Company or any other Just Energy entity. The credit facility includes certain financial covenants, the more significant of which relate to current ratio, debt to equity ratio, debt service coverage and minimum shareholders' equity. The covenants will be measured as of March 31, 2012, and non-attainment may result in a non-compliance fee up to 0.25% of the loan balance as of March 31, 2012. TGF debentures A debenture purchase agreement with a number of private parties providing for the issuance of up to $40 million aggregate principal amount of debentures was entered into in 2006. TGF was in recent negotiations with the lender and adjusted the covenant levels. In addition, the interest rate was increased to 12% and quarterly blended principal and interest payments of $1.1 million were established. The agreement includes certain financial covenants, the more significant of which relate to current ratio, debt to capitalization ratio, debt service coverage, debt to EBITDA and minimum shareholders' equity. Compliance with the new covenants, which are more favourable than the original covenants, will be measured annually beginning with the fiscal 2012 year end. The maturity date was extended to May 15, 2014, with a call right any time after April 1, 2012. The debenture holders have no recourse to the Company or any other Just Energy entity. NHS financing In fiscal 2010, NHS entered into a long-term financing agreement with HTC for the funding of new and existing rental water heater and HVAC contracts in the Enbridge Gas distribution territory. In July, 2010, the financing arrangement was expanded to the Union Gas territory. Pursuant to the agreement, NHS will receive financing of an amount equal to the net present value of the first five, seven or ten years (at its option) of monthly rental income, discounted at the agreed upon financing rate of 7.99%, and is required to remit an amount equivalent to the rental stream from customers on the water heater and HVAC contracts for the first five, seven or ten years, respectively. Under the agreement, up to one third of rental agreements may be financed for each of the seven- or ten-year terms. As at September 30, 2011, the average term of the HTC funding was 6.1 years.The financing agreement is subject to a holdback provision, whereby 3% in the Enbridge territory and 5% in the Union Gas territory of the outstanding balance of the funded amount is deducted and deposited to a reserve account in the event of default. Once all of the obligations of NHS are satisfied or expired, the remaining funds in the reserve account will immediately be released to NHS. HTC holds security over the contracts and equipment it has financed. NHS is required to meet a number of covenants under the agreement and, as at September 30, 2011, all of these covenants have been met. $90m convertible debentures In conjunction with the acquisition of Universal on July 1, 2009, Just Energy assumed the obligations of the convertible unsecured subordinated debentures issued by Universal in October 2007, which have a face value of $90 million. The fair value of the convertible debenture was estimated by discounting the remaining contractual payments at the time of acquisition. This discount will be accreted using an effective interest rate of 8%. These instruments mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6%, payable semi-annually on March 31 and September 30 of each year. As at September 30, 2011, each $1,000 principal amount of the $90m convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 31.53 JEGI shares, representing a conversion price of $30.97 per share. Pursuant to the $90m convertible debentures, if JEGI fixes a record date for the making of a dividend on its shares, the conversion price shall be adjusted in accordance therewith.On and after October 1, 2010, but prior to September 30, 2012, the $90m convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On and after September 30, 2012, but prior to the maturity date, the $90m convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice. $330m convertible debentures To fund the acquisition of Hudson, Just Energy entered into an agreement with a syndicate of underwriters for $330 million of convertible extendible unsecured subordinated debentures issued on May 5, 2010. The $330m convertible debentures bear an interest rate of 6.0% per annum payable semi-annually in arrears on June 30 and December 31 of each three months, with maturity on June 30, 2017. Each $1,000 of principal amount of the $330m convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 shares of JEGI, representing a conversion price of $18 per share.The $330m convertible debentures are not redeemable prior to June 30, 2013, except under certain conditions after a change of control has occurred. On or after June 30, 2013, but prior to June 30, 2015, the debentures may be redeemed by JEGI, in whole or in part, on not more than 60 days' and not less than 30 days' prior notice, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On or after June 30, 2015, and prior to the maturity date, the debentures may be redeemed by JEGI, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest. $100m convertible debentures On September 22, 2011, Just Energy issued $100 million of convertible unsecured subordinated debentures to fund the acquisition of Fulcrum and other corporate purposes on October 3, 2011. The $100 million convertible debentures bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and September 30 in each year, commencing March 31, 2012 and have a maturity date of September 30, 2018. Each $1000 principal amount of the $100 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption, into 56.0 common shares of Just Energy, representing a conversion price of $17.85.The $100 million convertible debentures are not redeemable at the option of the Company on or before September 30, 2014. After September 30, 2014 and prior to September 30, 2016, the $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares of Just Energy on the Toronto Stock Exchange for the 20 consecutive trading days ending five trading days preceding the date on which the notice of redemption is given is at least 125% of the conversion price. On or after September 30, 2016, the $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days and not less than 30 days prior notice, at a price equal to their principal amount plus accrued and unpaid interest.Contractual obligationsIn the normal course of business, Just Energy is obligated to make future payments for contracts and other commitments that are known and non-cancellable.Payments due by period(thousands of dollars)TotalLess than 1 year1 – 3 years4 – 5 yearsAfter 5 yearsAccounts payable and accrued liabilities$251,958$251,958$-$-$-Bank indebtedness3,9813,981---Long-term debt (contractual cash flow)785,96695,210213,40127,521449,834Interest payments290,09346,73185,89866,25691,208Property and equipment lease agreements30,1208,05611,3756,7263,963EPCOR billing, collections and supply commitments838838---Grain production contracts9,8369,143693--Commodity supply purchase commitments2,979,4741,383,8261,329,121260,2916,236$4,352,266$1,799,743$1,640,488$360,794$551,241Other obligationsIn the opinion of management, Just Energy has no material pending actions, claims or proceedings that have not been included in either its accrued liabilities or in the financial statements. In the normal course of business, Just Energy could be subject to certain contingent obligations that become 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.Transactions with related partiesJust Energy does not have any material transactions with any individuals or companies that are not considered independent of Just Energy or any of its subsidiaries and/or affiliates.Critical accounting estimatesThe consolidated financial statements of Just Energy have been prepared in accordance with IFRS. Certain accounting policies require management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, cost of sales, selling and marketing, and administrative 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.Unbilled revenues/Accrued gas accounts payableUnbilled revenues result when customers consume more gas than has been delivered by Just Energy to the LDCs. These estimates are stated at net realizable value. Accrued gas accounts payable represents Just Energy's obligation to the LDC with respect to gas consumed by customers in excess of that delivered and valued at net realizable value. This estimate is required for the gas business unit only, since electricity is consumed at the same time as delivery. Management uses the current average customer contract price and the current average supply cost as a basis for the valuation.Gas delivered in excess of consumption/Deferred revenuesGas delivered to LDCs in excess of consumption by customers is valued at the lower of cost and net realizable value. Collections from LDCs in advance of their consumption results in deferred revenues, which are valued at net realizable value. This estimate is required for the gas business unit only since electricity is consumed at the same time as delivery. Management uses the current average customer contract price and the current average supply cost as a basis for the valuation.Allowance for doubtful accountsJust Energy assumes the credit risk associated with the collection of all customers' accounts in Alberta, Illinois, Texas, Pennsylvania, California and Massachusetts. In addition, for large direct-billed accounts in B.C., New York and Ontario, Just Energy is responsible for the bad debt risk. NHS has also assumed credit risk for customer accounts within certain territories in Ontario. Management estimates the allowance for doubtful accounts in these markets based on the financial conditions of each jurisdiction, the aging of the receivables, customer and industry concentrations, the current business environment and historical experience.GoodwillIn assessing the value of goodwill for potential impairment, assumptions are made regarding Just Energy's future cash flow. If the estimates change in the future, Just Energy may be required to record impairment charges related to goodwill. An impairment review of goodwill was performed as at March 31, 2011, and as a result of the review, it was determined that no impairment of goodwill existed.Fair value of derivative financial instruments and risk managementJust Energy has entered into a variety of derivative financial instruments as part of the business of purchasing and selling gas, electricity and JustGreen supply. 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. These customer contracts expose Just Energy to changes in market prices to supply these commodities. To reduce the exposure to the 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. Just Energy's policy is not to use derivative instruments for speculative purposes.Just Energy's expansion in the U.S. has introduced foreign exchange-related risks. Just Energy enters into foreign exchange forwards in order to hedge its exposure to fluctuations in cross border cash flows.The financial statements are in compliance with IAS 32, Financial instruments: Presentation, IAS 39, Financial instruments: Recognition and measurement and IFRS 7, Financial Instruments: Disclosure. Up to June 30, 2008, the financial statements also applied Section 3865 of the CICA Handbook, which permitted a further calculation for qualified and designated accounting hedges to determine the effective and ineffective portions of the hedge. This calculation permitted the change in fair value to be accounted for predominantly in the consolidated statements of comprehensive income. As of July 1, 2008, management decided that the increasing complexity and costs of maintaining this accounting treatment outweighed the benefits. This fair value (and when it was applicable, the ineffectiveness) was determined using market information at the end of each quarter. Management believes Just Energy remains economically hedged operationally across all jurisdictions.JEGI common sharesAs at November 7, 2011, there were 138,579,323 common shares of JEGI outstanding.Recently issued accounting standardsNew accounting pronouncements adoptedFiscal 2012 is Just Energy's first fiscal year reporting under IFRS. Accounting standards effective for annual reporting periods ended on March 31, 2011 have been adopted as part of the transition to IFRS.Recent pronouncements issuedIFRS 9 Financial InstrumentsAs of April 1, 2013, Just Energy will be required to adopt IFRS 9, "Financial Instruments", which is the result of the first phase of the IASB's project to replace IAS 39, "Financial Instruments: Recognition and Measurement". The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 10 Consolidated Financial StatementsAs of April 1, 2013, IFRS 10, "Consolidated Financial Statements" will replace portions of IAS 27 "Consolidated and Separate Financial Statements" and interpretation SIC-12, "Consolidation — Special Purpose Entities". The new standard requires consolidated financial statements to include all controlled entities under a single control model. The Company will be considered to control an investee when it is exposed, or has rights to variable returns from its involvement with the investee and has the current ability to affect those returns through its power over the investee.As required by this standard, control is reassessed as facts and circumstances change. All facts and circumstances must be considered to make a judgment about whether the Company controls another entity; there are no 'bright lines'. Additional guidance is given on how to evaluate whether certain relationships give the Company the current ability to affect its returns, including how to consider options and convertible instruments, holding less than a majority of voting rights, how to consider protective rights, and principal-agency relationships (including removal rights), all of which may differ from current practice. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 11 Joint ArrangementsOn April 1, 2013, Just Energy will be required to adopt IFRS 11, "Joint Arrangements", which applies to accounting for interests in joint arrangements where there is joint control. The standard requires the joint arrangements to be classified as either joint operations or joint ventures. The structure of the joint arrangement would no longer be the most significant factor when classifying the joint arrangement as either a joint operation or a joint venture. In addition, the option to account for joint ventures (previously called jointly controlled entities) using proportionate consolidation will be removed and replaced by equity accounting.Due to the adoption of this new section, the Company will transition the accounting for joint ventures from the proportionate consolidation method to the equity method by aggregating the carrying values of the proportionately consolidated assets and liabilities into a single line item. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 12 Disclosure of Interests in Other EntitiesOn April 1, 2013, Just Energy will be required to adopt IFRS 12, "Disclosure of interests in Other Entities", which includes disclosure requirements about subsidiaries, joint ventures, and associates, as well as unconsolidated structured entities and replaces existing disclosure requirements. Due to this new section, the Company will be required to disclose the following: judgements and assumptions made when deciding how to classify involvement with another entity, interests that non-controlling interests have in consolidated entities, and nature of the risks associated with interests in other entities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 13 Fair Value MeasurementOn April 1, 2013, Just Energy will be required to adopt IFRS 13, "Fair Value Measurement." The new standard will generally converge the IFRS and CGAAP requirements for how to measure fair value and the related disclosures. IFRS 13 establishes a single source of guidance for fair value measurements, when fair value is required or permitted by IFRS. Upon adoption, the Company will provide a single framework for measuring fair value while requiring enhanced disclosures when fair value is applied. In addition, fair value will be defined as the 'exit price' and concepts of 'highest and best use' and 'valuation premise' would be relevant only for non-financial assets and liabilities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 27 Separate Financial StatementsOn April 1, 2013 Just Energy will be required to adopt IAS 27, "Separate Financial Statements." As a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued to reflect the change as the consolidation guidance has recently been included in IFRS 10.In addition, IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the Company prepares separate financial statements. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 28 Investments in Associates and Joint VenturesOn April 1, 2013, Just Energy will be required to adopt IAS 28, "Investments in Associates and Joint Ventures."As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will further provide the accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.This standard will be applied by the Company when there is joint control, or significant influence over an investee.Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not include control or joint control of those policy decisions. When determined that the Company has an interest in a joint venture, the Company will recognize an investment and will account for it using the equity method in accordance with IAS 28. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.Legal proceedingsJust Energy's subsidiaries are party to a number of legal proceedings. Just Energy believes that each proceeding constitutes a routine legal matter 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.In addition to the routine legal proceedings of Just Energy, the State of California has filed a number of complaints to the Federal Energy Regulatory Commission ("FERC") against many suppliers of electricity, including Commerce with respect to events stemming from the 2001 energy crisis in California. Pursuant to the complaints, the State of California is challenging the FERC's enforcement of its market-based rate system. Although CEI did not own generation facilities, the State of California is claiming that CEI was unjustly enriched by the run-up in charges caused by the alleged market manipulation of other market participants. On March 18, 2010, the Administrative Law Judge in the matter granted a motion to strike the claim for all parties in one of the complaints, holding that California did not prove that the reporting errors masked the accumulation of market power. California has appealed the decision. CEI continues to vigorously contest this matter which is not expected to have a material impact on the financial condition of the Company.Controls and proceduresAt September 30, 2011, the Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO")of the Company, along with the assistance of senior management, have designed disclosure controls and procedures to provide reasonable assurance that material information relating to Just Energy is made known to the CEO and CFO, and have designed internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. During the interim period, there have been no changes in Just Energy's policies and procedures that comprise its internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.Corporate governanceJust Energy is committed to transparency in our operations and our approach to governance meets all recommended standards. Full disclosure of our compliance with existing corporate governance rules is available on our website at www.justenergygroup.com and is included in Just Energy's May 20, 2011, management information circular. Just Energy actively monitors the corporate governance and disclosure environment to ensure timely compliance with current and future requirements.OutlookThe second quarter of fiscal 2012 demonstrates the continued effects of Just Energy's ongoing diversification beyond its core business of five-year fixed-price residential gas and electricity contracts. Over the past three years, Just Energy's management has taken a number of steps intended to use new products and markets to provide growth as the current commodity price environment, which has been an extended period of stable low prices, is not conducive to the sale of long-term fixed-price offerings.In the energy marketing business, the acquisition of Hudson and the expansion of Just Energy's commercial offering continues to be a major success. This profitable business segment has grown from 33% of Just Energy's customer base to 44% based on marketing success since the acquisition. In addition to commercial growth, new residential products based on variable price options are being offered and JustGreen and JustClean product additions are becoming more accepted, benefiting the Company with a larger, more sustainable and faster growing customer base. As a result, this business will generate lower margins than the current fixed price offerings but as the past quarters have shown, the overall business can continue to grow the total number of customers, total gross margin and EBITDA while this transition takes place.The post quarter-end addition of Fulcrum and its affinity marketing focus will add another marketing channel previously not pursued by Just Energy. As well as being strategic, this acquisition is immediately accretive to shareholders. Recently developed telemarketing and Internet sales as well as the Momentis network marketing unit are also further diversifications of the Company's sales platform.Green products continued to grow as a portion of the residential base. JustGreen as a percentage of the natural gas residential book tripled year over year to 9% while JustGreen currently makes up 12% of the electricity residential book. These profitable products are saleable to a broad spectrum of the residential market and contribute to improve renewals rates at the end of the contracts. Just Energy has contracts with 25 green energy projects across the Company's markets and continues to look for more opportunities as the business expands.National Home Services was another diversification that contributed to growth this quarter. The number of installed units was up 42% year over year with margin from those units up 73% to $6.5 million in the quarter. This growth, along with improved results at the Company's ethanol plant, more than offset lower margins in the energy marketing business. Just Energy expects continued contribution from these businesses, particularly as NHS expands into new geographic territories.Overall, the second quarter of fiscal 2012 showed the compound impact of past diversifications. Gross margin was up 6% (4% per share) versus the prior comparable quarter. For the six months ended September 30, 2011, gross margin is up 11% (9% per share), ahead of the published fiscal 2012 guidance of 5% per share. Adjusted EBITDA, which management believes is the best measure of operating performance, was up 28% (25% per share) for the quarter, the second consecutive quarter with greater than 20% per share growth. Year to date, Adjusted EBITDA is up 27% (24% per share), again, ahead of the Company's 5% guidance for fiscal 2012 and consistent with management's expectation over the quarters in fiscal 2011 that were impacted by the warm 2010 winter. Adjusted EBITDA reflects the business profit after maintenance capital and before selling and marketing costs to grow future embedded gross margin. Base EBITDA (after all selling and marketing costs) was up 23% (20% per share) for the quarter and 29% (26% per share) for the year to date.Operating results were also strong on every measure, although they are being measured against quarters with weather-related losses in fiscal 2011. Payout ratio on Adjusted EBITDA was 91% versus 113% in the prior comparable period, the second consecutive quarter where Just Energy's payout ratio has been down significantly.The 238,000 customers added in the quarter are consistent with the additions seen in recent quarters. Net additions were sufficient to result in an 8% increase the customer base year over year. With new products and improving results from NHS and Terra Grain Fuels, this level of customer growth will allow continued growth in line with the Company's 5% margin and Adjusted EBITDA targets. This, in turn, will allow Just Energy to comfortably maintain its current $1.24 annual dividend.The Company continues to actively monitor possible acquisition opportunities within its current business segments.JUST ENERGY GROUP INC.INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONAS AT(thousands of Canadian dollars)NotesSeptember 30, 2011March 31, 2011ASSETSNon-current assetsProperty, plant and equipment$247,549$234,002Intangible assets531,557640,219Contract initiation costs36,88929,654Other non-current financial assets65,3115,384Non-current receivables5,3944,569Deferred tax asset86,827121,785$913,527$1,035,613Current assetsInventories$10,606$6,906Gas delivered in excess of consumption66,6463,481Gas in storage50,4716,133Current trade and other receivables252,121281,685Accrued gas receivables76326,535Unbilled revenues98,437112,147Prepaid expenses and deposits8,6516,079Other current assets68,2933,846Corporate tax recoverable9,6439,135Cash and cash equivalents165,00698,466670,637554,413TOTAL ASSETS$1,584,164$1,590,026DEFICIT AND LIABILITIESDeficit attributable to equity holders of the parentDeficit$(1,389,586)$(1,349,928) Accumulated other comprehensive income7109,682123,919Shareholders' capital8981,071963,982Equity component of convertible debentures9(e)(f)25,79518,186Contributed surplus56,67052,723TOTAL DEFICIT(216,368)(191,118) Non-current liabilitiesLong-term debt9628,963507,460Provisions3,6543,244Deferred lease inducements1,4391,622Other non-current financial liabilities6271,235355,412Deferred tax liability8,98222,919914,273890,657Current liabilitiesBank indebtedness3,9812,314Trade and other payables251,958275,503Accrued gas payable77319,353Deferred revenue74,075-Income taxes payable1,6129,788Current portion of long-term debt995,21094,117Provisions4,2644,006Other current financial liabilities6454,386485,406886,259890,487TOTAL LIABILITIES1,800,5321,781,144TOTAL DEFICIT AND LIABILITIES$1,584,164$1,590,026Commitments (Note 15) Subsequent event (Note 16)See accompanying notes to the interim consolidated financial statementsJUST ENERGY GROUP INC.INTERIM CONSOLIDATED INCOME STATEMENTS(thousands of Canadian dollars)THREE MONTHS ENDEDSIX MONTHS ENDEDSEPTEMBER 30SEPTEMBER 30Notes2011201020112010SALES10$600,043$657,878$1,226,243$1,267,562COST OF SALES497,482561,1591,029,4211,090,488GROSS MARGIN102,56196,719196,822177,074EXPENSESAdministrative expenses28,77425,96357,05854,804Selling and marketing expenses35,30236,95069,85666,708Other operating expenses11(a)40,44443,62579,58481,708104,520106,538206,498203,220Operating loss(1,959)(9,819)(9,676)(26,146)Finance costs9(14,340)(15,605)(28,132)(28,360)Change in fair value of derivative instruments624,896(204,136)104,593131,411Other income2,8349212,9992,703Income (loss) before income tax11,431(228,639)69,78479,608Provision for (recovery of) income tax1214,925(95,203)22,146(57,745)PROFIT (LOSS) FOR THE PERIOD$(3,494)$(133,436)$47,638$137,353Attributable to:Shareholders/ Unitholders of JustEnergy$(3,494)$(133,733)$47,638$139,676Non-controlling interests-297-(2,323)PROFIT (LOSS) FOR THE PERIOD$(3,494)$(133,436)$47,638$137,353See accompanying notes to the interim consolidated financial statementsProfit (loss) per share/unit13Basic$(0.03)$(1.07)$0.35$1.12Diluted$(0.03)$(1.07)$0.35$0.99JUST ENERGY GROUP INC.INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(thousands of Canadian dollars)THREE MONTHS ENDEDSIX MONTHS ENDEDSEPTEMBER 30SEPTEMBER 30Notes2011201020112010Profit (loss) for the period$(3,494)$(133,436)$47,638$137,353Other comprehensive income (loss)7Unrealized gain on translation of foreign operations19,272(5,634)15,5279,247Amortization of deferred unrealized gain of discontinued hedges net of income taxes of $861 (2010 - $4,589) and $6,514 (2010 - $10,439) for the three and six months ended September 30, respectively6(16,747)(23,195)(29,764)(51,918)Other comprehensive income (loss) for the period, net of tax2,525(28,829)(14,237)(42,671)Total comprehensive income (loss) for the period, net of tax$(969)$(162,265)$33,401$94,682Total comprehensive income (loss) attributable to:Shareholders/Unitholders of Just Energy$(969)$(162,562)$33,401$97,005Non-controlling interest-297-(2,323)Total comprehensive income (loss) for the period, net of tax$(969)$(162,265)$33,401$94,682See accompanying notes to the interim consolidated financial statementsJUST ENERGY GROUP INC.INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)FOR THE SIX MONTHS ENDED SEPTEMBER 30(thousands of Canadian dollars)Notes20112010ATTRIBUTABLE TO THE SHAREHOLDERS/UNITHOLDERSAccumulated deficitAccumulated deficit, beginning of period$(315,934)$(671,010)Profit for the period, attributable to the Shareholders/Unitholders47,638139,676Accumulated deficit, end of period(268,296)(531,334)DISTRIBUTIONS /DIVIDENDSDistributions and dividends, beginning of period(1,033,994)(885,659)Distributions and dividends(87,296)(78,989)Distributions and dividends, end of period(1,121,290)(964,648)DEFICIT$(1,389,586)$(1,495,982)ACCUMULATED OTHER COMPREHENSIVE INCOME7Accumulated other comprehensive income, beginning of period$123,919$221,969Other comprehensive loss(14,237)(42,671)Accumulated other comprehensive income, end of period$109,682$179,298SHAREHOLDERS'/UNITHOLDERS' CAPITALShareholders' /Unitholders' capital, beginning of period$963,982$777,856Share units exchanged-8,884Share units issued on exercise/exchange of unit compensation728461Dividend reinvestment plan16,36111,012Shareholders'/Unitholders' capital, end of period$981,071$798,213EQUITY COMPONENT OF CONVERTIBLE DEBENTURES9Balance, beginning of period$18,186$-Allocation of new convertible debentures issued10,18833,914Future tax impact on convertible debentures(2,579)(15,728)Balance, end of period$25,795$18,186CONTRIBUTED SURPLUSBalance, beginning of period$52,723$-Add: Share-based compensation awards4,606-Non-cash deferred share grant distributions69-Less: Share-based awards exercised(728)-Balance, end of period$56,670$-See accompanying notes to the interim consolidated financial statementsJUST ENERGY GROUP INC.INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS(thousands of Canadian dollars)THREE MONTHS ENDEDSIX MONTHS ENDEDSEPTEMBER 30SEPTEMBER 30Net inflow (outflow) of cash related to the following activities2011201020112010OPERATINGIncome (loss) before income tax$11,431$(228,639)$69,784$79,608Items not affecting cashAmortization of intangible assets and related supply contracts29,63332,25558,93759,427Amortization of contract initiation costs3,6274,1837,4986,271Amortization included in cost of goods sold3,0342,2805,9374,690Amortization of property, plant and equipment1,4351,8922,7763,812Share-based compensation2,9252,5734,6064,583Financing charges, non-cash portion2,0172,1623,9403,643Transaction costs-185-1,284Other(102)162(187)74Change in fair value of derivative instruments(24,896)204,136(104,593)(131,411)17,673249,828(21,086)(47,627)Adjustment required to reflect net cash receipts from gas sales12,08418,52715,19226,963Changes in non-cash working capital(5,246)(23,125)(9,295)(17,021)35,94216,59154,59541,923Income tax paid(2,262)(5,530)(5,221)(7,986)Cash inflow from operating activities33,68011,06149,37433,937INVESTINGPurchase of property, plant and equipment(10,406)(10,785)(22,001)(20,392)Purchase of intangible assets(1,897)(533)(3,494)(895)Acquisitions of a subsidiary, net of cash acquired-(4,791)(2,223)(256,763)Transaction costs on acquisitions-(185)-(1,284)Proceeds of long-term receivables(525)105(786)3,233Contract initiation costs(7,045)(3,598)(13,907)(7,272)Cash outflow from investing activities(19,873)(19,787)(42,411)(283,373)FINANCINGDividends paid(35,968)(33,598)(70,865)(66,841)Increase (decrease) in bank indebtedness(2,272)(6,990)1,667(7,373)Issuance of long-term debt, net of debt issuance costs179,11817,785248,059366,982Repayment of long-term debt(65,722)(772)(119,428)(50,158)Cash inflow (outflow) from financing activities75,156(23,575)59,433242,610Effect of foreign currency translation on cash balances(198)2,3441447,045Net cash inflow (outflow)88,765(29,957)66,540219Cash, beginning of period76,241108,95898,46678,782Cash, end of period$165,006$79,001$165,006$79,001See accompanying notes to the interim consolidated financial statementsJUST ENERGY GROUP INC.NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED SEPTEMBER 30, 2011(thousands of Canadian dollars, except where indicated and per unit/share amounts)1. ORGANIZATIONEffective January 1, 2011, Just Energy completed the conversion from an income trust, Just Energy Income Fund (the "Fund"), to a corporation (the "Conversion"). The plan of arrangement was approved by unitholders on June 29, 2010, and by the Alberta Court of the Queen's Bench on June 30, 2010, and going forward operates under the name, Just Energy Group Inc. ("JEGI", "Just Energy" or the "Company"). JEGI was a newly incorporated entity for the purpose of acquiring the outstanding units of the Fund, exchangeable shares of Just Energy Exchange Corp. ("JEEC") and the Class A preference shares of Just Energy Corp. ("JEC") in each case on a one for one basis for common shares of JEGI. There was no change in the ownership of the business, and therefore, there is no impact to the consolidated financial statements except for the elimination of unitholders' equity and the recording of shareholders' equity in the same amount.Just Energy is a corporation established under the laws of Canada to hold securities and to distribute the income of its directly or indirectly owned operating subsidiaries and affiliates: Just Energy Ontario L.P., Just Energy Manitoba L.P., Just Energy Quebec L.P., Just Energy (B.C.) Limited Partnership, Just Energy Alberta L.P., Alberta Energy Savings L.P. ("AESLP"), Just Energy Illinois Corp., Just Energy New York Corp., Just Energy Indiana Corp., Just Energy Texas L.P., Just Energy Massachusetts Corp., Just Energy Michigan Corp., Just Energy Pennsylvania Corp., Universal Energy Corporation, Commerce Energy Inc. ("Commerce" or "CEI"), National Energy Corporation (which operates under the trade name of National Home Services ("NHS")), Hudson Energy Services, LLC, and Hudson Energy Canada Corp. (collectively "Hudson" or "HES"), Momentis Canada Corp. and Momentis U.S. Corp. (collectively, "Momentis"), Terra Grain Fuels Inc. ("TGF"), Hudson Energy Solar Corp. ("Hudson Solar") and Just Energy Limited ("JEL").The registered office of Just Energy is First Canadian Place, 100 King Street West, Toronto, Ontario, Canada. The consolidated financial statements consist of Just Energy, its subsidiaries and affiliates. The financial statements were approved by the Board of Directors on November 8, 2011.2. OPERATIONSJust Energy's business primarily involves the sale of natural gas and/or electricity to residential and commercial customers under long-term fixed-price, price-protected or variable-priced contracts and green energy products. By fixing the price of natural gas or electricity under its fixed-price or price-protected program contracts for a period of up to five years, Just Energy's customers offset their exposure to changes in the price of these essential commodities. Variable rate products allow customers to maintain competitive rates while retaining the ability to lock into a fixed price at their discretion. Just Energy, which commenced business in 1997, derives its margin or gross profit from the difference between the price at which it is able to sell the commodities to its customers and the related price at which it purchases the associated volumes from its suppliers. Just Energy also offers green products through its JustGreen and JustClean programs. The electricity JustGreen product offers the customer the option of having all or a portion of his or her electricity sourced from renewable green sources such as wind, run of the river hydro or biomass. The gas JustGreen product offers carbon offset credits that will allow the customer to reduce or eliminate the carbon footprint of their home or business. JustClean products allow customers in certain jurisdictions to offset their carbon footprint without purchasing commodity from Just Energy. JustClean can be offered in all states and provinces and is not dependent on energy deregulation. Management believes that the JustGreen and JustClean products will not only add to profits but will also increase sales receptivity and improve renewal rates.In addition, through National Home Services, Just Energy sells and rents high efficiency and tankless water heaters, air conditioners and furnaces to Ontario residents. Through its subsidiary, Terra Grain Fuels, Just Energy produces and sells wheat-based ethanol. Just Energy has also launched Hudson Solar, a solar project development platform in New Jersey. 3. BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDSIn 2010, the Canadian Institute of Chartered Accountants ("CICA") Handbook was revised to incorporate International Financial Reporting Standards ("IFRS") and requires publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company commenced reporting on this basis for the interim financial statements for fiscal 2012.These consolidated financial statements have been prepared in accordance with IFRS applicable to the preparation of interim financial statements, including International Accounting Standard ("IAS") 34, Interim Financial Reporting, and IFRS 1, First-time Adoption of International Financial Reporting Standards. Subject to certain transition elections, the Company has consistently applied the same accounting policies in its opening IFRS consolidated balance sheet at April 1, 2010, and throughout all periods presented, as if these policies had always been in effect. Note 17 discloses the impact of the transition to IFRS on the Company's reported financial position, financial performance and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company's audited annual consolidated financial statements for the year ended March 31, 2011, prepared under Canadian generally accepted accounting principles ("CGAAP").The policies applied in these consolidated financial statements are based on IFRS issued and outstanding as of September 30, 2011. Any subsequent changes to IFRS pertaining to the Company's annual consolidated statements of financial position, income and comprehensive income for the year ending March 31, 2012, could result in a restatement of these consolidated financial statements, including the transition adjustments recognized on changeover to IFRS.The consolidated financial statements should be read in conjunction with the Company's CGAAP audited annual consolidated financial statements for the year ended March 31, 2011, as well as the Company's first IFRS unaudited interim consolidated financial statements for the three-month period ended June 30, 2011. Note 17 of these financial statements discloses the impact of the transition to IFRS on the Company's reported financial position.(a) Basis of presentationThe consolidated financial statements are presented in Canadian dollars, the functional currency of Just Energy, and all values are rounded to the nearest thousand. The statements are prepared on an historical cost basis except for the derivative financial instruments, which are stated at fair value. (b) Principles of consolidationThe consolidated financial statements include the accounts of Just Energy and its directly or indirectly owned subsidiaries and affiliates as at September 30, 2011. Subsidiaries and affiliates are consolidated from the date of acquisition and control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries and affiliates are prepared for the same reporting period as Just Energy, using consistent accounting policies. All intercompany balances, income, expenses, and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation. 4. (i) SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONSThe preparation of the consolidated financial statements requires the use of estimates and assumptions to be made in applying the accounting policies that affect the reported amounts of assets, liabilities, income, expenses and the disclosure of contingent liabilities. The estimates and related assumptions are based on previous experience and other factors considered reasonable under the circumstances, the results of which form the basis of making the assumptions about carrying values of assets and liabilities that are not readily apparent from other sources.The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised. Judgments made by management in the application of IFRS that have significant impact on the consolidated financial statements relate to the following:Impairment of non-financial assetsJust Energy's impairment test is based on value-in-use calculations that use a discounted cash flow model. The cash flows are derived from the budget for the next five years and are sensitive to the discount rate used as well as the expected future cash inflows and the growth rate used for extrapolation purposes.Deferred taxesSignificant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable income realized, including the usage of tax-planning strategies.Development costsDevelopment costs are capitalized when the product or process is technically and commercially feasible and sufficient resources have been allocated to complete development. Initial capitalization of costs is based on management's judgment that technical and economical feasibility is confirmed, usually when a project has reached a defined milestone according to an established project management model. At September 30, 2011, the carrying amount of capitalized development costs was $16,056 (September 30, 2010 - $17,986). This amount primarily includes costs for the internal development of software tools for the customer billing and analysis in the various operating jurisdictions. These software tools are developed by the internal information technology and operations department for specific regional market requirements.Useful life of key property, plant and equipment and intangible assetsThe amortization method and useful lives reflect the pattern in which management expects the asset's future economic benefits to be consumed by Just Energy.Provisions for litigationThe State of California has filed a number of complaints to the Federal Energy Regulatory Commission ("FERC") against many suppliers of electricity, including Commerce, a subsidiary of Just Energy, with respect to events stemming from the 2001 energy crises in California. Pursuant to the complaints, the State of California is challenging FERC's enforcement of its market-based rate system. At this time, the likelihood of damages or recoveries and the ultimate amounts, if any, with respect to this litigation are not certain; however, an estimated amount has been recorded in these consolidated financial statements as at September 30, 2011. In the general course of operations, Just Energy has made additional provisions for litigation matters that have arisen.Trade receivablesJust Energy reviews its individually significant receivables at each reporting date to assess whether an impairment loss should be recorded in the consolidated income statement. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, Just Energy makes judgments about the borrower's financial situation and the net realizable value of collateral. These estimates are based on assumptions about a number of factors. Actual results may differ, resulting in future changes to the allowance.Fair value of financial instrumentsWhere the fair value of financial assets and financial liabilities recorded in the consolidated statement of financial position cannot be derived from active markets, they are determined using valuation techniques including discounted cash flow models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgment includes consideration of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Refer to Note 6 for further details about the assumptions as well as sensitivity analysis.Acquisition accountingFor acquisition accounting purposes, all identifiable assets, liabilities and contingent liabilities acquired in a business combination are recognized at fair value on the date of acquisition. Estimates are used to calculate the fair value of these assets and liabilities as at the date of acquisition.(ii) ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIEDIFRS 9, Financial InstrumentsAs of April 1, 2013, Just Energy will be required to adopt IFRS 9, Financial Instruments, which is the result of the first phase of the IASB's project to replace IAS 39, Financial Instruments: Recognition and Measurement. The new standard replaces the current multiple classification and measurement models for financial assets and liabilities with a single model that has only two classification categories: amortized cost and fair value. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 10, Consolidated Financial StatementsAs of April 1, 2013, IFRS 10, Consolidated Financial Statements will replace portions of IAS 27, Consolidated and Separate Financial Statements, and interpretation SIC-12, Consolidation: Special Purpose Entities. The new standard requires consolidated financial statements to include all controlled entities under a single control model. The Company will be considered to control an investee when it is exposed, or has rights to variable returns from its involvement with the investee, and has the current ability to affect those returns through its power over the investee.As required by this standard, control is reassessed as facts and circumstances change. All facts and circumstances must be considered to make a judgment about whether the Company controls another entity; there are no clear lines. Additional guidance is given on how to evaluate whether certain relationships give the Company the current ability to affect its returns, including how to consider options and convertible instruments, holding less than a majority of voting rights, how to consider protective rights, and principal-agency relationships (including removal rights), all of which may differ from current practice. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 11, Joint ArrangementsOn April 1, 2013, Just Energy will be required to adopt IFRS 11, Joint Arrangements, which applies to accounting for interests in joint arrangements where there is joint control. The standard requires the joint arrangements to be classified as either joint operations or joint ventures. The structure of the joint arrangement would no longer be the most significant factor when classifying the joint arrangement as either a joint operation or a joint venture. In addition, the option to account for joint ventures (previously called "jointly controlled entities") using proportionate consolidation will be removed and replaced by equity accounting.Due to the adoption of this new section, the Company will transition the accounting for joint ventures from the proportionate consolidation method to the equity method by aggregating the carrying values of the proportionately consolidated assets and liabilities into a single line item. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 12, Disclosure of Interests in Other EntitiesOn April 1, 2013, Just Energy will be required to adopt IFRS 12, Disclosure of Interests in Other Entities, which includes disclosure requirements about subsidiaries, joint ventures and associates, as well as unconsolidated structured entities, and replaces existing disclosure requirements. Due to this new section, the Company will be required to disclose the following: judgments and assumptions made when deciding how to classify involvement with another entity, interests that non-controlling interests have in consolidated entities, and nature of the risks associated with interests in other entities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IFRS 13, Fair Value MeasurementOn April 1, 2013, Just Energy will be required to adopt IFRS 13, Fair Value Measurement. The new standard will generally converge the IFRS and CGAAP requirements for how to measure fair value and the related disclosures. IFRS 13 establishes a single source of guidance for fair value measurements, when fair value is required or permitted by IFRS. Upon adoption, the Company will provide a single framework for measuring fair value while requiring enhanced disclosures when fair value is applied. In addition, fair value will be defined as the "exit price" and concepts of "highest and best use" and "valuation premise" would be relevant only for non-financial assets and liabilities. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 27, Separate Financial StatementsOn April 1, 2013, Just Energy will be required to adopt IAS 27, Separate Financial Statements. As a result of the issue of the new consolidation suite of standards, IAS 27 has been reissued to reflect the change as the consolidation guidance has recently been included in IFRS 10.In addition, IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when the Company prepares separate financial statements. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.IAS 28, Investments in Associates and Joint VenturesOn April 1, 2013, Just Energy will be required to adopt IAS 28, Investments in Associates and Joint Ventures. As a consequence of the issue of IFRS 10, IFRS 11 and IFRS 12, IAS 28 has been amended and will further provide the accounting guidance for investments in associates and will set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.This standard will be applied by the Company when there is joint control or significant influence over an investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not include control or joint control of those policy decisions. When determined that the Company has an interest in a joint venture, the Company will recognize an investment and will account for it using the equity method in accordance with IAS 28. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.5. SEASONALITY OF OPERATIONSGas 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. Electricity consumption is lowest in October through December and April through June. 6. FINANCIAL INSTRUMENTS (a) Fair valueFair value is the estimated amount that Just Energy would pay or receive to dispose of these supply contracts in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act. Management has estimated the value of electricity, unforced capacity, heat rates, heat rate options, renewable and gas swap and forward contracts using a discounted cash flow method which employs market forward curves that are either directly sourced from third parties or are developed internally based on third party market data. These curves can be volatile thus leading to volatility in the mark to market with no impact to cash flows. Gas options have been valued using the Black option value model using the applicable market forward curves and the implied volatility from other market traded gas options.Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting. Accordingly, all the mark to market changes on Just Energy's derivative instruments are recorded on a single line on the consolidated income statements. Due to the commodity volatility and size of Just Energy, the quarterly swings in mark to market on these positions will increase the volatility in Just Energy's earnings.The following tables illustrate gains/(losses) related to Just Energy's derivative financial instruments classified as held-for-trading and recorded on the balance sheet as other assets and other liabilities with their offsetting values recorded in change in fair value derivative instruments for the three months ended September 30, 2011:Change in Fair Value of Derivative InstrumentsFor the three months ended September 30, 2011For the three months ended September 30, 2011 (USD)For the three months ended September 30, 2010For the three months ended September 30, 2010 (USD)CanadaFixed-for-floating electricity swaps (i)$32,805n/a$(4,605)n/aRenewable energy certificates (ii)(9)n/a(3)n/aVerified emission-reduction credits (iii)(10)n/a(1,189)n/aOptions (iv)(122)n/a1,692n/aPhysical gas forward contracts (v)31,991n/a(61,473)n/aTransportation forward contracts (vi)1,569n/a(1,433)n/aFixed financial swaps (vii)1,742n/a-n/aUnited StatesFixed-for-floating electricity swaps (viii)488498(24,172)(23,263)Physical electricity forwards (ix)(8,625)(8,799)(28,881)(27,795)Unforced capacity forward contracts (x)(1,682)(1,716)(209)(201)Unforced capacity physical contracts (xi)(4,301)(4,388)(255)(246)Renewable energy certificates (xii)1,5601,591(1,159)(1,116)Verified emission-reduction credits (xiii)(24)(24)(331)(318)Options (xiv)431439749721Physical gas forward contracts (xv)(1,053)(1,075)(11,315)(10,890)Transportation forward contracts (xvi)417425(365)(351)Heat rate swaps (xvii)3,6243,697(4,464)(4,296)Fixed financial swaps (xviii)(10,063)(10,266)(33,107)(31,862)Foreign exchange forward contracts (xix)(2,521)n/a524n/aEthanol physical forward contracts (xx)(40)n/a-n/aAmortization of deferred unrealized gains on discontinued hedges15,886n/a27,784n/aAmortization of derivative financial instruments related to acquisitions(37,167)n/a(39,042)n/aLiability associated with exchangeable shares & equity based compensation-$-(22,882)n/aChange in Fair Value of Derivative Instruments$24,896$(204,136)The following tables illustrate gains/(losses) related to Just Energy's derivative financial instruments classified as held-for-trading and recorded on the balance sheet as other assets and other liabilities with their offsetting values recorded in change in fair value derivative instruments for the six months ended September 30, 2011:Change In Fair Value of Derivative InstrumentsFor the six months ended September 30, 2011For the six months ended September 30, 2011 (USD)For the six months ended September 30, 2010For the six months ended September 30, 2010 (USD)CanadaFixed-for-floating electricity swaps (i)$72,896n/a$134,236n/aRenewable energy certificates (ii)545n/a(146)n/aVerified emission-reduction credits (iii)(29)n/a(1,189)n/aOptions (iv)4,201n/a855n/aPhysical gas forward contracts (v)60,467n/a22,155n/aTransportation forward contracts (vi)2,230n/a11,917n/aFixed financial swaps (vii)(430)n/a-n/aUnited StatesFixed-for-floating electricity swaps (viii)15,99316,52172255Physical electricity forwards (ix)(9,188)(9,381)(6,199)(5,833)Unforced capacity forward contracts (x)(3,021)(3,100)(369)(357)Unforced capacity physical contracts (xi)(4,197)(4,280)(899)(872)Renewable energy certificates (xii)2,3932,452(1,839)(1,777)Verified emission-reduction credits (xiii)(348)(359)(333)(321)Options (xiv)1,1001,131929896Physical gas forward contracts (xv)4,7924,96619,31918,921Transportation forward contracts (xvi)667683(208)(199)Heat rate swaps (xvii)2,5692,607(7,522)(7,271)Fixed financial swaps (xviii)(4,870)(4,900)(25,741)(24,701)Foreign exchange forward contracts (xix)(3,069)n/a247n/aEthanol physical forward contracts (xx)(85)n/a-n/aAmortization of deferred unrealized gains on discontinued hedges36,278n/a62,357n/aAmortization of derivative financial instruments related to acquisitions(74,301)n/a(74,520)n/aLiability associated with exchangeable shares & equity based compensation-n/a(1,711)n/aChange In Fair Value of Derivative Instruments$104,593$131,411The following table summarizes certain aspects of the financial assets and liabilities recorded in the consolidated financial statements as at September 30, 2011: Other assetsOther assetsOther liabilitiesOther liabilities(current)(long term)(current)(long term)CanadaFixed-for-floating electricity swaps (i)$-$-$94,540$57,242Renewable energy certificates (ii)762201162441Verified emission-reduction credits (iii)10-322660Options (iv)844461--Physical gas forward contracts (v)--146,92894,087Transportation forward contracts (vi)--3,6902,214Fixed financial swaps (vii)-1,0952,261481United StatesFixed-for-floating electricity swaps (viii)-1,30927,80215,190Physical electricity forwards (ix)81-66,97843,229Unforced capacity forward contracts (x)1,086-1,1973,369Unforced capacity physical contracts (xi)--4,2092,848Renewable energy certificates (xii)1,6272236301,411Verified emission-reduction credits (xiii)21-395778Options (xiv)50814447Physical gas forward contracts (xv)--36,32714,895Transportation forward contracts (xvi)--1,816502Heat rate swaps (xvii)3,7622,0142462Fixed financial swaps (xviii)--65,31833,745Foreign exchange forward contracts (xix)--1,64334Ethanol physical forward contracts (xx)50---As at September 30, 2011$8,293$5,311$454,386$271,235The following table summarizes certain aspects of the financial assets and liabilities recorded in the consolidated financial statements as at March 31, 2011: Other assetsOther assetsOther liabilitiesOther liabilities(current)(long term)(current)(long term)CanadaFixed-for-floating electricity swaps (i)$-$-$131,279$93,397Renewable energy certificates (ii)194196158417Verified emission-reduction credits (iii)--315628Options (iv)8156924,403-Physical gas forward contracts (v)--166,634134,847Transportation forward contracts (vi)-245,3012,858Fixed financial swaps (vii)-1,0372,23519United StatesFixed-for-floating electricity swaps (viii)1254529,02825,719Physical electricity forwards (ix)-31055,54837,535Unforced capacity forward contracts (x)309177581118Unforced capacity physical contracts (xi)1004101,6061,280Renewable energy certificates (xii)44491,0371,610Verified emission-reduction credits (xiii)1336275491Options (xiv)1-1,056165Physical gas forward contracts (xv)40-32,88319,354Transportation forward contracts (xvi)--1,5261,281Heat rate swaps (xvii)6392,408180131Fixed financial swaps (xviii)40-51,36135,562Foreign exchange forward contracts (xix)1,391---Ethanol physical forward contracts (xx)135---As at March 31, 2011$3,846$5,384$485,406$355,412The following table summarizes financial instruments classified as held-for-trading as at September 30, 2011, to which Just Energy has committed:Contract typeNotional volumeTotal remaining volumeMaturity dateFixed priceFair value favourable/ (unfavourable)Notional valueCanada(i)Fixed-for-floating electricity swaps *0.0001-48 MW h8,843,178 MW hOctober 31, 2011 - August 01, 2017$28.75-$128.13($151,782)$535,555(ii)Renewable energy certificates10-90,000 MW h1,133,558 MW hDecember 31, 2011 - December 31, 2015$3.00-$26.00$360$7,284(iii)Verified emission reduction credits3,000-55,000 Tonnes590,667 TonnesDecember 31, 2011 - December 31, 2014$4.00-$11.50($972)$5,342(iv)Options119-28,500 GJ/month2,348,816 GJOctober 31, 2011 - February 28, 2014$7.16-$12.39$1,305$4,398(v)Physical gas forward contracts1-7,412 GJ/day85,028,915 GJOctober 31, 2011 - March 31, 2016$2.95-$10.00($241,015)$593,930(vi)Transportation forward contracts45-20,000 GJ/day40,627,728 GJOctober 31, 2011 - May 31, 2015$0.0025-$1.59($5,907)$25,029(vii)Fixed financial swaps14,000-157,387 GJ/month18,533,887 GJOctober 31, 2011 - December 31, 2016$3.21-$8.79($1,647)$84,824United States(viii)Fixed-for-floating electricity swaps *0.10-80 MW h9,039,488 MW hOctober 31, 2011 - September 30, 2016$25.47-$143.34 (US$24.30-$136.75)($41,683) (US($39,766))$510,614 (US$487,134)(ix)Physical electricity forwards1-165 MW h9,664,148 MW hOctober 31, 2011 - September 30, 2016$15.76-$115.56 (US$15.04-$110.25)($110,126) (US($105,062))$506,550 (US$483,257)(x)Unforced capacity forward contracts5-150 MW Cap146,641 MW CapOctober 31, 2011 - May 31, 2014$1,905-$8,386 (US$1,817-$8,000)($3,480) ((US$3,320))$11,401 (US$10,877)(xi)Unforced capacity physical contracts2-200 MW Cap2,932 MW CapOctober 31, 2011 - May 31, 2014$1,048-$9,172 (US$1,000-$8,750)($7,057) ((US$6,732))$12,862 (US$12,271)(xii)Renewable energy certificates300-160,000 MW h2,780,696 MW hDecember 31, 2011 - December 31, 2016$1.021-$44.55 (US$0.975-$42.50)($191) (US($182))$18,303 (US$17,461)(xiii)Verified emission-reduction credits8,000-50,000 Tonnes900,948 TonnesDecember 31, 2011 - December 31, 2016$3.14-$9.17 (US$3.00-$8.75)($1,152) (US$(1,099))$5,888 (US$5,617)(xiv)Options5-90,000 mmBTU/month2,758,820 mmBTUOctober 31, 2011 - December 31, 2014$8.12-$14.47 (US$7.75-$13.80)($133) (US($127))$3,891 (US$3,712)(xv)Physical gas forward contracts4-4,300 mmBTU/day12,735,868 mmBTUOctober 03, 2011 - July 31, 2014$3.67-$12.45 (US$3.50-$11.88)($51,222) (US($48,867))$110,675 (US$105,586)(xvi)Transportation forward contracts2-16,000 mmBTU/day28,803,358 mmBTUOctober 31, 2011 - August 31, 2015$0.0026-$0.9014 (US$0.0025-$0.8600)($2,318) (US($2,211))($51,649) (US$49,274)(xvii)Heat rate swaps1-25 MW h3,341,878 MW hOctober 31, 2011 - June 30, 2016$22.48-$78.58 (US$21.45-$74.97)$5,690 (US$5,428)$134,983 (US$128,776)(xviii)Fixed financial swaps930-1,150,000 mmBTU/month53,859,757 mmBTUOctober 31, 2011 - May 31, 2017$4.01-$9.85 (US$3.83-$9.40)($99,063) (US($94,508))$356,295 (US$339,911)(xix)Foreign exchange forward contracts($524-$3,669) (US$500-$3,500)n/aOctober 03, 2011 - October 01, 2012$0.969-$1.037($1,677)$34,516 (US$34,389)(xx)Ethanol forward physical contracts396,258 Gallons2,377,548 GallonsOctober 01, 2011 - December 01, 2011$2.28-$2.48$50$5,642* Some of the electricity fixed-for-floating contracts related to the Province of Alberta and the Province of Ontario are load-following, wherein the quantity of electricity contained in the supply contract "follows" the usage of customers designated by the supply contract. Notional volumes associated with these contracts are estimates and are subject to change with customer usage requirements. There are also load shaped fixed-for-floating contracts in these and the rest of Just Energy's electricity markets wherein the quantity of electricity is established but varies throughout the term of the contracts.The estimated amortization of deferred gains and losses reported in accumulated other comprehensive income that is expected to be amortized to net income within the next 12 months is a gain of $52,461.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 other asset balance recognized in the consolidated financial statements.Fair value ("FV") hierarchy Level 1 The fair value measurements are classified as Level 1 in the FV hierarchy if the fair value is determined using quoted, unadjusted market prices. Just Energy values its cash and cash equivalent, accounts receivable, unbilled revenue, bank indebtedness, accounts payable and accrued liabilities, unit distributions payable, and long-term debt under Level 1. Level 2 Fair value measurements that require inputs other than quoted prices in Level 1, either directly or indirectly, are classified as Level 2 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 2, inputs must be substantially observable in the market. Just Energy values its New York Mercantile Exchange ("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 FV 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 hierarchy. For the natural gas supply contracts, Just Energy uses three different market observable curves: 1) Commodity (predominately NYMEX), 2) Basis and 3) Foreign Exchange. NYMEX curves extend for over five years (thereby covering the length of Just Energy's contracts); however, most basis curves only extend 12 to 15 months into the future. In order to calculate basis curves for remaining years, Just Energy uses extrapolation, which leads natural gas supply contracts to be classified under Level 3.Fair value measurement input sensitivityThe main cause of changes in the fair value of derivative instruments are changes in the forward curve prices used for the fair value calculations. Just Energy provides a sensitivity analysis of these forward curves under the commodity price risk section of this note. Other inputs, including volatility and correlations, are driven off historical settlements.The following table illustrates the classification of financial assets/(liabilities) in the FV hierarchy as at September 30, 2011:September 30, 2011Level 1Level 2Level 3TotalFinancial assetsCash and short term deposits$165,006$-$-$165,006Loans and receivable353,855--353,855Derivative financial assets-1,09512,50913,604Financial liabilitiesDerivative financial liabilities-(101,805)(623,816)(725,621)Other financial liabilities(980,110)--(980,110)Total net derivative liabilities$(461,249)$(100,710)$(611,307)$(1,173,266)The following table illustrates the changes in net fair value of financial assets/(liabilities) classified as Level 3 in the FV hierarchy for the three months ended September 30, 2011:September 30, 2011Opening balance, April 1, 2011$(743,488)Total gain/(losses) - Profit for the period32,793Purchases(10,728)Sales1,118Settlements108,998Transfer out of Level 3-Closing Balance, September 30, 2011$(611,307)(b) Classification of financial assets and liabilitiesThe following table represents the fair values and carrying amounts of financial assets and liabilities measured at amortized cost. As at September 30, 2011Carrying amountFair valueCash and cash equivalents$165,006$165,006Current trade and other receivables252,121252,121Unbilled revenues98,43798,437Non-current receivables5,3945,394Other assets13,60413,604Bank indebtedness, trade and other payables255,939255,939Long-term debt724,173753,785Other liabilities725,621725,621Three months endedSix months endedSeptember 30September 302011201020112010Interest expense on financial liabilities not held-for trading$ 14,340$ 15,605$ 28,132$ 28,360The carrying value of cash and cash equivalents, current trade and other receivables, unbilled revenues, and trade and other payables approximates the fair value due to their short-term liquidity.The carrying value of long-term debt approximates its fair value as 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 exception of the $90 million, $330 million and $100 million convertible debentures, which are fair valued, based on market value.(c) Management of risks arising from financial instrumentsThe risks associated with Just Energy's financial instruments are as follows:(i) Market riskMarket 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 riskForeign 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 investment in U.S. operations.A portion of Just Energy's income is generated in U.S. dollars and is subject to currency fluctuations. The performance of the Canadian dollar relative to the U.S. dollar could positively or negatively affect Just Energy's income. Due to its growing operations in the U.S., Just Energy expects to have a greater exposure to U.S. fluctuations in the future than in prior years. Just Energy has hedged between 25% and 90% of certain forecasted cross border cash flows that are expected to occur within the next year. The level of hedging is dependent on the source of the cash flow 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, as at September 30, 2011, if the Canadian dollar had been 5% stronger or weaker against the U.S. dollar, assuming that all the other variables had remained constant, profit for the period would have been $420 higher/lower and other comprehensive income would have been $960 higher/lower.Interest rate riskJust Energy is also 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 immaterial and temporary in nature. Just Energy does not currently believe that this long-term debt exposes it to material financial risks but has set out parameters to actively manage this risk within its Risk Management Policy.A 1% increase (decrease) in interest rates would have resulted in a decrease (increase) in income before income taxes for the three and six months ended September 30, 2011, of approximately $264 and $489.Commodity price riskJust 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 flow of Just Energy.Commodity price sensitivity – all derivative financial instrumentsAs at September 30, 2011, if the energy prices including natural gas, electricity, verified emission reduction credits, and renewable energy certificates, had risen (fallen) by 10%, assuming that all the other variables had remained constant, income before taxes for the quarter ended September 30, 2011, would have increased (decreased) by $194,198 ($192,671) primarily as a result of the change in the fair value of Just Energy's derivative instruments.Commodity price sensitivity – Level 3 derivative financial instrumentsAs at September 30, 2011, if the energy prices including natural gas, electricity, verified emission reduction credits, and renewable energy certificates, had risen (fallen) by 10%, assuming that all the other variables had remained constant, income before taxes for the quarter ended September 30, 2011, would have increased (decreased) by $173,349 ($171,851) primarily as a result of the change in the fair value of Just Energy's derivative instruments.(ii) Credit riskCredit 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 riskIn Alberta, Texas, Illinois, Pennsylvania, California, Maryland, New York and New Jersey, 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:September 30, 2011March 31, 2011Current$64,796$61,6951–30 days16,64915,08831–60 days6,3225,53361–90 days4,1085,652Over 91 days10,99210,322$102,867$98,290For the six months ended September 30, 2011, changes in the allowance for doubtful accounts were as follows:Balance, beginning of period$25,115Provision for doubtful accounts13,265Bad debts written off(10,590)Other844Balance, end of period$28,634For 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 no assurance that the LDCs that provide these services will continue to do so in the future.Counterparty credit riskCounterparty 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 JEGI. 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, 2011, the maximum counterparty credit risk exposure amounted to $116,471, representing the risk relating to its derivative financial assets and accounts receivable.(iii) Liquidity riskLiquidity 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-week period, monthly cash forecasts for the next 12 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 September 30, 2011.Carrying amountContractual cash flowsLess than 1 year1 to 3 years4 to 5 yearsMore than 5 yearsTrade and other payables$251,958$251,958$251,958$-$-$-Bank indebtedness3,9813,9813,981---Long-term debt *724,173785,96695,210213,40127,521449,834Derivative instruments725,6212,979,4741,383,8261,329,121260,2916,236$1,705,733$4,021,379$1,734,975$1,542,522$287,812$456,070* Included in long-term debt is $330,000, $100,000 and $90,000 relating to 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, at September 30, 2011, net interest payments over the life of the long-term debt and bank credit facility are as follows:Less than 1 year1 to 3 years4 to 5 yearsMore than 5 yearsInterest payments$46,731$85,898$66,256$91,208(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. Just Energy has discounted the fair value of its financial assets by $2,596 to accommodate for its counterparties' risk of default.7. ACCUMULATED OTHER COMPREHENSIVE INCOMEFor the six months ended September 30, 2011ForeigncurrencytranslationCash flowadjustmenthedgesTotalBalance, beginning of period$29,033$94,886$123,919Unrealized foreign currency translation adjustment15,527-15,527Amortization of deferred unrealized gain on discontinued hedges net of income taxes of $6,514-(29,764)(29,764)Balance, end of period$44,560$65,122$109,682For the six months ended September 30, 2010ForeigncurrencytranslationCash flowadjustmenthedgesTotalBalance, beginning of period$ 28,584$ 193,385$ 221,969Unrealized foreign currency translation adjustment9,247-9,247Amortization of deferred unrealized gain on discontinued hedges net of income taxes of $10,439-(51,918)(51,918)Balance, end of period$ 37,831$ 141,467$ 179,2988. SHAREHOLDERS' CAPITAL Details of issued shareholders' capital are as follows for the six months ended September 30, 2011. Issued and outstandingSharesAmountBalance, beginning of period136,963,726$963,982Share-based awards exercised48,210728Dividend reinvestment plan (i)1,237,43016,361Balance, end of period138,249,366$981,071(i) Dividend reinvestment planUnder Just Energy's dividend reinvestment plan ("DRIP"), shareholders holding a minimum of 100 common shares can elect to receive their dividends in common shares rather than cash at a 2% discount to the simple average closing price of the common shares for five trading days preceding the applicable dividend payment date, providing the common shares are issued from treasury and not purchased on the open market.9. LONG-TERM DEBT AND FINANCINGSeptember 30, 2011March 31, 2011Credit facility (a)$ 67,223 $ 53,000Less: Debt issue costs (a)(1,580)(1,965)TGF credit facility (b)(i)34,36336,680TGF debentures (b)(ii)35,94237,001NHS financing (c)128,438105,716$90 million convertible debentures (d)85,39084,706$330 million convertible debentures (e)289,136286,439$100 million convertible debentures (f)85,261-724,173601,577Less: current portion(95,210)(94,117)$ 628,963$ 507,460Future annual minimum principal repayments are as follows:Less than 1 year1 to 3 years4 to 5 yearsMore than 5 yearsTotalCredit facility (a)$-$67,223$-$-$67,223TGF credit facility (b)(i)34,363---34,363TGF debentures (b)(ii)35,942---35,942NHS financing (c)24,90556,17827,52119,834128,438$90 million convertible debentures (d)-90,000--90,000$330 million convertible debentures (e)---330,000330,000$100 million convertible debentures (f)100,000100,000$95,210$213,401$27,521$449,834$785,966The following table details the finance costs for the three and six months ended September 30. Interest is expensed at the effective interest rate.THREE MONTHS ENDEDSIX MONTHS ENDEDSEPTEMBER 30SEPTEMBER 302011201020112010Credit facility (a)$2,117$1,425$4,063$2,784TGF credit facility (b)(i)5284241,065871TGF debentures (b)(ii)1,0791,2322,2092,182TGF term/operating facilities (b)(iii)-245-556NHS financing (c)2,3641,4904,5132,831$90 million convertible debentures (d)1,6941,6683,3843,332$330 million convertible debentures (e)6,3246,26912,59710,069$100 million convertible debentures (f)161-161-Provisions7370140135Dividend classified as interest (Note 17)-2,782-5,600$14,340$15,605$28,132$28,360(a) As at September 30, 2011, Just Energy has a $350 million credit facility to meet working capital requirements. The syndicate of lenders includes Canadian Imperial Bank of Commerce, Royal Bank of Canada, National Bank of Canada, Société Générale, Bank of Nova Scotia, The Toronto-Dominion Bank and Alberta Treasury Branches. The term of the facility expires on December 31, 2013. Interest is payable on outstanding loans at rates that vary with Bankers' Acceptances, LIBOR, Canadian bank prime rate or U.S. prime rate. Under the terms of the operating credit facility, Just Energy is able to make use of Bankers' Acceptances and LIBOR advances at stamping fees that vary between 3.25% and 3.75%. Prime rate advances are at rates of interest that vary between bank prime plus 2.25% and 2.75% and letters of credit are at rates that vary between 3.25% and 3.75%. Effective October 3, 2011, pricing on the credit facility has been reduced by 0.375%. Interest rates are adjusted quarterly based on certain financial performance indicators. As at September 30, 2011, the Canadian prime rate was 3.0% and the U.S. prime rate was 3.25%. As at September 30, 2011, Just Energy had drawn $67,223 (March 31, 2011 - $53,000) against the facility and total letters of credit outstanding amounted to $90,374 (March 31, 2011 - $78,209). As at September 30, 2011, unamortized debt issue costs relating to the facility are $1,580 (March 31, 2011 - $1,965). As at September 30, 2011, Just Energy has $192,403 of the facility remaining for future working capital and security requirements. Just Energy's obligations under the credit facility are supported by guarantees of certain subsidiaries and affiliates, 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 and affiliates excluding, among others, NHS, Hudson Solar and TGF. Just Energy is required to meet a number of financial covenants under the credit facility agreement. As at September 30, 2011 and 2010, all of these covenants had been met. (b) In connection with an acquisition, Just Energy acquired the debt obligations of TGF, which currently comprise the following separate facilities: (i) TGF credit facility A credit facility of up to $50,000 was established with a syndicate of Canadian lenders led by Conexus Credit Union and was arranged to finance the construction of the ethanol plant in 2007. The facility was revised on March 18, 2009, and was converted to a fixed repayment term of ten years, commencing March 1, 2009, which includes interest costs at a rate of prime plus 3% with principal repayments scheduled to commence on March 1, 2010. The credit facility is secured by a demand debenture agreement, a first priority security interest on all assets and undertakings of TGF, and a general security interest on all other current and acquired assets of TGF. As a result, the facility is fully classified as a current obligation. The facility was further revised on April 5, 2010, to postpone the principal payments due for April 1, 2010 to June 1, 2010, and to amortize them over the six-month period commencing October 1, 2010, and ending March 1, 2011. The credit facility includes certain financial covenants, the most significant of which relate to current ratio, debt to equity ratio, debt service coverage and minimum shareholders' capital. The lenders deferred compliance with the financial covenants until April 1, 2011. The covenants will be measured as of March 31, 2012, and non-attainment may result in a non-compliance fee up to 0.25% of the loan balance as of March 31, 2012. As at September 30, 2011, the amount owing under this facility amounted to $34,363. (ii) TGF debenturesA debenture purchase agreement with a number of private parties providing for the issuance of up to $40,000 aggregate principal amount of debentures was entered into in 2006. TGF was in recent negotiations with the lender and adjusted the covenant levels. In addition the interest rate was increased to 12% and quarterly blended principal and interest payments of $1,139 were established. The agreement includes certain financial covenants, the more significant of which relates to current ratio, debt to capitalization ratio, debt service coverage, debt to EBITDA and minimum shareholders' equity. Compliance with the new covenants will be measured annually beginning with the fiscal 2012 year-end. The maturity date was extended to May 15, 2014, with a call right any time after April 1, 2012. The debenture holders have no recourse to the Company or any other Just Energy entity. As of September 30, 2011, the amount owing under this debenture agreement amounted to $35,942. (iii) TGF has a working capital operating line of $7,000 bearing interest at a rate of prime plus 2%. In addition to the amount shown on the balance sheet as bank indebtedness, TGF has total letters of credit issued of $250. (c) NHS entered into a long-term financing agreement for the funding of new and existing rental water heater and HVAC contracts in the Enbridge and Union Gas distribution territories. Pursuant to the agreement, NHS receives financing of an amount equal to the present value of the first five, seven or ten years of monthly rental income, discounted at the agreed upon financing rate of 7.99% and, as settlement, is required to remit an amount equivalent to the rental stream from customers on the water heater and HVAC contracts for the first five, seven or ten years. As security for performance of the obligation, NHS has pledged the water heaters, HVAC equipment and rental contracts, subject to the financing rental agreement, as collateral.The financing agreement is subject to a holdback provision, whereby 3% in the Enbridge territory and 5% in the Union Gas territory of the outstanding balance of the funded amount is deducted and deposited into a reserve account in the event of default. Once all obligations of NHS are satisfied or expired, the remaining funds in the reserve account will immediately be released to NHS. NHS has $128,438 owing under this agreement, including $5,161 relating to the holdback provision, recorded in non-current receivables, as at September 30, 2011. NHS is required to meet a number of covenants under the agreement. As at September 30, 2011, all of these covenants had been met.(d) In conjunction with an acquisition, the Company also acquired the obligations of a convertible unsecured subordinated debentures (the "$90 million convertible debentures") issued in October 2007. The fair value of the $90 million convertible debentures was estimated by discounting the remaining contractual payments at the time of acquisition. This discount will be accreted using an effective interest rate of 8%. These instruments have a face value of $90,000 and mature on September 30, 2014, unless converted prior to that date, and bear interest at an annual rate of 6% payable semi-annually on March 31 and September 30 of each year. Each $1,000 principal amount of the $90 million convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 32.29 shares, representing a conversion price of $30.97 per common share as at September 30, 2011. Pursuant to the $90 million convertible debentures, if the Company fixes a record date for the payment of a dividend, the conversion price shall be adjusted in accordance therewith. During the three and six months ended September 30, 2011, interest expense amounted to $1,694 and $3,384, respectively.On and after October 1, 2010, but prior to September 30, 2012, the $90 million convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice, provided that the current market price on the date on which notice of redemption is given is not less than 125% of the conversion price. On and after September 30, 2012, but prior to the maturity date, the $90 million convertible debentures are redeemable, in whole or in part, at a price equal to the principal amount thereof, plus accrued and unpaid interest, at Just Energy's sole option on not more than 60 days' and not less than 30 days' prior notice. On January 1, 2011, as part of the Conversion, JEGI assumed all of the obligations under the $90 million convertible debentures.The Corporation may, at its option, on not more than 60 days' and not less than 30 days' prior notice, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $90 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradeable common shares determined by dividing the principal amount of the $90 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.(e) In order to fund the acquisition of Hudson, on May 5, 2010, Just Energy issued $330 million of convertible extendible unsecured subordinated debentures (the "$330 million convertible debentures"). The $330 million convertible debentures bear interest at a rate of 6.0% per annum payable semi-annually in arrears on June 30 and December 31, with a maturity date of June 30, 2017. Each $1,000 principal amount of the $330 million convertible debentures is convertible at any time prior to maturity or on the date fixed for redemption, at the option of the holder, into approximately 55.6 shares of the Company, representing a conversion price of $18 per share. During the three and six months ended September 30, 2011, interest expense amounted to $6,324 and $12,597, respectively. The $330 million convertible debentures are not redeemable prior to June 30, 2013, except under certain conditions after a change of control has occurred. On or after June 30, 2013, but prior to June 30, 2015, the $330 million convertible debentures may be redeemed by the Company, in whole or in part, on not more than 60 days' and not less than 30 days' prior notice, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest, provided that the current market price (as defined herein) on the date on which notice of redemption is given is not less than 125% of the conversion price. On and after June 30, 2015, and prior to maturity, the $330 million convertible debentures may be redeemed by Just Energy, in whole or in part, at a redemption price equal to the principal amount thereof, plus accrued and unpaid interest. The Company may, at its own option, on not more than 60 days' and not less than 40 days' prior notice, subject to applicable regulatory approval and provided that no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $330 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradable common shares determined by dividing the principal amount of the $330 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.The conversion feature of the $330 million convertible debentures has been accounted for as a separate component of shareholders' deficit in the amount of $33,914. The remainder of the net proceeds of the $330 million convertible debentures has been recorded as long-term debt, which will be accreted up to the face value of $330,000 over the term of the $330 million convertible debentures using an effective interest rate of 8.8%. If the $330 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. On January 1, 2011, as part of the Conversion, JEGI assumed all of the obligations under the $330 million convertible debentures.As a result of adopting IFRS, Just Energy has recorded a future tax liability of $15,728 on its convertible debentures and reduced the value of the equity component of convertible debentures by this amount.(f) On September 22, 2011, Just Energy issued $100 million of convertible unsecured subordinated debentures (the "$100 million convertible debentures"). The $100 million convertible debentures bear interest at an annual rate of 5.75%, payable semi-annually on March 31 and September 30 in each year commencing March 31, 2012, and have a maturity date of September 30, 2018. Each $1,000 principal amount of the $100 million convertible debentures is convertible at the option of the holder at any time prior to the close of business on the earlier of the maturity date and the last business day immediately preceding the date fixed for redemption into 56.0 common shares of Just Energy, representing a conversion price of $17.85. The $100 million convertible debentures are not redeemable at the option of the Company on or before September 30, 2014. After September 30, 2014, and prior to September 30, 2016, the $100 million convertible debentures may be redeemed by the Company, in whole or in part, on not more than 60 days' and not less than 30 days' prior notice, at a price equal to their principal amount plus accrued and unpaid interest, provided that the weighted average trading price of the common shares is at least 125% of the conversion price. On or after September 30, 2016, the $100 million convertible debentures may be redeemed in whole or in part from time to time at the option of the Company on not more than 60 days' and not less than 30 days' prior notice, at a price equal to their principal amount plus accrued and unpaid interest.The Company may, at its option, on not more than 60 days' and not less than 30 days' prior notice, subject to applicable regulatory approval and provided no event of default has occurred and is continuing, elect to satisfy its obligation to repay all or any portion of the principal amount of the $100 million convertible debentures that are to be redeemed or that are to mature, by issuing and delivering to the holders thereof that number of freely tradeable common shares determined by dividing the principal amount of the $100 million convertible debentures being repaid by 95% of the current market price on the date of redemption or maturity, as applicable.The conversion feature of the $100 million convertible debentures has been accounted for as a separate component of shareholders' deficit in the amount of $10,188. Upon initial recognition of the convertible debenture, Just Energy recorded a future tax liability of $2,579 and reduced the equity component of the convertible debenture by this amount. The remainder of the net proceeds of the $100 million convertible debentures has been recorded as long-term debt, which will be accreted up to the face value of $100,000 over the term of the $100 million convertible debentures using an effective interest rate of 8.6%. If the $100 million convertible debentures are converted into common shares, the value of the conversion will be reclassified to share capital along with the principal amount converted. During the three and six months ended September 30, 2011, interest expense amounted to $161.10. REPORTABLE BUSINESS SEGMENTSJust Energy operates in the following reportable segments: gas marketing, electricity marketing, ethanol, home services, and other. Other represents Hudson Solar and Momentis. Reporting by products and services is in line with Just Energy's performance measurement parameters.Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. Just Energy is not considered to have any key customers.The following tables present Just Energy's results by operating segments:For the three months ended September 30, 2011Gas marketingElectricity marketingEthanolHome servicesOtherConsolidatedRevenue$91,805$461,634$36,379$8,372$1,853$600,043Gross margin9,56178,4926,2126,5451,751102,561Amortization of property, plant and equipment3217223474141,435Amortization of intangible assets12,01917,2132399-29,633Administrative expenses8,65013,0822,1503,5741,31828,774Selling and marketing expenses8,42422,933-5783,36735,302Other operating expenses1,5657,507-304-9,376Operating profit (loss)(21,418)17,0353,7131,649(2,938)(1,959)Finance costs(3,391)(6,977)(1,606)(2,366)-(14,340)Change in fair value of derivative instruments27,541(2,605)(40)--24,896Other income9241,831--792,834Provision for (recovery of) income taxes5,0819,861--(17)14,925Profit (loss) for the period$(1,425)$(577)$2,067$(717)$(2,842)$(3,494)Capital expenditures$78$153$95$9,025$1,055$10,406For the three months ended September 30, 2010Gas marketingElectricity marketingEthanolHome servicesOtherConsolidatedRevenue$133,541$487,653$31,191$5,172$321$657,878Gross margin2,47585,7064,4653,78628796,719Amortization of property, plant and equipment5619612977211,892Amortization of intangible assets11,52820,274-453-32,255Administrative expenses7,19812,0173,1622,99659025,963Selling and marketing expenses12,02123,576-85050336,950Other operating expenses2,4276,860-191-9,478Operating profit (loss)(31,260)22,0181,006(776)(807)(9,819)Finance costs(4,722)(7,491)(1,902)(1,490)-(15,605)Change in fair value of derivative instruments(90,927)(113,209)---(204,136)Other income (loss)(1,581)2,47235-(5)921Recovery of income taxes(39,359)(55,277)-(567)-(95,203)Profit (loss) for the period$(89,131)$(40,933)$(861)$(1,699)$(812)$(133,436)Capital expenditures$634$934$65$9,152$-$10,785For the six months ended September 30, 2011Gas marketingElectricity marketingEthanolHome servicesOtherConsolidatedRevenue$294,255$846,981$66,571$16,178$2,258$1,226,243Gross margin34,666138,5098,75712,7772,113196,822Amortization of property, plant and equipment6581,3926407972,776Amortization of intangible assets20,89737,2357798-58,937Administrative expenses17,47925,8974,8236,3372,52257,058Selling and marketing expenses18,96144,533-1,8784,48469,856Other operating expenses2,62314,617-631-17,871Operating profit (loss)(25,952)14,8353,2873,054(4,900)(9,676)Finance costs(6,903)(13,414)(3,293)(4,517)(5)(28,132)Change in fair value of derivative instruments79,12325,555(85)--104,593Other income9641,890--1452,999Provision for (recovery of) income taxes7,71614,481--(51)22,146Profit (loss) for the period$39,516$14,385$(91)$(1,463)$(4,709)$47,638Capital expenditures$745$1,447$122$18,551$1,136$22,001Total goodwill$127,759$104,124$-$283$-$232,166Total assets$561,840$697,083$163,936$159,787$1,518$1,584,164Total liabilities$744,973$824,520$94,112$136,737$190$1,800,532For the six months ended September 30, 2010Gas marketingElectricity marketingEthanolHome servicesOtherConsolidatedRevenue$336,304$873,197$47,997$9,613$451$1,267,562Gross margin19,890148,4721,6766,618418177,074Amortization of property, plant and equipment1,1731,90459314023,812Amortization of intangible assets21,98236,539-906-59,427Administrative expenses16,75025,6105,6295,88193454,804Selling and marketing expenses23,71740,548-1,66477966,708Other operating expenses2,87414,874-721-18,469Operating profit (loss)(46,606)28,997(4,546)(2,694)(1,297)(26,146)Finance costs(8,670)(13,250)(3,609)(2,831)-(28,360)Change in fair value of derivative instruments66,75564,656---131,411Other income (loss)1,0541,61341-(5)2,703Recovery of income taxes(22,400)(33,960)-(1,385)-(57,745)Profit (loss) for the period$34,933$115,976$(8,114)$(4,140)$(1,302)$137,353Capital expenditures$1,157$1,750$179$17,306$-$20,392Total goodwill$127,492$103,242$-$283$-$231,017Total assets$771,183$963,048$163,372$109,258$798$2,007,659Total liabilities$1,016,077$1,282,093$106,719$84,822$135$2,489,846Geographic informationRevenues from external customersFor the three months ended Sept. 30, 2011For the three months ended Sept. 30, 2010For the six months ended Sept. 30, 2011For the six months ended Sept. 30, 2010Canada$225,301$279,671$506,716$591,393United States374,742378,207719,527676,169Total revenue per consolidated income statement$600,043$657,878$1,226,243$1,267,562The revenue above is based on the location of the customer.Non-current assetsNon-current assets for this purpose consist of property, plant and equipment and intangible assets and are summarized as follows:As at September 30, 2011As at September 30, 2010Canada$495,535$602,618United States283,571421,368Total$779,106$1,023,98611.OTHER INCOME, EXPENSES AND ADJUSTMENTS(a) Other operating expensesFor the three months ended Sept. 30, 2011For the three months ended Sept. 30, 2010For the six months ended Sept. 30, 2011For the six months ended Sept. 30, 2010Amortization of gas contracts$6,790$9,232$13,530$18,114Amortization of electricity contracts16,26716,77132,43330,798Amortization of water heaters399397798795Amortization of other intangible assets6,1775,85512,1769,720Amortization of property, plant and equipment1,4351,8922,7763,812Bad debt expense6,4516,69413,26512,443Transaction costs-185-1,284Capital tax-26-159Share-based compensation2,9252,5734,6064,583$40,444$43,625$79,584$81,708(b) Included in change of fair value of derivative instrumentsFor the three months ended Sept. 30, 2011For the three months ended Sept. 30, 2010For the six months ended Sept. 30, 2011For the six months ended Sept. 30, 2010Amortization of gas contracts$12,876$14,009$25,642$35,820Amortization of electricity contracts24,29125,03348,65938,700(c)Employee benefit expenseFor the three months ended Sept. 30, 2011For the three months ended Sept. 30, 2010For the six months ended Sept. 30, 2011For the six months ended Sept. 30, 2010Wages, salaries and commissions$39,620$45,577$77,823$75,722Benefits4,8115,38210,06110,170$44,431$50,959$87,884$85,89212.INCOME TAXESFor the three months ended Sept. 30, 2011For the three months ended Sept. 30, 2010For the six months ended Sept. 30, 2011For the six months ended Sept. 30, 2010Current income tax recovery$(1,923)$(2,734)$(4,161)$(3,198)Future tax expense (recovery)16,848(92,469)26,307(54,547)Provision (recovery) for income tax$14,925$(95,203)$22,146$(57,745)Just Energy's previous income trust structure required certain temporary differences to be measured at higher deferred tax rates under IFRS. When Just Energy converted to a corporation on January 1, 2011, Just Energy re-measured its deferred tax balances in accordance with IFRS Standing Interpretations Committee ("SIC") Standards -- Standard 25, "Changes in Tax Structure of an Entity", using the tax rates applicable to a corporation.13. INCOME (LOSS) PER SHARE/UNITFor the three months ended Sept. 30, 2011For the three months ended Sept. 30, 2010For the six months ended Sept. 30, 2011For the six months ended Sept. 30, 2010Basic income (loss) per share/unitNet income (loss) available to shareholders$(3,494)$(133,733)$47,638$139,676Basic units and shares outstanding137,827,503125,462,358137,505,550125,142,006Basic income (loss) per share/unit$(0.03)$(1.07)$0.35$1.12Diluted income (loss) per share/unitNet income (loss) available to shareholders$(3,494)$(133,733)$47,638$139,676Adjusted net income for dilutive impact of convertible debentures5,8253,62711,4897,182Adjusted net income for financial liabilities-15,138-6,524Adjusted net income (loss)2,331(114,968)59,127153,382Basic units and shares outstanding137,827,503125,462,358137,505,550125,142,006Dilutive effect of:Weighted average number of Class A preference shares-5,263,728-5,263,728Weighted average number of Exchangeable Shares-4,176,620-4,258,056Restricted share grants2,987,4692,697,0993,031,5572,701,471Deferred share grants114,45490,803111,41187,525Convertible debentures21,787,41721,015,11321,514,89117,608,920Shares outstanding on a diluted basis162,716,843158,705,721162,163,409155,061,706Diluted income (loss) per share/unit$(0.03)1$(1.07)1$0.351$0.991The assumed conversion into shares/units results in an anti-dilutive position, therefore, the diluted per share/unit value is equal to the basic income per share/unit value.14. DISTRIBUTIONS AND DIVIDENDS PAID AND PROPOSEDFor the three months ended September 30, 2011, dividends of $0.31 (2010 - $0.31) per share/unit were proposed and paid by Just Energy. This amounted to $43,691 (2010 - $39,530), which was approved throughout the period by the Board of Directors and was paid out during the quarter. For the six months ended September 30, 2011, dividends of $0.62 (2010 - $0.62) per share/unit were proposed and paid by Just Energy. This amounted to $87,296 (2010 - $78,989), which was approved throughout the period by the Board of Directors and was paid out during the period.Declared dividends subsequent to quarter endOn October 3, 2011, the Board of Directors of Just Energy declared a dividend in the amount of $0.10333 per common share ($1.24 annually). The dividend was paid on October 31, 2011, to shareholders of record at the close of business on October 15, 2011.On November 3, 2011, the Board of Directors of Just Energy declared a dividend in the amount of $0.10333 per common share ($1.24 annually). The dividend will be paid on November 30, 2011, to shareholders of record at the close of business on November 15, 2011.15. COMMITMENTS Commitments for each of the next five years and thereafter are as follows: As at September 30, 2011Premises and equipment leasingGrain production contractsMaster Services agreement with EPCORLong-term gas and electricity contracts with various suppliersLess than 1 year$8,056$9,143$838$1,383,826One to three years11,375693-1,329,121Four to five years6,726--260,291Exceeding five years3,963--6,236$30,120$9,836$838$2,979,474As at September 30, 2010Premises and equipment leasingGrain production contractsMaster Services agreement with EPCORLong-term gas and electricity contracts with various suppliersLess than 1 year$8,425$36,768$8,640$1,612,127One to three years12,29711,7163,4561,683,677Four to five years6,273198-370,602Exceeding five years5,622---$32,617$48,682$12,096$3,666,406Just Energy is also committed under long-term contracts with customers to supply gas and electricity. These contracts have various expiry dates and renewal options. Just Energy has entered into leasing contracts for office buildings and administrative equipment. These leases have a leasing period between one and eight years. For the main office building of Just Energy, there is a renewal option for an additional five years. No purchase options are included in any major leasing contracts.16. SUBSEQUENT EVENTOn October 3, 2011, Just Energy completed the acquisition of Fulcrum Retail Holdings LLC ("Fulcrum"). Fulcrum is a privately held retail electricity provider, operating in the state of Texas. Fulcrum operates under the brands, Tara Energy, Amigo Energy and Smart Prepaid Electric, and focuses on residential, small and mid-size commercial customers. Fulcrum markets primarily through online and targeted affinity channels. The consideration for the acquisition is approximately US$79.4 million, subject to customary working capital adjustments. Just Energy will also pay up to US$20 million (the "Earn-Out Amount") to the seller 18 months following the closing date (the "Earn-Out Period"), provided that certain EBITDA and billed volume targets are satisfied by Fulcrum during the Earn-Out Period. Approximately 45% of the Earn-Out Amount will be payable in common shares of Just Energy, valued at $10.7166 per common share (converted into U.S. dollars) with the a balance of the Earn-Out Amount payable in cash. 17. EXPLANATION OF TRANSITION TO IFRS For all periods up to and including the year ended March 31, 2011, Just Energy prepared its financial statements in accordance with Canadian GAAP. Just Energy has prepared financial statements which comply with IFRS for periods beginning on or after April 1, 2011, as described in the accounting policies set out in Note 3. In preparing these financial statements, Just Energy's opening consolidated statement of financial position was prepared as at April 1, 2010 (Just Energy's date of transition).In preparing the opening IFRS consolidated statement of financial position, Just Energy has adjusted amounts previously reported in consolidated financial statements prepared in accordance with Canadian GAAP. An explanation of how the transition from Canadian GAAP to IFRS has affected Just Energy's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.(a) Elective exemptions from full retrospective applicationIn preparing these consolidated financial statements in accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards" ("IFRS 1"), Just Energy has applied certain optional exemptions from full retrospective application of IFRS. The optional exemptions are described below.(i) Business combinations Just Energy has applied the business combinations exemption in IFRS 1 to not apply IFRS 3, "Business Combinations", retrospectively. Accordingly, Just Energy has not restated business combinations that took place prior to the transition date. (ii) Share-based Payments Just Energy has elected to apply IFRS 2, "Share-based Payments", to equity instruments granted on or before November 7, 2002, or which are vested by the transition date. (iii) Borrowing Costs IAS 23, "Borrowing Costs", requires that Just Energy capitalizes the borrowing costs related to all qualifying assets for which the commencement date for capitalization is on or after April 1, 2010. Just Energy elected not to adopt this policy early and has, therefore, expensed all borrowing costs prior to transition. (b) Mandatory exemptions to retrospective applicationIn preparing these consolidated financial statements in accordance with IFRS 1, Just Energy has applied certain mandatory exemptions from full retrospective application of IFRS. The mandatory exceptions applied from full retrospective application of IFRS are described below.(i) Estimates Hindsight was not used to create or revise estimates, and accordingly, the estimates previously made by Just Energy under Canadian GAAP are consistent with their application under IFRS. (ii) Hedge accounting Hedge accounting can only be applied prospectively from the transition date to transactions that satisfy the hedge accounting criteria in IAS 39 at that date. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created prospectively. Just Energy has not applied any hedge accounting at or after the transition date. Prior to July 1, 2008, Just Energy utilized hedge accounting for its customer contracts and formally documented the relationship between hedging instruments and the hedged items as well as its risk management objective and strategy for undertaking various hedge transactions. Effective July 1, 2008, Just Energy ceased the utilization of hedge accounting. The balance still remaining in accumulated other comprehensive income relates to the effective portion of the hedges that are still expected to occur as of the transition date. Reconciliation of consolidated income statement for the three months ended September 30, 2010Canadian GAAP accountsCanadian GAAPIFRS adjustmentIFRS reclassificationsIFRSIFRS accountsSALES$657,878$-$-$657,878SALESCOST OF SALES561,049110-561,159COST OF SALESGROSS MARGIN96,829(110)-96,719GROSS MARGINEXPENSESEXPENSESGeneral and administrative25,511452-25,963Administrative expensesMarketing expenses36,950--36,950Selling and marketing expensesOther operating expenses-18543,44043,625Other operating expensesBad debt expense6,694-(6,694)-Amortization of intangible assets and related supply contracts32,255-(32,255)-Amortization of property, plant and equipment1,892-(1,892)-Unit based compensation1,5481,025(2,573)-Capital tax26-(26)-$104,876$1,662$-$106,538Income (loss) before the undernoted(8,047)(1,772)-(9,819)Operating profitInterest expense12,2963,309-15,605Finance costsChange in fair value of derivative instruments181,25422,882-204,136Change in fair value of derivative instrumentsOther income(921)--(921)Other incomeIncome (loss) before income tax(200,676)(27,963)-(228,639)Income before income taxProvision for (recovery of) income tax expense(46,530)(48,673)-(95,203)Provision for income tax expenseNET INCOME (LOSS) FOR THE PERIOD$(154,146)$ 20,710-$ (133,436)PROFIT FOR THE PERIODAttributable to:Attributable to:Unitholders of Just Energy$ (154,480)$ 20,747-$ (133,733)Unitholders of Just EnergyNon-controlling interests334(37)-297Non-controlling interestsNET INCOME (LOSS) FOR THE PERIOD$ (154,146)$ 20,710$-$ (133,436)PROFIT FOR THE PERIODReconciliation of consolidated income statement for the six months ended September 30, 2010Canadian GAAP accountsCanadian GAAPIFRS AdjustmentIFRS ReclassificationsIFRSIFRS accountsSALES$1,267,562$-$-$1,267,562SALESCOST OF SALES1,090,236252-1,090,488COST OF SALESGROSS MARGIN177,326(252)-177,074GROSS MARGINEXPENSESEXPENSESGeneral and administrative54,78321-54,804Administrative expensesMarketing expenses66,708--66,708Selling and marketing expensesOther operating expenses-1,28480,42481,708Other operating expensesBad debt expense12,443-(12,443)-Amortization of intangible assets and related supply contracts59,427-(59,427)-Amortization of property, plant and equipment3,812-(3,812)-Unit based compensation2,6231,960(4,583)-Capital tax159-(159)-$199,955$3,265$-$203,220Income (loss) before the undernoted(22,629)(3,517)-(26,146)Operating profit (loss)Interest expense21,7766,584-28,360Finance costsChange in fair value of derivative instruments(133,122)1,711-(131,411)Change in fair value of derivative instrumentsOther income(2,703)--(2,703)Other incomeIncome before income tax91,420(11,812)-79,608Income before income taxProvision for (recovery of) income tax expense(27,170)(30,575)-(57,745)Provision for (recovery of) income tax expenseNET INCOME FOR THE PERIOD$118,590$18,763-$137,353PROFIT FOR THE PERIODAttributable to:Attributable to:Unitholders of Just Energy$120,829$18,847-$139,676Unitholders of Just EnergyNon-controlling interests(2,239)(84)-(2,323)Non-controlling interestsNET INCOME (LOSS) FOR THE PERIOD$118,590$18,763$-$137,353PROFIT FOR THE PERIODReconciliation of consolidated statement of comprehensive income for the three months ended September 30, 2010:Canadian GAAP accountsCanadianGAAPIFRSadjustmentIFRSreclassificationsIFRSIFRS accountsNET LOSS$(154,146)$20,710$-$(133,436)NET LOSSUnrealized gain on translation of self-sustaining operations(5,650)16-(5,634)Unrealized gain on translation of self-sustaining operationsAmortization of deferred unrealized gain on discontinued hedges – net of income taxes of $4,589(23,195)--(23,195)Amortization of deferred unrealized gain on discontinued hedges – net of income taxes of $4,589OTHER COMPREHENSIVE LOSS(28,845)16-(28,829)OTHER COMPREHENSIVE LOSSAttributable to:COMPREHENSIVE LOSS$(182,991)$20,726$-$(162,265)OTHER COMPREHENSIVE LOSSAttributable to:Unitholders of Just Energy$(183,325)$20,763$-$(162,562)Unitholders of Just EnergyNon-controlling interests334(37)297Non-controlling interests$(182,991)$20,726$-$(162,265)Reconciliation of consolidated statement of comprehensive income for the six months ended September 30, 2010:Canadian GAAP accountsCanadian GAAPIFRS AdjustmentIFRS ReclassificationsIFRSIFRS accountsNET INCOME$118,590$18,763$-$137,353NET INCOMEUnrealized gain on translation of self-sustaining operations9,22621-9,247Unrealized gain on translation of self-sustaining operationsAmortization of deferred unrealized gain on discontinued hedges – net of income taxes of $10,439(51,918)--(51,918)Amortization of deferred unrealized gain on discontinued hedges – net of income taxes of $10,439OTHER COMPREHENSIVE LOSS(42,692)21-(42,671)OTHER COMPREHENSIVE LOSSCOMPREHENSIVE INCOME$75,898$18,784$-$94,682OTHER COMPREHENSIVEINCOMEAttributable to:Attributable to:Unitholders of Just Energy$78,137$18,868$-$97,005Unitholders of Just EnergyNon-controlling interests(2,239)(84)(2,323)Non-controlling interests$75,898$18,784$-$94,682Reconciliation of financial position and equity at September 30, 2010:Canadian GAAP accountsCanadian GAAP balancesIFRS adjustmentsIFRS reclassificationsIFRS balanceIFRS accountsASSETSASSETSNon-current assetsNon-current assetsProperty, plant and equipment$233,113$(799)$-$232,314Property, plant and equipmentIntangible assets560,655-231,017791,672Intangible assetsGoodwill236,321(5,304)(231,017)-Other assets long-term1,610--1,610Other non-current financial assetsContract initiation costs27,193--27,193Contract initiation costsLong-term receivable3,702--3,702Non-current receivablesFuture income tax assets134,670179,71219,665334,047Deferred tax asset1,197,264173,60919,6651,390,538Current assetsCurrent assetsInventory5,031--5,031InventoriesGas in storage48,204--48,204Gas in storageGas delivered in excess of consumption91,796--91,796Gas delivered in excess of consumptionAccounts receivable and unbilled revenues353,009--353,009Current trade and other receivablesAccrued gas receivable13,712--13,712Accrued gas receivablePrepaid expenses and deposits23,334--23,334Prepaid expenses and depositsOther assets – current3,034--3,034Other current assetsCurrent portion of future income tax assets19,665-(19,665)-Cash63,847-15,15479,001Cash and cash equivalentsRestricted cash15,154-(15,154)-636,786-(19,665)617,121TOTAL ASSETS$1,834,050$173,609$-$2,007,659TOTAL ASSETSEQUITY AND LIABILITIESEQUITY AND LIABILITIESUnitholders' deficiencyEquity attributable to equity holders ofthe parentDeficit$(1,386,479)$(109,503)$-$(1,495,982)DeficitAccumulated other comprehensive income179,27721-179,298Accumulated other comprehensive incomeUnitholders' capital670,591127,622-798,213Unitholders' capitalEquity component of convertible debentures33,914(15,728)-18,186Equity component of convertible debenturesContributed surplus21,048(21,048)--Contributed surplus(481,649)(18,636)-(500,285)Non-controlling interest18,364(266)-18,098Non-controlling interestTotal equity$(463,285)$(18,902)$-$(482,187)Total equityLiabilitiesLIABILITIESNon-current liabilitiesNon-current liabilitiesLong-term debt$512,385$-$-$512,385Long-term debtFuture income taxes-15,07312,24627,319Deferred tax liabilityDeferred lease inducements1,803--1,803Deferred lease inducementsOther liabilities – long term555,343--555,343Other non-current financial liabilitiesProvisions-6,291(2,994)3,297ProvisionsLiability associated with exchangeable shares and equity-based compensation-178,131-178,131Liability associated with exchangeable shares and equity-based compensation1,069,531199,4959,2521,278,278Current liabilitiesCurrent liabilitiesBank indebtedness863--863Bank indebtednessAccounts payable and accrued liabilities326,785(6,452)165320,498Trade and other payablesDeferred revenue114,301--114,301Deferred revenueUnit distribution payable13,285--13,285Unit distribution payableCurrent portion of long-term debt67,850(532)-67,318Current portion of long-term debtProvisions--2,8292,829ProvisionsCurrent portion future income tax liabilities12,246-(12,246)-Other liabilities - current692,474--692,474Other current financial liabilities1,227,804(6,984)(9,252)1,211,568TOTAL LIABILITIES$2,297,335$192,511$-$2,489,846TOTAL LIABILITIESTOTAL EQUITY AND LIABILITIES$1,834,050$173,609$-$2,007,659TOTAL EQUITY AND LIABILITIESNotes to the reconciliation of equity as at September 30, 2010.A. Property, plant and equipment Canadian GAAP – Component accounting required but typically not practiced in Canada. IFRS - Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items. Management has re-assessed the significant parts of the ethanol plant which has resulted in a decrease in amortization of the ethanol plant.B. Transaction costsCanadian GAAP – The cost of the purchase includes the direct costs of the business combination. IFRS - Transaction costs of the business combination are expensed as incurred.Transaction costs relating to the acquisition of Hudson have been expensed under IFRS. In addition, and in accordance with IAS 39, management has allocated transaction costs directly attributable to the credit facility which were previously included as part of a business combination, to the related long-term debt. These costs are now expensed using the effective interest rate method over the life of the related debt.C. Stock-based compensation and contributed surplusCanadian GAAP - For grants of share-based awards with graded vesting, the total fair value of the award is recognized on a straight-line basis over the employment period necessary to vest the award.IFRS - Each tranche in an award; graded vesting is considered a separate grant with a different vesting date and fair value. Each grant is accounted for on that basis. As a result, Just Energy adjusted its expense for share-based awards to reflect this difference in recognition.D. ProvisionsCanadian GAAP – Accounts payable, accrued liabilities and provisions are disclosed on the consolidated statement of financial position as a single line item.IFRS – Provisions are disclosed separately from liabilities and accrued liabilities and require additional disclosure. Under IFRS, provisions are also measured at the present value of the expenditures expected to be required to settle the obligation using a discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. This has resulted in an adjustment to Just Energy.E. Deferred tax asset/liabilityCanadian GAAP - Deferred taxes are split between current and non-current components on the basis of either: (1) the underlying asset or liability or (2) the expected reversal of items not related to an asset or liability.IFRS - All deferred tax assets and liabilities are classified as non-current.F. ImpairmentCanadian GAAP - A recoverability test is performed by first comparing the undiscounted expected future cash flows to be derived from the asset to its carrying amount. If the asset does not recover its carrying value, an impairment loss is calculated as the excess of the asset's carrying amount over its fair value.IFRS – The impairment loss is calculated as the excess of the asset's carrying amount over its recoverable amount, where recoverable amount is defined as the higher of the asset's fair value less costs to sell and its value-in-use. Under the value-in-use calculation, the expected future cash flows from the asset are discounted to their net present value. The change in measurement methodology did not result in additional impairment to Just Energy under IFRS.G. Exchangeable Shares and equity-based compensationCanadian GAAP – The Class A preference shares and Exchangeable Shares issued by a subsidiary of an income fund are presented on the consolidated balance sheets of the income fund as part of unitholders' capital if certain criteria are met.Just Energy had met the criteria and the Class A preference shares and Exchangeable Shares were recorded as part of unitholders' capital.IFRS – As a result of the Class A preference shares, Exchangeable Shares and equity-based compensation being exchangeable into a puttable liability, the shares and equity-based compensation did not meet the definition of an equity instrument in accordance with IAS 32, "Financial Instruments: Presentation", and accordingly, were classified as financial liabilities. The Exchangeable Shares and equity-based compensation were recorded upon transition to IFRS at redemption value and subsequent to transition were adjusted to reflect the redemption value at each reporting date. The resulting change from carrying value to redemption value was recorded at transition and at each reporting period to retained earnings and earnings, respectively, as a change in fair value of derivative instruments. All distributions were recorded as interest expense in the reporting period for which the dividends were declared.H. Deferred taxesCanadian GAAP - There was an exemption that allowed issuers of convertible debentures to treat the difference in the convertible debentures as a permanent difference between tax and accounting. This exemption does not exist under IFRS. Under CGAAP, Just Energy's deferred tax balances were calculated using the enacted or substantively enacted tax rates that were expected to apply to the reporting period(s) when the temporary differences were expected to reverse.IFRS – The discount on the convertible debentures has been included in assessing the Company's future tax position. IAS 12, "Income Taxes", requires the application of an "undistributed tax rate" in the calculation of deferred taxes, whereby deferred tax balances are measured at the tax rate applicable to Just Energy's undistributed profits during the periods when Just Energy was an income trust.Deferred taxes have been recalculated on the revised accounting values for the adjustments A to G.I. Acquisition of minority interestCanadian GAAP – The gain on the acquisition of minority interest which occurred on January 1, 2011, was treated as a reduction to goodwill on the original acquisition.IFRS – The gain was reallocated to contributed surplus as this is considered an equity transaction.J. Cash flow statementsCash flow statements prepared under IAS 7, "Statement of Cash Flows", present cash flows in the same manner as under previous GAAP. Other than the adjustments noted above, reclassifications between net earnings and the adjustments to compute cash flows from operating activities, there were no material changes to the statement of cash flows.FOR FURTHER INFORMATION PLEASE CONTACT: Ms. Rebecca MacDonaldJust Energy Group Inc.Executive Chair(416) 367-2872ORMr. Ken Hartwick, C.A.Just Energy Group Inc.Chief Executive Officer & President(905) 795-3557ORMs. Beth Summers, C.A.Just Energy Group Inc.Chief Financial Officer(905) 795-4206The Toronto Stock Exchange has neither approved nor disapproved of the contents of this release.