RISK MANAGEMENT POLICY

FOR

THE JUST ENERGY GROUP OF COMPANIES

FEBRUARY 2014

TABLE OF CONTENTS

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ARTICLE 1 RISK POLICY OUTLINE..................................................................................... 2

1.1 Scope, Objective and Purpose ................................................................................. 2 1.2 Background and Management Philosophy ............................................................. 3 1.3 Management Risk Committee and Risk Management Structure ............................ 4

1.4 Approved Management and Mitigation Activities ................................................. 7 1.5 Limits – Company and Individual Trader ............................................................... 7 1.6 Kickback Prohibitions ............................................................................................. 8 1.7 Repercussion of violations and remedial actions .................................................... 8 1.8 Limit Violation Notification Requirements ............................................................ 9

1.9 Risk Measurement .................................................................................................. 9 1.10 Controls ................................................................................................................. 10 1.11 Reporting............................................................................................................... 11

1.12 Policy Amendment Authority ............................................................................... 13

ARTICLE 2 RISK CONTROLS, MEASUREMENTS AND METRICS.............................. 14

2.1 New Product/Structure/Strategy Approval ........................................................... 14 2.2 Counterparty Credit Approval & Scoring ............................................................. 14

2.3 Customer Credit Approval and Scoring ................................................................ 15 2.4 Measurements and Metrics ................................................................................... 15

ARTICLE 3 MAJOR POLICY GUIDELINES ....................................................................... 18

3.1 Risk Limits ............................................................................................................ 18 3.3 Tenors (Duration or length of time of transacted Instruments) ............................ 20

3.4 Authorities............................................................................................................. 20 3.5 Limits .................................................................................................................... 20

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ARTICLE 1

RISK POLICY OUTLINE

1.1 Scope, Objective and Purpose

This document establishes the risk management policy related to the purchasing, price, volume

management and related activities for commodity, foreign exchange and interest rates of the Just

Energy Group (“JE”). Procurement and position management activities are primarily comprised

of natural gas, electricity, electricity capacity, natural gas pipeline and storage capacity and green

energy alternative purchases to meet Retail Sales commitments and activities associated with

foreign exchange and interest rate hedging.

It is acknowledged that these commodity procurement activities are integrally associated with

customer credit risk, particularly commercial customers. This document also establishes the risk

management limits associated with the aggregation and monitoring of customers where they are

separately identifiable for reporting purposes.

It is also acknowledged that these commodity procurement activities are integrally associated

with counterparty credit risk with the suppliers of the commodity contracts. JE is exposed to

risks associated with the potential losses that may arise from a counterparty‟s failure to honour

its obligations. JE‟s credit exposure is predominantly a function of the amount of cash required

to secure replacement supplies of a commodity in the event of non-performance by a

counterparty.

It is also acknowledged that these commodity procurement activities, along with competitor

pricing and utility prices, directly impact customer pricing. JE establishes targets and thresholds

for acceptable margins within the company. Commodity market pricing is a direct feed for

establishing appropriate pricing to meet these targets. (Further information on this may be found

in the Risk Procedures document.)

Senior management is committed to an effective risk management function to ensure appropriate

risk management and oversight. Risk management encompasses the acceptance and

management of risk as well as the elimination or mitigation of risk.

Through effective governance, clear protocols and required reporting provided herein, the senior

executives of the Company and the Board of Directors can confirm that:

The financial risk taken on by business activities as they relate to commodity, interest

rates and foreign exchange is in accordance with their financial expectations as set

out in the business plan, forecast or other internal documents as well as the MD&A

and AIF.

All approved policies and controls with regard to identified risks related to

commodity, interest rates and foreign exchange are clear, represent best practices and

are complied with.

This document also serves to define the role of the Management Risk Committee in commodity

hedging (including weather hedges), hedging foreign exchange, hedging interest rates, setting

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hedge position guidelines, establishing strategy and controls around position management and

establishing authorization requirements for hedges.

This document does not address any areas other than those mentioned above. For clarity,

regulatory, legal, collections and other risks are not addressed by this policy.

This document, including its appendices, shall be revisited annually, or as material changes occur

to the business to ensure that it is current with evolution of the organization as well as methods

and approaches in risk management. The provisions of previous versions of this document will

remain in effect until an updated version is fully adopted by JE‟s Board. New provisions in

subsequent versions of this document will not be applied retroactively unless this is explicitly

stated in the Policy update.

The head of the Risk Department is responsible for maintaining the master copy of this

document and ensuring that updates are captured in a timely manner. Any public dissemination

of these documents is also the responsibility of the head of the Risk Department.

1.2 Background and Management Philosophy

It is the intent of JE to transact in the energy market place in a manner that mitigates the risks

inherent in supplying energy commodities to retail customers. For clarity, JE recognizes that

there are risks inherent in the energy markets and strives to minimize these but recognizes that

complete elimination of all such risks is unachievable. Retail customers require variable

quantities of energy commodities due to usage patterns that are weather, economic, process,

product or schedule dependent. JE‟s hedge strategy encompasses a portion that is volume driven

and a portion that is margin driven. The difference between JE‟s volume or price of supply and

expected retail sale commitments are subject to the limits set forth in Article 3.5 of this policy.

The Company also has foreign exchange and interest rate exposures subject to the limits set forth

in Article 3.5 of this policy.

As a result, the Company may enter into hedges in the following situations:

In order to protect customer contract economics from subsequent fluctuations in

commodity prices

In order to protect customer contract economics from subsequent variability that may

alter the expected customer load based on normal weather,

To hedge the weather related and other volumetric or margin risks for gas and power

risks, books and portfolios. The Supply Department will assess the risk exposure in

conjunction with each transaction and buy appropriate instruments to limit this

exposure in accordance with the approved structures and strategies.

In order to protect the company from variability in foreign exchange,

In order to protect the company from variability in interest rates, and

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In order to protect the company from transaction and liquidity risk, where scarcity in

opportunity to purchase may drive decisions on timing and quantity

1.3 Management Risk Committee and Risk Management Structure

General Authorization

The Management Risk Committee has the general authority to develop appropriate policies and

procedures to ensure an appropriate risk control environment. The Management Risk Committee

has been delegated this authority from the Board of Directors and the Board Risk Committee.

Composition

The Management Risk Committee shall, at a minimum, include the SVP, Corporate Risk Officer,

the CFO, the COO, and the Commercial Division President.

Responsibilities

The Management Risk Committee has responsibility for setting the day to day risk management

policies including implementation and maintenance of an appropriate risk management

organization structure. The Management Risk Committee is responsible for establishing

procedures to implement this policy, designating authorized traders and the trade administrator,

ensuring an appropriate structure to monitor the status of hedge positions and strategies, ensuring

an appropriate control environment and communicating with the Board of Directors through the

Board Risk Committee. At a minimum, there will be an independent review of all transactions

and reports prescribed by this policy through the Risk Department including ensuring appropriate

transaction approvals, market source information and monitoring of positions in relation to

approved parameters.

The Supply Department is responsible for managing the commodity supply commitments of JE.

This includes the forecasting of customer load, purchase of commodity and the hedging of

market risk. This also includes managing the foreign exchange requirements as they relate to

hedging currency related to US dollar denominated commodity purchases for Canadian expected

retail requirements and managing the storage assets that arise through utility scheduling and

balancing. It also includes developing a method for transacting and then executing on corporate

foreign exchange requirements as communicated by Treasury. Finally, it includes the mitigation

and avoidance of risk through adherence to this policy and the guidelines contained herein.

Structuring is responsible for calculating and communicating retail prices to regions/divisions for

them to establish customer pricing that maintains margin targets.

The Treasury group is responsible for managing the foreign exchange requirements as they relate

to corporate cash flows together with interest rate commitments of JE and overall management of

related credit and collateral requirements. As foreign exchange requirements are identified

(inclusive of any commodity related requirements as communicated by Supply), they are

approved as to quantum and required timing then communicated to Supply for application of the

transaction strategy and execution.

The Credit and Collections group and Commercial Structuring group are responsible for

establishing and maintaining a corporate customer credit policy, oversight that there are

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appropriate internal measures for the processing of customer credit checks as well as monitoring

the creditworthiness of customers on an ongoing basis. For clarity, these areas are responsible

for customer risk and separate credit policies exist to manage consumer and commercial

customer credit risk; this policy addresses responsibilities and limits associated with commodity

counterparties.

Reporting

The Risk Department reports to the Board of Directors through the Board Risk Committee. The

Risk Department also reports directly to the CFO. With respect to transactions for interest and

foreign exchange, the Risk Department shall report directly to the COO.

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The Operational and Control Structure is as follows:

Board of Directors

Board Risk Committee

Executive Committee

Management Risk Committee

COO

CFO

EVP Commercial

Commercial Division COO

Risk Office

Treasury

Credit & Collections

Supply

Consumer Structuring

Commercial Structuring

(The dotted line indicates the flow of risk related items. Not all reporting follows these lines.) Roles and

responsibilities of these individuals/committees may be found in the Risk Procedures document.

Meetings

The Management Risk Committee will meet no less than monthly to review at least past, current

and proposed commodity price and volume risk, foreign exchange risk and interest rate risk

management activities in addition to review of limit excesses, policy breaches, new

product/structure proposals and existing product/structure reviews, however discussions at the

meetings shall not be limited to these topics. This shall be supplemented by regular reporting that

is disseminated to the members of the Management Risk Committee. Outside regularly

scheduled meetings, members may recommend hedging instruments and structures for

consideration and approval. Prior to implementation, these proposals are subject to the approval

conditions of Article 1.5 and Appendix III.

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At all meetings of the Management Risk Committee, a majority of its members is necessary to

constitute a quorum for the transaction of business. Any action of the Management Risk

Committee must be authorized by a majority of the members present. Between scheduled

meetings, the Management Risk Committee is authorized to take action by written consent of a

majority of its members.

Minutes of meetings will be kept by the SVP, Corporate Risk Officer to document decisions of

the committee and made available within a week of each meeting.

1.4 Approved Management and Mitigation Activities

JE may enter into Spot Purchases, Forwards, Simple Financial Puts and Calls, Fixed for Floating

Financial derivatives (Swaps) and other instruments as noted in Appendices I and II as

appropriate for meeting forecast retail obligations and within limits as established in Article 3.5.

Transactions are only permitted if in compliance with approved structures and strategies. At

least once per year, management will look to the upcoming winter and, if warranted, develop a

strategy to address risks in the natural gas portfolio for approval by the Board Risk Committee in

advance of implementation. The same shall be done for power for the upcoming summer.

1.5 Limits – Company and Individual Trader

Individual limits may be established and revised by the Management Risk Committee on the

basis of permitted risk tolerance. Risk tolerances of the Company are established by this policy.

Any change to established risk tolerances and associated limits as described by this policy

require prior approval of the Board Risk Committee which shall report any change to the Board

of Directors at its next meeting. For clarity, under no circumstances may the limits established

by this policy be overridden without prior approval of the Board Risk Committee.

The Management Risk Committee is responsible for ensuring the Company is within risk

tolerances established by this policy. The Management Risk Committee may establish lower

limits to manage risk within Board established limits. The Management Risk Committee can, at

any time, establish additional reporting requirements to ensure Company limit compliance.

Term transactions that are directly related to a specific customer may be transacted without

advance approval, however the associated customer load forecast must be uploaded to EMS by

the end of the next business day to support the back to back purchase. Should the transaction be

to cover several customers, documentation of customers‟ names and contract numbers shall be

uploaded. Transaction approval for the customer load associated with updates that do not

include assumption changes will be implicit with the approval of the load update. All other term

trades shall be approved by the SVP, Corporate Risk Officer and the SVP, Supply unless the

SVP Supply is trading in which case it will be approved by the COO. A standing approval may

be granted to accommodate other customer aggregation. Under no circumstances may these

limits be overridden. For clarity, should an individual trader wish to transact beyond his/her

established limits or constraints for a balancing transaction, additional approvals must be

obtained in advance of the trade. The aggregate level of trader limits shall at no time exceed the

Company limit. The Board Risk Committee will be informed of individual trader limits;

however approval of these limits is implicit in the delegation of operational controls to the

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Management Risk Committee. Appendix III details the levels of authority required for an

individual to transact on behalf of the Company.

1.6 Kickback Prohibitions

All staff regardless of division are prohibited from receiving compensation

including cash, gifts, favourable bid/ask spreads or other profit-sharing arrangements from

counterparties as part of the corporate Code of Business Conduct and Ethics Policy. During the

course of business, there will be various supplier events. For clarity, these events would be

considered a kickback if they were the cause for granting additional business to one counterparty

over another where the result is detrimental to the JE Group of companies. For example, if

commodity price quotes between two counterparties are significantly different, the trader should

be awarding the contract to the counterparty with the best price, all other factors being equal.

Where two trades are similar, consideration shall be made as to the overall counterparty risk of

the book and grant the trade to alleviate counterparty concentration risk. If there is ever a

question as to whether a supplier event could pose a conflict under this article, the Legal

Department or Risk Management Department must be consulted.

1.7 Repercussion of violations and remedial actions

Limit violations can fall into one of two categories; a compliance violation or a market-

sourced/changed situation violation.

Compliance Violations

Compliance violations are the result of intentional or unintentional violation of the limits

established by this policy such as trading without appropriate authorization. All compliance

violations must be reported within three business days of discovery to the Chair of the Board

Risk Committee together, if appropriate, with a recommendation for remedial action. Any

suspected cases of non-compliance by a member of the Management Risk Committee or

executive management shall be reported to Internal Audit or the Chair of the Board Risk

Committee directly within three business days of discovery. Any instance of non-compliance

may also be reported through the Whistleblower website www.justenergy.ethicspoint.com.

Failure to report a compliance violation is in itself considered a compliance violation. The Board

Risk Committee has final authority as to the remedial action. Such remedial action may include

consequences up to and including termination of the individual responsible.

Market sourced/changed situation violations

Market sourced/changed situation violations are usually the result of factors beyond the control

of the Supply and Risk Departments such as forward curve movement and the realization of

estimated forecast marketing run rates. The change in these factors may occur after a valid trade

has been appropriately approved and transacted. In addition, these types of violations can arise

from improvement of modeling; particularly forecast modeling. Market sourced/changed

situation violations require reporting to the Board Risk Committee at its regularly scheduled

meetings together with a review of the factors resulting in the violation. If the review indicates a

fundamental change in market factors impacting the Company on an on-going basis,

recommendations for policy revision may be developed and recommended.

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The Supply Department, Treasury, Credit and Collections groups as well as individuals from the

commercial division have the responsibility for complying with the terms of the Risk Policy.

The Risk Department has the responsibility of identifying and reporting breaches that occur. The

Management Risk Committee shall determine whether recommendations for remedial action are

appropriate. The Board Risk Committee shall make the final decision as to the recommended

remedial action.

1.8 Limit Violation Notification Requirements

The following limit violations must be brought to the attention of the Board of Directors through

the Board Risk Committee together with a proposed/enacted resolution to the violation (see

Article 2.4 and Appendix IV for definitions):

Open positions (long or short) in excess of defined limits (Volumetric Risk)

Expected unrealized customer margin less than defined limits (Margin Risk, Earnings

Risk)

Market value of open basis position in excess of defined limits (Basis Risk)

VaR in excess of defined limits (Volume, Price and Volatility Exposure Risk)

Expected margin less MTM of open position in excess of defined limits (Margin Risk)

Counterparty exposure in excess of defined limits (Credit Risk)

Contracting of instruments that have not been approved by the Management Risk

Committee (Structure Risk)

Contracting with counterparties that have not been approved by the Management Risk

Committee (Credit and Operational Risk)

Proposed resolutions may include, but are not limited to:

Eliminating the position through entering an offsetting purchase or sale

Holding the position for a certain period of time, with the approval of the Management

Risk Committee

Remedial actions to be pursued with the trader as recommended and approved by the

Management Risk Committee

1.9 Risk Measurement

JE measures its volume risk based on open positions relative to normal weather until 15 days

before delivery (at which time the actual weather forecast is used) and forecast retail load. JE

measures its margin risk based on customer margin relative to the internally marked price curves.

Reporting will focus on the quantification of the open positions volumetrically, using Market

value and VaR. Margin risks will also be reported. These measurements will be performed at a

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portfolio level for purposes of this policy however the Management Risk Committee, Supply

Department and Risk Management may choose to prepare measurements at a more granular level

for day to day monitoring purposes. Reports will be generated at a minimum weekly with daily

preparation preferred. Reports shall accommodate at least the required measurements of this

policy.

The Supply Department will continually evaluate the effectiveness of its risk mitigation efforts

overall and, as necessary, review on a more granular level and recalibrate models or approach as

necessary. Should this effort result in a proposed change to strategy, it shall be approved in

accordance with the requirements of this policy.

1.10 Controls

No leveraged contracts

JE may not enter into any contracts that effectively increase the contract quantity or the contract

price through use of linear or non-linear factors that effectively increase the quantity of the

position at the time of the transaction or are triggered by a future event.

Master Agreements required for Over-the-Counter Wholesale Contracts

All over-the-counter wholesale contracts that JE enters into are subject to contract provisions

with counterparties contained within master agreements (or long form contracts that set out terms

and conditions usually found in master agreements) unless otherwise approved by the

Management Risk Committee.

Wholesale market contracts only for which a fair value can reliably be obtained

The use of any transaction for which a fair market quotation cannot be obtained or which cannot

be valued reliably is prohibited. For clarity, in illiquid markets such as those associated with Just

Green, as long as a third party price quotation can be provided, the requirement of this control

will be met. Acceptable models for valuation should identify and quantify risks associated with

the transaction and demonstrate that the transaction is financially sound.

Limited Basis Risk

Trades are limited to supply or generation points and JE sales areas that are connected.

Contracts Only by Authorized traders

Only persons who have been specifically authorized by the Management Risk Committee to

execute contracts may do so.

Daily Reporting of Contracts:

Traders must record all new contracts and related transactions and all modifications to existing

contracts in the EMS system by the end of the business day on which the contract or

modification was executed.

Independent reviews:

On an ongoing basis and in conjunction with internal audit there will be independent testing of

compliance with the procedures and controls implemented to comply with this policy.

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Contract review:

On an ongoing basis, the Legal Department will review new standard contracts. Any non-

standard contract or contracts, including confirmations, prepared by counterparties should be

approved by the Legal Department prior to execution.

Confirmation of all contracts

Risk Department will confirm all transactions. All unresolved disputed transactions will be

reported to the Management Risk Committee.

Recording of execution of contracts:

All transactions must be executed either on an online exchange platform or via written

agreements, via a recorded telephone or via instant messaging. The recording of telephone lines

or instant messaging is not intended to replace the confirmation process; rather it will serve as an

additional back-up in case of disputes that are not resolved via the normal confirmation

procedure.

Additional controls and reporting possible:

The Management Risk Committee may establish any additional controls and reporting

requirements that it believes are appropriate.

Additional limitations possible

The Management Risk Committee may establish any additional limitations that it believes are

appropriate.

1.11 Reporting

Board of Directors

The Board of Directors, through the Board Risk Committee, will receive reports on the

Company‟s measured risk exposure at each regularly convened meeting. These reports shall, at a

minimum, exhibit the risk exposure to the end of each commodity portfolio measured in

accordance with the Major Policy Guidelines of Article 3 and the related Appendices. The

measured risk exposure for each of foreign exchange and interest rates will also be reported.

The following items shall be measured in accordance with Article 3.5 and require specific

reference at the regularly scheduled meetings of the Board Risk Committee;

(i) status at the time of the current report, and

(ii) any violations experienced since the last report, and

(iii) remediation taken of:

Open positions (long or short) on volume basis

VaR of the portfolio

A calculation showing the net expected Margin compared to minimum requirements

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The overall mark to market of the supply contracts by counterparty together with any

violation of counterparty limits, including permitted counterparties, whether intentional

or unintentional.

The market value of the open basis positions

Any unintentional violations of contracting limits, including permitted instruments and

tenors

The following requires immediate reporting:

Any intentional unapproved violations of contracting limits, including permitted instruments

Limit violations wherein management recommends leaving the violation uncorrected for a

period of time.

These specific items shall be prepared for at least each commodity portfolio and also for foreign

exchange and interest rates as applicable.

The Board Risk Committee Chair is granted the authority to approve exception transactions

together with management recommendations between Board Risk Committee meetings. Should

the Board Risk Committee Chair determine that full Board Risk Committee approval is required;

a special meeting of the Board Risk Committee will be held to process such approval.

Executive Committee

The Executive Committee will receive reports on commodity, volume and margin risk, foreign

exchange risk and interest rate risk management activities including volumes hedged and the

market value of hedges in such form and at such times as the Executive Committee shall

determine. The Risk Department and Supply Department shall independently prepare their

reports for dissemination as requested. At a minimum, the hedge position over the entire

portfolio shall be reviewed monthly. In addition, the Executive Committee shall receive all

internal audit findings relating to commodity price risk, foreign exchange risk and interest rate

risk management issues at such time as they are prepared. Any breach of the existing Major

Policy Guidelines of Article 3.5 shall be reported to the Executive Committee and the Board

Risk Committee.

Disclosure Committee

The Management Risk Committee is obliged to report any material matter which could impact

public disclosure to the Disclosure Committee for consideration.

Management Risk Committee

The Management Risk Committee shall receive regular reporting at least at the level required for

the Board of Directors but may determine more detailed reporting is appropriate. In addition, the

Management Risk Committee shall receive the results of other analyses such as stress testing,

back testing, risk adjusted performance, Cash Flow at Risk or Value at Risk that may be prepared

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by either the Supply or Risk Departments. The Risk Department will endeavour to provide

reporting at least weekly or more frequently.

All limit violations are reported immediately to members of the Management Risk Committee

through the dissemination of the regular report.

1.12 Policy Amendment Authority

Amendments to this document will be required from time to time. Any changes to this document

must be approved by JE‟s Board Risk Committee through delegation. All approved changes to

this document will require:

Communication of changes to affected employees

Review of those changes and giving individuals time to ask questions in regards to changes

made

Acknowledgement in writing by each employee covered under the risk management policy

that he or she has

o Received communication of the changes

o Confirmed understanding of requirements of the associated changes to the risk

management policy

o Agreed to fully comply with the updated risk management policy

This last point shall be evidenced through an annual acknowledgement form.

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ARTICLE 2

RISK CONTROLS, MEASUREMENTS AND METRICS

2.1 New Product/Structure/Strategy Approval

For purposes of this document:

Instrument:

a new type of financial or physical derivative not previously considered by this policy.

Structure:

utilizes approved instruments in a new configuration to reduce risk in either the supply

portfolio or in proposing products for commercial customers. (For example, the Illinois

hedging structure when it was first implemented used physical and financial derivatives

together in a way not previously applied by the Company but both the physical and

financial derivatives were previously approved instruments for transaction.)

Strategy

an approach to the risks of the business wherein the key underlying goals of risk

mitigation are changed. (For example, the goal of locking in the margin on contracts is

changed to only locking in a portion, individual market hedging is changed to a portfolio

approach or the goal of locking in foreign exchange over a single year is changed to

locking in the rate over a longer tenor.)

All new instruments, structures and strategies must be approved by the Management Risk

Committee. The Board Risk Committee shall be informed of all new hedging strategies and any

materially new instruments or structures.

The Board Risk Committee shall be provided a presentation annually assessing the upcoming

winter together with a proposed strategy as to how best mitigate risk within the gas portfolio. At

the first meeting following the end of the winter season, an evaluation of the past winter strategy

to the outcomes will also be presented. Likewise the Board Risk Committee shall be provided a

presentation annually assessing the upcoming summer together with a proposed strategy as to

how best mitigate risk within the power portfolio. At the first meeting following the end of the

summer season, an evaluation of the past summer strategy to the outcomes will also be

presented.

2.2 Counterparty Credit Approval & Scoring

The retail organization is predominantly a purchaser of energy. It contracts for commodities to

meet its retail sales requirements and closely aligns its supply purchases with these sales. The

company also considers margin risk within its portfolios. Sales to counterparties are generally

made to balance portfolio open positions and are short-term in nature. As a result, the Company

has minimal receivables from counterparties at any given time and the majority of the

commodity counterparty exposure is in the risk of future non-performance by a counterparty in a

transaction where all or a portion of the price has been fixed. Total company exposure,

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particularly where receivables are included, shall be contemplated in the limits assigned in these

circumstances.

JE‟s decision to enter into transactions with counterparties must include consideration of credit

risk. JE generally limits its commodity transactions to entities with a high degree of financial

viability which generally hold significant physical or contractual assets and are therefore able to

enter the Intercreditor facility. JE seeks to conduct the majority of its commodity transactions

with these suppliers while limiting transactions with smaller suppliers. JE must balance the need

to acquire economically beneficial supplies while being assured of physical and financial

performance by a counterparty. Subject to the exception of Article 3.5(iv), the Company may

not transact with any counterparties below a „Baa2‟ rating by Moody‟s, „BBB‟ by S&P, BBB by

DBRS or the equivalent rating of other agencies without advance Board Risk Committee

approval. Such approval must consider the associated limitations of the Credit Facility.

Each counterparty must have an ISDA Master Swap Agreement or other approved master

contract in place with the JE entity with which it is doing business. Any other agreement, such

as a long form confirmation, requires Legal approval.

Management Risk Committee approval is required for all collateral posting requirements

associated with hedges to the extent that they are unique in nature. If collateral posting is

according to formula within a master agreement or other regular and independently verifiable

means such as is required by wire service operators, explicit Management Risk Committee

approval is not required.

2.3 Customer Credit Approval and Scoring

Customer credit policies are addressed by the Credit Policies that are monitored and maintained

by Credit and Collections and the Commercial Structuring groups. The Risk Group obtains

information for customers 1000RCEs or greater including:

individual and overall aging

remaining term and

annual usage

2.4 Measurements and Metrics

The limits of this policy are associated with a variety of measurements that require definition to

ensure consistency and accuracy. All limits contemplate the overall position of JE regardless of

how it is recorded internally (i.e. through a wholesale book, retail book, storage book or any

other form of separation).

The Company‟s commodity risk is generally segregated to its power portfolio and its gas

portfolio. Where there are heat rate conversions, the supply and the associated contractual

requirements shall be associated with the appropriate portfolio for measurement purposes. i.e.

customer demand and heat rate will be contained within the power portfolio and the associated

gas requirement together with any associated gas supply contracts in the gas portfolio. All

supply and demand associated with carbon offsets and green generated power will be segregated

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into separate JustGreen/JustClean gas and JustGreen/JustClean power portfolios respectively for

measurement purposes.

There are two key components of demand applicable to the gas, power and green portfolios.

These are, customer flowing load and the variability imbedded within customer contracts (such

as load following). In addition, the gas book has storage and other assets which also impact

demand requirements. Variable load customers shall only be included into the fixed load

position when a hedge is put in place (typically monthly but can be longer term). The load

position shall also include relevant volumes associated with fixed price exposures of index

customers. Pricing must reflect the month-ahead hedge along with market prices. Storage for

index price customers shall be included in the positions according to the storage reporting and

strategies regularly reviewed and agreed by the Management Risk Committee. Storage for

variable price load shall be included in the position when a hedge is put in place.

Total Expected Customer Requirements:

This is the overall consumption that is forecast for a portfolio. It is comprised of:

i. expected weather normalized consumption for customers under a fixed

price contract with Just Energy inclusive of approved assumptions such as

attrition, plus

ii. expected weather normalized consumption for customers under a variable

price contract for which fixed price supply has been procured and/or for

which the price has been set, plus

iii. the forecast weather normalized consumption of customers for which Just

Energy is purchasing supply to implement a sales, retention, re-contracting

or renewal campaign, plus

iv. fuel requirements to ship expected weather normalized consumption of

customers captured under (i), (ii), (iii) in addition to index customers, plus

v. Basis requirement associated with index customers, plus

vi. Expected weather normalized consumption associated with customer

options for which Just Energy has entered into a mitigating trade.

vii. Fixed price requirements from customer contracts that have revenue

component linked to a commodity index i.e. Fixed Heat Rate customers,

Index Rate Customers

Total Expected Natural Gas Storage Requirements:

This is the overall future natural gas storage injection (withdrawal) that is forecast

for the portfolio. Each gas market has storage associated with it, however the

method by which each utility allocates this storage is different. Regardless of how

storage is allocated by the utility, it shall be separated from total customer

requirements as defined above and tracked according to the requirements laid out

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in this section and as such where this section refers to injection, it means both

explicit and implied storage requirements communicated by the utility. Expected

natural gas storage requirements are comprised of:

i. expected injections for customers under fixed price contracts with Just

Energy

ii. the forecast injections for customers for which Just Energy is purchasing

supply to implement sales, retention, or re-contracting campaigns, plus

iii. Anticipated injections for fixed price customers renewing a service

agreement contract with Just Energy, plus

iv. Anticipated injections for index customers, plus

v. Expected injections for variable price customers once a storage hedge is

placed.

Contracted Customer requirements:

Weather normalized customer consumption for customers under contract with Just

Energy net of any storage assets accumulated (which are tracked separately). Key

variables in this forecast include actual consumption data, customer type, delivery

pool, attrition and historical weather data.

New Campaign Customer requirements:

Forecast weather normalized consumption for anticipated additional customers for

new sales campaigns for which supply has been or will shortly be purchased. The

key variables in this forecast include those for contracted customer forecasts as

well as marketing run rates.

Open Position: An open position is calculated as a sum of customer weather normalized

consumption, storage requirement and related contracted supply. Note that by

default these calculations include the open basis position. The overall company

open position shall be calculated using contracted customer requirements as well

as forecast and contracted customer requirements inclusive of any options. Limits

shall be applied to the position for which the underlying supply, including assets,

has been purchased or allocated.

Value at Risk “VaR” The maximum loss that will not be exceeded with a given probability (defined as

the confidence level), over a given period of time. For purposes of this policy, the

VaR results from taking the open position for the relevant measurement and

calculating the dollar loss that is probable of occurring within a 99% confidence

interval using current market volatilities and an assumption that the position will

only be held for one day. For example, a value at risk of $10,000 under this

method of calculation means that for one day in 100 (1% of the time), holding the

open position for one day could result in a gain or loss of $10,000 or more using

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market valuation. The VaR for each of the gas and power portfolios shall be

consolidated with consideration of correlation to arrive at the overall VaR of the

organization.

Reporting Period VaR

Reporting Period VaR calculates a VaR for each discrete reporting period open

position. Reporting Period VaR is defined as Monthly VaR for current and next

quarter, Quarterly VaR for remaining quarters in current year and all quarters in

the following calendar year and Annual VaR for all remaining calendar years.

Short Term VaR

Short term VaR calculates a VaR over a limited period of time up to at most the

upcoming three months.

Mark to Market “MTM”:

The mark to market calculation is a result of taking the relevant open position by

month and multiplying it by the difference between the associated forward market

price and the cost of the associated contract. For example, the mark to market for

a counterparty will be a summation of the net contracted volumes with that

counterparty (essentially the open position with that counterparty) at each delivery

point multiplied by the difference between the associated market forward curve

and the cost of the underlying contracts.

Market Value:

The market value is calculated by taking the open position and multiplying it the

market price at each relevant delivery point.

The base calculation for all portfolios shall start with the open position calculated by

taking the net of the forecast consumption for contracted customers, forecast storage

requirements and contracted supply inclusive of all options and applicable assets. The

risk policy limits shall be applied by taking this base position and adding new campaign

customer requirements and expected additional customer requirements for weather

consumption for which underlying supply has been purchased. Differences to the base

position will be measured.

The largest factors that influence limits are weather, model risk (including but not limited to

accuracy of assumptions), regulatory, market price, sales run rates and attrition. Results of

calculations are heavily dependent upon the timing of the calculation and the accuracy of the

assumptions around attrition. As a matter of course, Supply and Risk will stress test these factors

as specified in the Risk Management Procedures document.

ARTICLE 3

MAJOR POLICY GUIDELINES

3.1 Risk Limits

The fundamental control over market risks inherent in JE‟s derivative portfolio is

the imposition of risk limits. Risk limits are dollar denominated or volume based values that

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define boundaries of permissible derivative purchase and sales activities as a result of sales

requirements, foreign exchange, and interest rates and restrict unauthorized derivative purchase

and sales activities. Risk limits are developed based on tolerances of management and the Board

of Directors for margin impairment due to uncovered positions with influences from credit

agreements and availability of the products.

3.2 Instruments

The Company may elect to manage its commodity, foreign exchange and interest rate risks

through derivative instruments. The use of derivative instruments is authorized for hedging

activities only. Hedges may consist of multiple contracts which, in combination, reduce the

Company‟s risk exposure. Hedges may only be transacted using the instruments outlined in this

Article or the related appendices. The Company may not, at any time, write uncovered options

to hedge its position without express approval by the Management Risk Committee. (For clarity,

the sale of a previously purchased option or combination of options is permitted, at strike prices

that may not match those of initial transaction. As well, the writing of an option that is covered

by a customer option is permitted. However writing an entirely new option that is not covered is

prohibited.) At no time is the sale or writing of an option to be considered a balancing

transaction.

Board approval is required for proposed new hedging strategies, regardless of whether the

strategy employs instruments permitted under this policy. The Management Risk Committee

must consider the availability of Treasury lines, cost benefit of each new hedging structure and

strategy as it relates to both the risk being hedged and its impact on counterparty collateral

requirements in its recommendations to the Board.

The Company may elect to manage its commodity volume, and margin risks, foreign exchange

risk and interest rate risk through the following instruments (noting that naming conventions may

differ by market or counterparty):

Future or forward contracts (physical or financial)

Renewable Energy Certificates

Carbon Emission Offset Credits

Storage Assets

Transportation and other Assets

Swaps (physical, financial, fixed for floating, fixed for fixed, floating for floating)

Spreads (spark, crack, etc.)

Heat Rate (for index physical power)

Options contracts ( any complex option contract must be approved in advance by the

Management Risk Committee)

Extraction contracts

Transmission rights contracts

Auction revenue rights

Congestion revenue rights

Power generation capacity contracts (supply or reserve)

Weather derivatives (swaps and options)

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Participating forwards

See Appendix I for current permitted commodity hedge instruments and Appendix II for current

permitted foreign exchange and interest rate hedge instruments. These instruments may be

updated from time to time at the discretion of the Management Risk Committee provided such

updated terms are in accordance with this policy.

3.3 Tenors (Duration or length of time of transacted Instruments)

The overall term for Hedges in connection with any commodity risk except transportation shall

not, without prior approval by the Board of Directors, exceed the term of the hedged item or

portfolio.

The overall term for Hedges in connection with foreign exchange or interest rate risk shall not,

without prior approval by the Board of Directors, exceed the approved budget or outlook

scenarios.

To the extent that JE enters into Power Purchase Agreements (“PPA”s), generation tolling

agreements, storage capacity arrangements or ownership of natural gas assets, the hedges

associated with these agreements shall be subject to review and approval of the Management

Risk Committee. Any strategies associated with these agreements are subject to the

requirements of Article 2.1.

3.4 Authorities

The Management Risk Committee is responsible for coordinating authorization for trade

execution within the limits set by the Board of Directors. Such authorization shall only be

granted to those familiar with these risk policy guidelines. Increasing levels of authorization are

required within the Company and are included in Appendix III together with the procedures

required when authorities overlap.

The Board Risk Committee Chair is granted the authority to approve exception transactions

together with management recommendations between Board Risk Committee meetings. Should

the Board Risk Committee Chair determine that full Board Risk Committee approval is required;

a special meeting of the Board Risk Committee will be held to process such approval.

3.5 Limits

The following are the limits for Just Energy. The Management Risk Committee may choose to

measure risk at a more granular level and impose more restrictive limits than those set out below.

(i) Commodity Price Risk

(A) Ratio of Total Expected Customer Requirements

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At no time shall the ratio of the Total Expected Customer Requirements to

the Contracted Customer requirements be greater than 1.1:1.

(B) At Risk Limit

The company will not enter into open natural gas or power supply

commitments that expose Just Energy to a dollar impact in excess of

$2,500,000 in VaR as measured using the open position for the next 12

months in accordance with 2.5 of this Policy.

(C) Storage Injections Requirements

JE will comply with all injection and ratchet requirements of each of the

utilities with which it interacts.

(D) Storage Limit

By October 31 of each year, the upcoming winter storage plan will be

summarized for the Management Risk Committee and approval granted

prior to its execution.

(E) Natural gas Portfolio Position Limit

Although the company manages its natural gas portfolio to a net zero

supply/demand position based on normal weather, the company may enter

into supply contracts which, over time, exceed or fall short of the

estimated quantities of commodity required to cover natural gas

requirements to its customers during the time period covered by the

forecast load, primarily as a result of changed assumptions related to

weather. Natural gas term markets get increasingly illiquid with the

increase in tenor of the natural gas contract. Just Energy has set its

volumetric limits to account for market liquidity and tradable wholesale

products. During any single reporting period, the Company‟s natural gas

open volumetric position inclusive of all options may not exceed or fall

short of estimated normal weather customer requirements by greater than

9,000GJ/day. Reporting Period Limit for natural gas is defined as Monthly

Limit for prompt month and any single month in the current and upcoming

gas year and then per season gas strips thereafter (i.e. Nov-Mar and Apr-

Oct). Should the Company have a stack and roll structure implemented

that, when adjusted, is within this volume, it shall be reported without

adjustment and noted as an approved exception.

(F) Locational Natural gas Portfolio Basis Limit

The company buys natural gas in bulk at liquid delivery points and covers

geographical disparity with basis trades. During any single month for the

upcoming 12 months, the natural gas open volumetric basis position may

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not exceed or fall short of estimated normal weather customer

requirements at each delivery point by greater than 10,000 GJ/Day except

for the following delivery points that are considered liquid trading hubs

and are allowed to hold open positions based on the following limits for

any given month;

AECO Nova Inventory Transfer 100,000 GJ/Day

NYMEX Henry Hub 100,000 mmbtu/Day

Empress 25,000 GJ/Day

NGI Chicago 25,000 mmbtu/Day

Dawn 25,000 GJ/Day

Station 65 25,000 mmbtu/Day

For purposes of all winter months in the prompt 12 months, delivery

regions shall all be balanced to within 10,000GJ/day or mmbtu/day as

applicable. For example, a delivery region of the Midwest is balanced by

closing the basis from NYMEX to Nicor but the basis between Nicor and

the remaining Midwest delivery points may not be yet closed.

For purposes of the prompt month, all delivery points shall be balanced to

within 10,000 GJ or mmbtu/day.

(G) Financial Natural gas Portfolio Basis Limit

At no time shall the absolute market value of the open position calculated

using the open position‟s prices at each relevant delivery point less the

absolute market value of the open position calculated using NYMEX of

US prices or AECO for Canadian prices exceed $2M in the upcoming year

or $5M in any fiscal year thereafter.

(H) Natural Gas Expected Margin Limit

During any single month, the Company‟s expected margin for natural gas

(as quantified by the budgeting and forecasting group and determined in

accordance with the Risk Management Procedures document) less the

associated mark to market of the open position for that month shall not

result in a loss of more than $350,000 for that month.

(I) Customer Margin Limit

At no time shall the expected average customer gross margin measured in

accordance with the credit facility parameters for either gas or power for

the upcoming 24 months be less than $135/RCE for residential customers

and $50/RCE for commercial customers.

(J) Financial Power Portfolio Basis Limit

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The market value of the open basis position inclusive of all options shall

not exceed $6M in any given annual period or $30M overall in the

portfolio.

(K) Power Portfolio Position Limit

Although the company manages its power portfolio to a net zero

supply/demand position based on normal weather, the company may enter

into supply contracts which, over time, exceed or fall short of the

estimated quantities of commodity required to cover power requirements

to its customers during the time period covered by the forecast load,

primarily as a result of changed assumptions related to weather. Power

term markets get increasingly illiquid with the increase in tenor of the

power contract. Just Energy has set its volumetric limits to account for

market liquidity and tradable wholesale products. During any single

reporting period, the Company‟s power open volumetric position inclusive

of all options may not exceed or fall short of estimated normal weather

customer requirements by greater than 25 MWs. Reporting Period Limit is

defined as Monthly Limit for prompt month and any single month in the

current and upcoming quarter, Quarterly Limit for remaining quarters in

current year and all quarters in the upcoming calendar year and Annual

Limit for remaining calendar years.

(L) Power Expected Margin Limit

During any single month, the Company‟s expected margin for power (as

quantified by the budgeting and forecasting group and determined in

accordance with the Risk Management Procedures document) less the

associated mark to market of the open position for that month shall not

result in a loss of more than $350,000 for that month.

(M) Power Capacity Limit

By the last day of February each year, at least 80% of expected capacity

requirements of the upcoming summer for each market shall be hedged.

(N) Power Ancillary Limit

By the last day of February each year, the upcoming summer ancillary

requirements will be summarized for the Management Risk Committee

and any proposed hedges will be reviewed.

(O) Natural gas and Power combined Portfolio Reporting Period At Risk

Limit

The company will not enter into open natural gas supply commitments

that when combined with its open power supply commitments expose Just

Energy (by consolidating gas VaR and power VaR for each reporting

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period in accordance with 2.4 of this policy) to in excess of $300,000 for

any single month in current and upcoming quarter, in excess of $750,000

for any quarters remaining in the current year and upcoming calendar year,

and in excess of $1,800,000 for any calendar year thereafter.

(P) Variable Transactions

Only (i) balancing transactions (ii) transactions to accommodate index or

variable customers, (iii) transportation, (iv) brown components of a

bundled green contract, and (v) transactions to hedge weather volume risk

are permitted to be at variable prices or use interruptible delivery.

(Q) JustGreen and JustClean Gas Portfolio Position Limit

Although the company manages its JustGreen and JustClean gas portfolio

to a net zero supply/demand position based on normal weather, the

company may enter into supply contracts which, over time, exceed or fall

short of the estimated quantities of commodity required to provide for

customers‟ carbon offset requirements during the time period covered by

the forecast load, primarily as a result of changed assumptions related to

weather. During any single year, the Company‟s JustGreen and JustClean

combined gas open volumetric position may not fall short of the estimated

normal weather customer requirements. It may not exceed the open

volumetric position by the greater of 5% of the portfolio or 200,000

tonnes.

(R) JustGreen and JustClean Power Portfolio Position Limit

Although the company manages its JustGreen and JustClean power

portfolio to a net zero supply/demand position based on normal weather,

the company may enter into supply contracts which, over time, exceed or

fall short of the estimated quantities of commodity required to provide for

customers‟ renewable energy during the time period covered by the

forecast load, primarily as a result of changed assumptions related to

weather. During any single year, the Company‟s JustGreen and JustClean

combined power open volumetric position may not fall short of the

estimated normal weather customer requirements. It may not exceed the

open volumetric position by the greater of 5% of the portfolio or 200,000

MWh.

(S) Green power Compliance Limit

The company is required to deliver renewal energy certificates to cover an

established percentage of its annual load in certain markets. The open

position created by this requirement shall not be less than 5% of the

compliance portfolio or 100,000MWh.

(T) Just Energy Short Term Risk

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Although the company manages its power portfolio to a net zero

supply/demand position based on normal weather, as the delivery date

approaches, the actual weather forecast is applied instead and the risk of

financial exposure in the near term period increases. To mitigate this risk,

sensitivities to weather shall be tracked and proactively mitigated.

(ii) Foreign Exchange Risk

Corporate cash flow hedging activities will be reviewed monthly in conjunction with

monthly cash flow model updates and, as applicable, the quarterly reforecast or budget.

Hedges will be placed to cover the following anticipated cross border cash flows:

60-90% of the forecast quarterly royalty payments for the next 12 months.

Trades must be placed so that the following percentages are filled:

o At least 25% but less than 90% of all the quarters filled by the end of

the current quarter

o At least 60% but less than 90% of all the quarters filled by the end of

the 2nd quarter following when the cash flows were identified

60-90% of the forecast quarterly interest payments for the next 12 months.

Trades must be placed so that the following percentages are filled:

o At least 25% but less than 90% of all the quarters filled by the end of

the current quarter

o At least 60% but less than 90% of all the quarters filled by the end of

the 2nd quarter following when the cash flows were identified

25-90% of all other forecast cash flows within the next 6 months to the extent

that the forecast transfer is in excess of USD $7.5M.

0 - 50% of the forecast quarterly royalty and interest payments, after a

consideration of certainty of cash flow, for the next 13 - 24 months.

Trades must be placed so that identified cash flows are filled by the end of the month in

which the cross border cash flow occurs.

The forecast cash flows shall be calculated as set out in the Risk Management Procedures

document taking into consideration the specified payment priorities.

Commodity related foreign cash flow risk will be reviewed at the execution of each

commodity transaction and communicated with Treasury for inclusion in the above

calculation. To facilitate margin reporting, at the time of the foreign cash flow

communication, a rate will be agreed with Treasury.

(iii) Interest Rate Risk

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JE‟s budget and forecast consists of a one year budget and 2 further outlook years. Long

term interest rate hedges shall be reviewed quarterly in conjunction with the quarterly

reforecast or budget and transacted if variable debt exceeds a constant minimum level in

each year of the outlook years of $75M based on the forecast model that contains the

most likely business case scenario for the year (i.e. base case plus most likely dividends).

For clarity, the fixed rate debt implemented for National Energy Corporation for the

water heater business is excluded from the calculation. At least 50% of such minimum

variable debt shall be hedged. Such hedging shall contemplate independently debt in

each of Canada and the United States. Interest on variable debt for the budget year shall

be minimized through active management using Bankers Acceptances and LIBOR

advances.

(iv) Customer Limits

Exposure to a customer is defined as:

Unpaid Accounts Receivable plus

Undiscounted mark to market of customer specific supply less

Unpaid Accounts Payable less

Credit Enhancements

JE‟s exposure to any one customer is monitored in accordance with the Risk Management

Procedures.

(v) Counterparty Limits

JE may transact over the counter or through exchanges. Each counterparty must have an

ISDA Master Swap Agreement or other approved documentation in place with the

appropriate JE entity. Any special arrangement outside the limits listed below requires

the approval of the Board of Directors or Board Risk Committee by delegation.

The following counterparty limits apply:

(A) Mark to Market

The Company shall use the following grid as a reference point for discussions

with suppliers. The Company shall not be exposed to any individual counterparty

on a mark to market basis (measured as contracted supply multiplied by the

difference between the contract rate and market price) in excess of the following:

Intercreditor Suppliers:

Rating

Moody‟s S&P DBRS or Fitch Mark to Market

Aa3 & > AA- & > AA(low) & > $200,000,000

A3 to A1 A- to A+ A(low) to A(high) $150,000,000

Baa1 BBB+ BBB(high) $100,000,000

Baa2 BBB BBB $50,000,000

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OR

Non-Intercreditor Suppliers:

Rating

Moody‟s S&P DBRS or Fitch Mark to Market

Aa3 & > AA- & > AA(low) & > $80,000,000

A3 to A1 A- to A+ A(low) to A(high) $65,000,000

Baa1 BBB+ BBB(high) $40,000,000

Baa2 BBB BBB $15,000,000

OR

in excess of the agreed terms of the master contract arrangements. Should such

terms exceed the above grids, then Board Risk Committee approval is required.

Should any of these thresholds be exceeded or the thresholds as approved by the

Board Risk Committee be exceeded, appropriate security is required. In the

instance of a counterparty possessing a split rating, the lower of the ratings shall

apply unless otherwise authorized by the Management Risk & Board Risk

Committees.

(B) Credit rating of counterparty

The Company may not transact with any counterparties below a „Baa2‟ rating by

Moody‟s, a „BBB‟ rating by Standard & Poors' or the equivalent rating from

another agency without appropriate security. Acceptable security is:

- cash

- letters of credit

- parental guaranty from a rated counterparty with the thresholds of this policy

applied to the parent and limited by the amount of the parental guaranty

(C) Unrated counterparties

At the discretion of the CFO, the Company may transact with unrated

counterparties up to the limits established for BBB rated Counterparties. Any

transaction with an unrated counterparty in excess of BBB limits requires Board

Risk Committee approval. At no time shall this approval allow for a transaction

beyond the prompt 6 months from the date of the contract.