Failing to predict a changing climate, the global warming armageddon consumes another victim. The Texas Winter Freeze has impacted Just Energy (TSX: JE), which announced today:
The financial impact of the Weather Event is not currently known due to challenges the Company is experiencing in obtaining accurate information regarding customers’ usage from the applicable utilities. However, unless there is corrective action by the Texas government, because of, among other things, the sustained high prices from February 13, 2021 through February 19, 2021, during which real time market prices were artificially set at USD $9,000/MWh for much of the week, it is likely that the Weather Event has resulted in a substantial negative financial impact to the Company. Based on current information available to the Company as of the time of this press release, the Company estimates that the financial impact of the Weather Event on the Company could be a loss of approximately USD $250 million (approximately CAD $315 million), but the financial impact could change as additional information becomes available to the Company. Accordingly, the financial impact of the Weather Event on the Company once known, could be materially adverse to the Company’s liquidity and its ability to continue as a going concern. The Company is in discussions with its key stakeholders regarding the impact of the Weather Event and will provide an update as appropriate.
Just Energy is in the business of selling fixed price energy contracts. For instance, if energy is selling at $2/GJ at spot, they will typically offer a 5-year fixed energy contract where they will sell it to you at $3.5/GJ. The same thing goes for electricity sales.
Presumably they hedge these contracts using energy future swaps or some other mechanism, but there are long-tailed events that you can’t possibly hedge for. Similar to those that sold call options on Gamestop, Just Energy is now caught in one hell of a margin squeeze. The only difference is that their “accounts payable” is not instantly due from their brokers, but rather due on their next payment installments to the local utility provider, which doesn’t really care about Just Energy’s predicament other than the fact that they can’t pay the gigantic bill owing.
The shares are still trading at a market capitalization of $250 million, so clearly the market is anticipating that perhaps not all is lost.
Will be interesting to see how this one resolves itself!
Note on March 9th – they filed for bankruptcy. They could not get a concession from the local utility and owe a triple-digit million sum of money.