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Retail Supplier Cites "Failure" of Wholesale Markets "To Meet Demand At Reasonable Prices", Warns on Customer Churn
"The failure of the wholesale markets to meet demand at reasonable prices," required IDT Energy to raise its rates significantly to cover these costs, as the company expects to record increased churn during the first quarter, it said in reporting full-year 2013 earnings
Geoff Rochwarger, IDT Energy's CEO and Vice Chairman of parent Genie Energy, said, "Following the [fourth quarter 2013] quarter close, this winter's 'polar vortex' resulted in significant price spikes in the cost of our wholesale electricity and gas supply, with wholesale prices for electricity rising more than eight-fold at times of peak demand. The failure of the wholesale markets to meet demand at reasonable prices required us to raise our rates significantly to cover these costs. To cushion the impact of these temporary price increases, we are providing our customers with significant rebates. We also expect to see increases in churn as customers turn back to fixed rate suppliers who are temporarily locked into lower rates. We will be able to report more definitively on the financial and operational impacts of the polar vortex when we report first quarter results in early May."
IDT Energy has thus far committed to provide customers with $2 million in rebates to mitigate pricing, and expects that this total will increase
Aside from a "significant increases in the churn rate," IDT Energy expects, "material, substantial reductions in gross profit, EBITDA, income from operations and net income in 1Q14 compared to the levels achieved in the first quarter of last year."
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ADVERTISEMENT Still, executives see an opportunity for IDT Energy to grow as utilities and other providers eventually reflect risk premiums from the polar vortex pricing in their new fixed rates. IDT Energy also noted that several competitors have gone out of business.
Although executives said that 2014 will be "very difficult," Howard Jonas, Genie Energy's Chairman and CEO, said that, "I'm confident, that a year from today, our customer base will be bigger than it was at the end of last quarter."
At December 31, 2013, IDT Energy had approximately 427,000 meters enrolled, versus 456,000 meters as of September 30, 2013, and 502,000 meters a year ago.
The net loss of 29,000 meters compares to a net loss of 19,000 meters from June 30, 2013 to September 30, 2013.
Gross meter acquisitions were 45,000 in 4Q13 compared to 64,000 in 3Q13 and 79,000 in 4Q12. The year-over-year and sequential declines in gross meter acquisitions primarily reflect the lack of geographic expansion into new territories in recent quarters.
Residential Customer Equivalents were 315,000 as of December 31, 2013, versus 337,000 as of September 30, 2013, and 312,000 a year ago.
As previously reported, IDT Energy recently acquired Diversegy, LLC and its network marketing channel, Epiq Energy. The acquisition cost was not material to Genie Energy
Epiq will organize and build a network of independent representatives to recruit residential and commercial customers initially focused on IDT Energy's current territories.
By the end of the year, management anticipates that Epiq will begin to contribute modestly to RCE, meter and revenue growth in the states in which IDT Energy operates. In addition, Epiq will begin to add meters in some of the 25 other deregulated states that will be brokered to other retail suppliers.
Diversegy will broker competitive offerings for commercial and industrial customers both within and outside of IDT Energy's current operational territories.
In February 2014, IDT Energy received regulatory approval to offer natural gas in nine additional utility territories in Pennsylvania. The company also received approval to enter an additional gas territory in Maryland and the District of Colombia, as well as a new gas territory in New Jersey. IDT Energy will initially focus on enrolling existing electric customers in these new markets onto natural gas service, and expects to start offering service in these new territories in the spring and summer, in advance of the next heating season.
IDT Energy said that it continues to pursue new territories in the states where it currently operates and to evaluate additional, deregulation-driven opportunities in other states, including Massachusetts and Connecticut.
IDT Energy average monthly churn was 6.2% in 4Q13, a decrease from 6.3% in the prior quarter and 6.8% in the year-ago quarter. The decreases primarily reflect the lower rates of gross meter additions in recent quarters as newly acquired customers have higher churn rates than longer term customers, as well as the impact of retention rebates and other incentives offered to longer term customers.
IDT Energy gross profit in 4Q13 was $16.8 million, an 8.8% decrease compared to 4Q12. For the full year 2013, gross profit was $65.8 million, a 5.5% decrease. For both periods, declines in gross profit on sales of electricity more than offset increases in gross profit generated by natural gas sales. The decreases reflect reductions in electric margin as IDT Energy's customer base continues to migrate to Pennsylvania and Maryland, where the company targets lower margins to facilitate customer acquisition and retention efforts.
IDT Energy's fourth quarter revenue increased to $67.1 million, reflecting growth of 2.6% versus the year-ago quarter. Full year 2013 revenue increased 21.6% to $279.2 million.
IDT Energy's EBITDA and income from operations in 4Q13 decreased 14.5% to $6.7 million, from $7.9 million a year ago, mainly due to the decrease in gross profit in 4Q13. For the full year, EBITDA was $25.7 million, compared to $25.0 million in 2012
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March 18, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com
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