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After Learning "Hard Lesson" in SoCal Gas Market, Spark Energy Expects to Return To Customer Growth in Q2

March 30, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Spark Energy expects to see its customer count decline during the first quarter of 2015 due to churn in the Southern California natural gas market -- part of a "hard lesson" the company learned regarding the market, but the company expects to return to net customer growth by the second quarter of 2015, CEO Nathan Kroeker said during an earnings call.

As noted in our Friday story, Spark said that it underestimated the impact that the dual billing structure of the Southern California natural gas market would have on consumer behavior, and as a result realized significantly higher customer attrition and bad debt expense than we anticipated

Spark Energy has already ceased marketing to new customers in the Southern California natural gas market, but now expects that more aggressive collection and termination efforts will result in its overall customer base declining during the first quarter of 2015.

"Being a dual bill market, the market structure in Southern California is different from any of the other residential markets in which we operate. And we learned a hard lesson there. That said, Southern California does represent a very large target market and we are continuing to look for alternative ways to gain market share in this region, anticipating that future marketing activities may include partnerships and adjacent products," Kroeker said

On an overall basis, Spark Energy expects to return to customer growth in the second quarter of 2015. Spark Energy customer count as of December 31, 2014 was 318,000, versus 305,000 as of September 30, 2014, and 211,000 a year ago.

The December 31, 2014 customer count reflected 145,000 electric customers and 173,000 natural gas customers.

During the year 2014, gross customer additions were 283,000, with attrition of 176,000 customers. Spending on customer acquisitions increased 217% to $26.2 million for the year 2014.

On an RCE basis, Spark Energy was serving 326,000 RCEs as of December 31, 2014. As of December 31, 2014, approximately 45% of Spark natural gas RCEs were fixed-price (including flat-rate products), and the remaining 55% of Spark natural gas RCEs were variable-price. As of December 31, 2014, approximately 51% of Spark electricity RCEs were fixed-price, and the remaining 49% of Spark electricity RCEs were variable-price.

Spark said that, excluding the impact of the Southern California gas market, Spark's attrition was 4.8% across the business, which Spark considered, "high," due in part to the polar vortex.

Spark reported that, as noted last quarter, with the headroom that resulted from last winter's polar vortex, it continues to see opportunities to add customers in the Northeast, and the increased New England sales rate it saw in Q3 have continued through Q4.

Spark also said that its renewed focus on small commercial sales resulted in contracted commercial margin increasing by 89% quarter-over-quarter.

Spark reported that over 68% of its 2014 organic sales included a green component, as it has expanded its green electric offerings and added carbon-neutral natural gas offerings.

See Related Story Today: Spark Energy: M&A Targets Range From Tuck-Ins to Companies Equivalent to Spark's Size

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