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Spark Reports Further Details On Unit Margins

March 5, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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Spark Energy reported that its Retail Gross Margin for electricity was $14.44/MWh for the year 2018, versus $23.46/MWh a year ago

Unit margins were negatively impacted as a result of the higher volumes from commercial customers, "which tend to have lower unit margins than our residential customers," Spark said

Spark also reported that its costs of revenues increased as a result of extreme cold weather in the first quarter of 2018, and warmer than normal weather in second and third quarter of 2018, and increased electricity prices, REC requirements, and capacity costs

For the fourth quarter of 2018, Spark's electricity unit margin was $17.36/MWh, versus $21.97/MWh a year ago.

As first reported by yesterday, Spark expects unit margins to return to $27-$30/MWh by mid-2019

Retail Gross Margin for natural gas was $3.60/MMBtu for the year 2018, versus $3.63/MMBtu a year ago

For the fourth quarter of 2018, natural gas unit margin was $3.72/MMBtu, versus $4.22/MMBtu

As first reported yesterday, Spark's total RCE count was 908,000 as of December 31, 2018

The December 31, 2018 total includes 754,000 electric RCEs and 154,000 natural gas RCEs

RCEs as of December 31, 2018 by region were:

New England       374
Mid-Atlantic      328
Midwest           114
Southwest          92

During 2018, Spark added a gross total of approximately 432,000 RCEs, of which 29,000 RCEs were added as part of the previously reported acquisitions of HIKO Energy, LLC, 52,000 RCEs were added as a result of customer portfolio acquisitions from Starion Energy Inc. and from an affiliated company, and the remaining were added through organic sales channels.

Spark reported Total Non-POR Bad Debt as Percent of Revenue of 2.6% for 2018, versus 2.5% for 2017 and 0.6% for 2016

"During the year ended December 31, 2018, we experienced higher bad debt expense versus 2017 primarily as a result of our brand consolidations," Spark said

"To manage our current exposure, we have increased our focus on collection efforts and timely billing along with tighter credit requirements for new enrollments in non-POR markets," Spark said

In reporting year-end results, Spark also recited previously reported details concerning various acquisitions during the year, as follows:

"In March 2018, we entered into a Membership Interest Purchase Agreement under which we acquired all of the membership interests of HIKO Energy, LLC ("HIKO"), a New York limited liability company, for a total purchase price of $6.0 million in cash, plus working capital. At the time of acquisition, HIKO had a total of approximately 29,000 RCEs located in 42 markets in seven states," Spark said

"In March 2018, we entered into an asset purchase agreement with our affiliate, NG&E, pursuant to which we agreed to acquire up to 50,000 RCEs for a cash purchase price of $250 for each RCE, or up to $12.5 million in the aggregate. These customers began transferring after April 1, 2018 and are located in 24 markets in 8 states. For the year ended December 31, 2018, we paid NG&E $8.8 million under the terms of the purchase agreement for approximately 35,000 RCEs. We do not anticipate any additional customer transfers or consideration will be paid on this transaction. The acquisition was treated as a transfer of assets between entities under common control, and accordingly, the assets were recorded at NG&E's historical value at the date of transfer, which was $1.7 million. The transaction resulted in $7.1 million recorded in equity as a net distribution to affiliate as of December 31, 2018. Of the $8.8 million paid to NG&E, $1.7 million was an investing cash outflow and remaining $7.1 million was deemed a distribution to our non-controlling interest and classified as financing activity," Spark said

"In October 2018, we entered into an asset purchase agreement pursuant to which we would acquire up to 60,000 RCEs from Starion Energy Inc., Starion Energy NY Inc. and Starion Energy PA Inc. for a cash purchase price of up to a maximum of $10.7 million. These customers began transferring in December 2018, and are located in our existing markets," Spark said

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