Just Energy Reports Higher Gross Margin

Just Energy reported a 5% increase in gross margin from retail energy marketing, which helped grow company-wide Adjusted EBITDA for the quarter ending December 31, 2011 to $88.5 million, versus $76.8 million a year ago (all figures Canadian).

Just Energy's customer growth and GAAP earnings were discussed in yesterday's story.

Retail energy marketing gross margin grew to $128.5 million, from $121.8 million a year ago.

The improved gross margin for the quarter was largely driven by U.S. electric gross margin, which grew to $56.9 million, from $47.6 million a year ago. The U.S. electric gross margin increased by 20% due to Just Energy's higher customer base, offset in part by lower margins on the large number of commercial customers added.

The average gross margin per U.S. electric customer during the quarter decreased to $127/RCE [residential customer equivalent], compared to $165/RCE in the prior comparable quarter, as a result of lower margins per RCE by design for commercial customers added

The actual aggregation costs per customer for the nine months ended December 31, 2011, for residential and commercial customers signed by independent representatives and commercial customers signed by brokers were as follows:

Residential customers
- U.S. Gas: $208/RCE
- U.S. Electricity: $188/RCE

Commercial customers
- U.S. Gas: $91/RCE
- U.S. Electricity: $115/RCE

Commercial broker customers
- U.S. Gas: $27/RCE
- U.S. Electricity: $35/RCE

Annual gross margin per customer added, renewed, or lost during the quarter ending December 31, 2011 was as follows (gross number of customers in parenthesis):

Residential and small commercial customers added in the quarter
- U.S. Gas: $196 (30,000)
- U.S. Electricity: $179 (67,000)

Residential and small commercial customers renewed in the quarter
- U.S. Gas: $191 (15,000)
- U.S. Electricity: $174 (15,000)

Residential and small commercial customers lost in the quarter
- U.S. Gas: $208 (29,000)
- U.S. Electricity: $222 (39,000)

- Large commercial customers added in the quarter: $82 (198,000)

- Large commercial customers lost in the quarter: $112 (78,000)

Just Energy's electricity attrition in the U.S. was 13% for the trailing 12-months, in line with management's ongoing expectations. In the U.S., annual gas attrition was 21%, a decrease from 25% experienced a year prior due to new product offerings and greater economic stability within the U.S customer base.

Bad debt expense was $8.3 million for the three months ended December 31, 2011, a 28% increase from $6.5 million recorded for the prior comparable quarter. This increase is a result of the 20% increase in revenue for markets in which Just Energy bears the bad debt risk quarter over quarter. In addition, during the quarter, there were higher customer defaults in Texas after the peak billing during the seasonally warmer summer months. For the three months ended December 31, 2011, the bad debt expense of $8.3 million represents approximately 2.6% of revenue.