Just Energy Customer Growth Continues; Earnings Down on Mild Weather

In reporting earnings yesterday, Just Energy said that its customer count, in terms of long-term customer aggregation, stood at 3.870 million Residential Customer Equivalents (RCEs) as of March 31, 2012.

This represents net growth of 112,000 RCEs from the December 31, 2011 total of 3.758 million RCEs. RCEs as of March 31, 2011 had been 3.314 million.

U.S. electric RCEs as of March 31, 2012 were 2.063 million, versus 1.943 million as of December 31, 2011, and 1.348 million a year ago.

U.S. natural gas RCEs as of March 31, 2012 were 551,000, versus 566,000 as of December 31, 2011, and 574,000 a year ago.

In the U.S., annual gas attrition for the year ending March 31, 2012 was 24%, a slight increase from the 23% experienced in the prior year.

Electricity attrition in the U.S. was 13% for the year ending March 31, 2012, a decrease from the 17% reported for the prior fiscal year, due to the increasing commercial customer base that has historically experienced lower attrition rates.

The actual aggregation costs per customer for the 12 months ended March 31, 2012 for residential and commercial customers signed by independent representatives and commercial customers signed by brokers were as follows (all $ in this story Canadian):

Residential customers
- U.S. Gas: $188/RCE
- U.S. Electricity: $161/RCE

Commercial customers
- U.S. Gas: $76/RCE
- U.S. Electricity: $151/RCE

Commercial broker customers
- U.S. Gas: $25/RCE
- U.S. Electricity: $35/RCE

Annual gross margin per customer added, renewed, or lost during the year ended March 31, 2012 was as follows (gross number of customers in parenthesis):

Residential and small commercial customers added in the year
- U.S. Gas: $196 (112,000)
- U.S. Electricity: $168 (236,000)

Residential and small commercial customers renewed in the year
- U.S. Gas: $205 (38,000)
- U.S. Electricity: $163 (41,000)

Residential and small commercial customers lost in the year
- U.S. Gas: $211 (142,000)
- U.S. Electricity: $210 (159,000)

- Large commercial customers added in the year: $82 (662,000)

- Large commercial customers lost in the year: $117 (254,000)

Bad debt expense for the year ended March 31, 2012, was $28.5 million, an increase of 3% from $27.7 million expensed for the year ended March 31, 2011. The bad debt expense increase was a result of a 15% increase in total revenues for the current year for the markets where Just Energy bears the credit risk to $1.2 billion. For the year ended March 31, 2012, the bad debt expense of $28.5 million represents 2.4% of relevant revenue, lower than the bad debt for fiscal 2011, which represented 2.7% of relevant revenue.

Just Energy management expects that bad debt expense will remain in the range of 2% to 3% of relevant revenue.

Just Energy also reported that from a standing start with 3,500 independent representatives at the beginning of the year, network marketer Momentis has grown to 47,800 independent representatives at year-end.

Just Energy CEO Ken Hartwick also said, "Today, we continue to look to the future and see many changes coming in how customers use energy. Time-of-use metering makes control of home consumption an essential goal of homeowners and an opportunity for Just Energy to provide products which assist customers to use energy effectively. Looking further out, we see growth in the sales of electric cars and other vehicles as a major driver of North American power consumption. Again, our executive team is looking for ways to have Just Energy products at the forefront of this growth sector."

Just Energy adjusted EBITDA for the quarter ending March 31, 2012 decreased by 5% to $109.3 million. This decrease is attributable to the weather impact on energy marketing and higher administrative, bad debt and selling and marketing expenses to maintain gross margin, Just Energy said. In particular, Just Energy has undertaken higher investment in the solar and network marketing divisions as well as investments to open new geographic territories for energy marketing.

Gross margin for the three months ended March 31, 2012 was flat versus the year-ago at $173 million, as 4% lower gross margin from energy marketing was offset by increased margin from Just Energy's ethanol and home services businesses. The decline in energy marketing gross margin was attributable to the extremely warm winter weather in Just Energy markets and the impact on natural gas consumption.

Net loss for the three months ended March 31, 2012 was $76.9 million, versus net income of $37.1 million a year ago, due to the change in the fair value of derivative instruments.