GENIE ENERGY LTD.

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GENIE ENERGY LTD. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/09/2021 | 03:14pm EDT
The following information should be read in conjunction with the accompanying
consolidated financial statements and the associated notes thereto of this
Quarterly Report, and the audited consolidated financial statements and the
notes thereto and our Management's Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report on Form 10-K
for the year ended December 31, 2020, as filed with the U.S. Securities and
Exchange Commission (or SEC).



As used below, unless the context otherwise requires, the terms "the Company," "Genie," "we," "us," and "our" refer to Genie Energy Ltd., a Delaware corporation, and its subsidiaries, collectively.



Forward-Looking Statements



This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including statements that contain the words
"believes," "anticipates," "expects," "plans," "intends," and similar words and
phrases. These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from the results projected
in any forward-looking statement. In addition to the factors specifically noted
in the forward-looking statements, other important factors, risks and
uncertainties that could result in those differences include, but are not
limited to, those discussed below under Part II, Item IA and under Item 1A to
Part I "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2020. The forward-looking statements are made as of the date of
this report and we assume no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ from those
projected in the forward-looking statements. Investors should consult all of the
information set forth in this report and the other information set forth from
time to time in our reports filed with the SEC pursuant to the Securities Act of
1933 and the Securities Exchange Act of 1934, including our Annual Report on
Form 10-K for the year ended December 31, 2020.



Coronavirus Disease (COVID 19)

Starting in the first quarter 2020, the world and the United States experienced the unprecedented impacts of the coronavirus disease 2019 (COVID-19) pandemic.

For the three and nine months ended September 30, 2021, the impacts of COVID-19 are evident in several key aspects of our business operations and the corresponding financial impact has been mixed.




Our customer base is predominantly residential, so we benefited from the
increased demand for residential electricity when customers are working from
their homes. On the other hand, like other retail providers, we suspended our
face-to-face customer acquisition programs in March 2020 as public health
measures were implemented to combat COVID-19, resulting in a decrease in gross
meter acquisitions and a reduction in the U.S. domestic meters served. Churn for
the third quarter of 2021 slightly increased compared to the same
period in 2020, however, below the churn levels that the Company typically
experienced before March 2020. In the fourth quarter of 2020, authorities began
relaxing certain COVID-19 public health restrictions in some of GRE's domestic
markets facilitating a partial reactivation of the previously curtailed customer
acquisition channels.



We did not experience any significant changes in our workforce composition and
were able to implement our business continuity plans with no significant impact
to our ability to maintain our operations. We continue to maintain strong
physical and cybersecurity measures in order to both serve our operational needs
with a remote workforce and to ensure that we continue to provide services to
our customers. We face challenges due to the need to operate with a remote
workforce and are continuing to address those challenges so as to minimize the
impact on our ability to operate.



In the fourth quarter of 2020, authorities began relaxing certain COVID-19 public health restrictions in some of our markets which allows us to resume face-to-face sales and marketing. Looking ahead, we expect to see a modest rebound in meter acquisition, however, any reversal of the easing of restrictions would impact that expected rebound.




There are many uncertainties regarding the impacts of the COVID-19 pandemic, and
we are closely monitoring those impacts of on all aspects of its business,
including how it will impact our customers, employees, suppliers, vendors, and
business partners. We are currently unable to predict the impact that COVID-19
will have on our financial position and operating results due to the
complexities of the impacts and numerous uncertainties that are beyond the
Company's control. We expect to continue to assess the evolving impact of
COVID-19 on our business and assets and intend to make adjustments accordingly.



Overview



We are comprised of Genie Retail Energy ("GRE"), Genie Retail Energy
International ("GRE International") and Genie Renewables. In March 2021, the
Company modified its management reporting to rename the Genie Energy Services
("GES") segment as "Genie Renewables."



GRE owns and operates retail energy providers ("REPs"), including IDT Energy,
Residents Energy, Town Square Energy ("TSE"), Southern Federal and Mirabito
Natural Gas. GRE's REP businesses resell electricity and natural gas primarily
to residential and small business customers, with the majority of the customers
in the Eastern and Midwestern United States and Texas.



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GRE International holds the Company's REPs that serve retail customers in United
Kingdom under the name Orbit Energy, its 98.8% interest in venture in Japan
("Genie Japan"), its 91.7% interest in Lumo Energia Oyj ("Lumo Finland"), a REP
serving residential customers in Finland and its 98.8% interest in
Lumo Energi AB ("Lumo Sweden"), which was formed in 2019 to serve retail energy
customers in Sweden. In May 2021, we completed the sale of Genie Japan.


Genie Renewables holds Genie Solar Energy, a rooftop solar system sales and
general contracting company, a 93.5% interest in CityCom Solar, a marketer of
community solar energy solutions, oversees Diversegy, a retail energy advisory
and brokerage company that serves commercial and industrial customers throughout
the United States and manages our 60.0% controlling interest in Prism, a solar
solutions company that is engaged in U.S. based manufacturing of solar panels,
solar installation design and solar energy project management.


As part of our ongoing business development efforts, we seek out new
opportunities, which may include complementary operations or businesses that
reflect horizontal or vertical expansion from our current operations. Some of
these potential opportunities are considered briefly and others are examined in
further depth. In particular, we seek out acquisitions to expand the geographic
scope and size of our REP businesses.


Strategic Update



We suspended the planned spin-off of our international operations in the United
Kingdom and Scandinavia following the deterioration of the United Kingdom energy
market, where a planned, orderly withdrawal from the market is underway. We do
not expect to incur additional material, cash charges as a result.


Genie Retail Energy



GRE operates REPs that resell electricity and/or natural gas to residential and
small business customers in Connecticut, Delaware, Georgia, Florida, Georgia,
Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Ohio, Pennsylvania, Texas, Rhode Island, and Washington, D.C. GRE's revenues
represented approximately 70.5 and 85.0%  of our consolidated revenues in
the nine months ended September 30, 2021 and 2020, respectively.


Seasonality and Weather



The weather and the seasons, among other things, affect GRE's REPs' revenues.
Weather conditions have a significant impact on the demand for natural gas used
for heating and electricity used for heating and cooling. Typically, colder
winters increase demand for natural gas and electricity, and hotter summers
increase demand for electricity. Milder winters and/or summers have the opposite
effects. Unseasonable temperatures in other periods may also impact demand
levels. Potential changes in global climate may produce, among other possible
conditions, unusual variations in temperature and weather patterns, resulting in
unusual weather conditions, more intense, frequent and extreme weather events
and other natural disasters. Some climatologists believe that these extreme
weather events will become more common and more extreme which will have a
greater impact on our operations. Natural gas revenues typically increase in the
first quarter due to increased heating demands and electricity revenues
typically increase in the third quarter due to increased air conditioning use.
Approximately 47.7% and 49.6% of GRE's natural gas revenues for the relevant
years were generated in the first quarter of 2020 and 2019, respectively, when
demand for heating was highest. Although the demand for electricity is not as
seasonal as natural gas (due, in part, to usage of electricity for both heating
and cooling), approximately 31.8% of GRE's electricity revenues for 2020 and
2019, were generated in the third quarters of those years. GRE's REP's revenues
and operating income are subject to material seasonal variations, and the
interim financial results are not necessarily indicative of the estimated
financial results for the full year.


Winter Storm in Texas



In mid-February of 2021, the State of Texas experienced unprecedented cold
weather and snow, which was named Winter Storm Uri. With the grid overtaxed due
to demand and weather-related reduced supply and rolling blackouts being
enforced, by order of the ERCOT, real-time commodity prices during the crisis
escalated significantly. Although our supply commitment for our customers in
Texas was reasonably hedged for reasonably foreseen winter weather conditions,
the market conditions exposed us to further unexpected cost increases. Despite
our cost increases related to the unprecedented price volatility in real-time
electricity prices, we maintained customer rates under current agreements with
customers. The impact on our consolidated profitability for the nine months
ended September 30, 2021 was approximately$13.0 million.


In June 2021, the state legislature of the State of Texas passed House Bill 4492
("HB 4492") which includes certain provisions for financing certain costs
associated with electric markets caused by Winter Storm Uri. Pursuant to HB
4492, two categories of charges associated with Winter Storm Uri are to be
securitized and the proceeds of the securitization will be provided going to the
load serving entities who originally incurred the charges. Under HB 4492, we are
entitled to recover a portion of the costs incurred from the effect of Winter
Storm Uri with a calculated range of $1.5 million to $2.6 million. In the second
quarter of 2021, the Company recorded a reduction in cost of revenues of
$1.5 million.


In September 2021, the Public Utility Commission of Texas ("PUC") approved the
Debt Obligation Order to grant ERCOT's application for a debt financing
mechanism to pay for certain costs associated with Winter Storm Uri. Under the
Debt Obligation Order, the amount that the Company is entitled to recover
increased to approximately $3.4 million. For the three months ended September
30, 2021, the Company recorded an additional reduction in the cost of revenues
of $1.9 million for an aggregate amount of $3.4 million for the nine months
ended September 30, 2021.


United Kingdom Operations Update




In the third quarter of 2021, as a result of the deterioration of the energy and
natural gas market in the United Kingdom, the Company initiated the process of
exiting the market which resulted in the impairment assets of $6.7 million,
included in the statements of operations.



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Purchase of Receivables




Utility companies offer purchase of receivable, or POR, programs in most of the
service territories in which GRE operates. GRE's REPs reduce their customer
credit risk by participating in POR programs for a majority of their
receivables. In addition to providing billing and collection services, utility
companies purchase those REPs' receivables and assume all credit risk without
recourse to those REPs. GRE's REPs' primary credit risk is therefore nonpayment
by the utility companies. In each of the three and nine months ended September
30, 2021 the associated cost was approximately 1.0% of GRE's revenue. In the
three and nine months ended September 30, 2020 the associated cost was
approximately 1.2%, of GRE's revenue. At September 30, 2021, 86.6% of GRE's net
accounts receivables were under a POR program.


Class Action Lawsuits

Although GRE endeavors to maintain best sales and marketing practices, such practices have been the subject of certain class action lawsuits.



On February 18, 2020, named Plaintiff Danelle Davis filed a putative class
action complaint against Residents Energy and GRE in United States District of
New Jersey alleging violations of the Telephone Consumer Protection Act, 47
U.S.C § 227 et seq. Residents Energy denies allegations in the complaint and
plans to vigorously defend this action. On or around October 9, 2020, Residents
Energy filed a preliminary motion to dismiss one of the counts in the complaint,
and to dismiss GRE as a named defendant.  Although Residents Energy and GRE
denies any wrongdoing in connection with the complaints, the parties settled the
matter for a minimal amount which was included in selling general and
administrative expenses for three months ended March 31, 2021.


See Note 17, Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is incorporated by reference.

Agency and Regulatory Proceedings



From time to time, the Company responds to inquiries or requests for information
or materials from public utility commissions or other governmental regulatory or
law enforcement agencies related to investigations under statutory or regulatory
schemes. The Company cannot predict whether any of those matters will lead to
claims or enforcement actions or whether the Company and the regulatory parties
will enter into settlements before a formal claim is made. See Notes 17,
Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is
incorporated by reference, for further detail on agency and regulatory
proceedings.


New York Public Service Commission Proceedings



In December 2017, the New York Public Service Commission ("PSC") held an
evidentiary hearing to assess the retail energy market in New York. On December
12, 2019, following the completion of post-hearing briefings in the proceedings,
the PSC issued orders adopting changes to the New York retail energy market,
effective April 14, 2021 ("2021 Orders"). The 2021 Orders limits the types of
services energy retailer marketers may offer new customers or renewals, in terms
of pricing for non-renewable commodities, and renewable product offerings.
Although the Company is working to ensure that its products and services are
fully compatible with the 2021 Orders, such compliance may adversely impact
customer acquisition and renewal revenue and profitability. The Company is
evaluating its options, both by itself and in tandem with other industry
participants, to challenge or petition for additional clarity and changes to the
2021 Orders. There is insufficient basis to deem any loss probable or to assess
the amount of any possible loss based on the changes instituted by the 2021
Orders. As of September 30, 2021, New York represented 18.0% of GRE's total
meters served and 14.2% of the total residential customer equivalents ("RCEs")
of GRE's customer base. For the three and nine months ended September 30, 2021,
New York gross revenues were $12.8 million and $40.1 million, respectively.


An RCE represents a natural gas customer with annual consumption of 100 mmbtu or
an electricity customer with annual consumption of 10 MWh. Because different
customers have different rates of energy consumption, RCEs are an industry
standard metric for evaluating the consumption profile of a given retail
customer base.



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State of Connecticut Public Utilities Regulatory Authority


Town Square



On September 19, 2018, the State of Connecticut Public Utilities Regulatory
Authority ("PURA") commenced an investigation into Town Square following
customer complaints of allegedly misleading and deceptive sales practices on the
part of Town Square. The Connecticut Office of Consumer Counsel has joined in
the investigation Although Town Square denies any basis for those complaints and
any wrongdoing on its part, has cooperated with the investigation and responded
to subpoenas for discovery. On June 17, 2020, the PURA notified Town Square that
it was advancing it's investigation by assigning Prosecutorial staff for the
purpose of investigating Town Square's compliance with licensed electric
supplier billing, marketing, and licensing requirements, and, if appropriate,
facilitating settlement discussions among the parties that contains, but is not
limited to, an appropriate civil penalty, extensive retraining of the supplier's
third-party agents, and retention of all sales calls with continued auditing. In
the first quarter of 2021, Town Square engaged in settlement discussions with
PURA and accrued $0 million in the first quarter of 2021.


In July 2021, the parties settled the dispute. Pursuant to the terms of the
settlement agreement, Town Square paid $0.4 million. Town Square has also, and
has agreed to voluntarily refrain, from in-person marketing activities in
Connecticut for the period of 15 months. As of September 30, 2021, Town Square's
Connecticut customer base represented 9.0% of GRE's total meters served and 9.9%
of the total RCEs of GRE's customer base. For three and nine months ended
September 30, 2021, Town Square's gross revenues from sales in Connecticut were
$9.0 million and $24.9 million, respectively.


Residents Energy



In August of 2020, Residents Energy began marketing retail energy services in
Connecticut. For the three and nine months ended September 30, 2021, Residents
Energy's gross revenues from sales in Connecticut were nil and $0.2 million,
respectively. During the fourth quarter of 2020, the enforcement division of
PURA contacted Residents Energy concerning customer complaints received in
connection with alleged door-to-door marketing activities in violation of
various rules and regulations, including a ban on door-to-door activities during
the pertinent time period as a result of the COVID-19 pandemic. In January and
February of 2021, Residents Energy responded to the limited information requests
and discovery made by the enforcement division. On March 12, 2021, the
enforcement division filed a motion against Resident Energy with the
adjudicating body of PURA, seeking the assessment of $1.5 million in penalties,
along with a suspension of license for eighteen months, auditing of marketing
practices upon reinstatement and an invitation for settlement discussions.
Residents Energy believes that the initial demand is disproportionate to its
scope of activity. In the first quarter of 2021, Residents Energy engaged in
settlement discussions with PURA and accrued $0.3 million in the first quarter
of 2021.


In September 2021, the parties settled the dispute. Pursuant to the terms of the settlement agreement, Residents Energy paid $0.3 million and volunteered to withdraw from the market in Connecticut for a period of 36 months.



Critical Accounting Policies



Our consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America, or U.S. GAAP. Our significant accounting policies are described in Note
1 to the consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2020. The preparation of financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses as well as the
disclosure of contingent assets and liabilities. Critical accounting policies
are those that require application of management's most subjective or complex
judgments, often as a result of matters that are inherently uncertain and may
change in subsequent periods. Our critical accounting policies include those
related to revenue recognition, allowance for doubtful accounts, acquisitions,
goodwill, and income taxes. Management bases its estimates and judgments on
historical experience and other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. For additional discussion of our critical
accounting policies, see our Management's Discussion and Analysis of Financial
Condition and Results of Operations in our Annual Report on Form 10-K for the
year ended December 31, 2020.


Recently Issued Accounting Standards

Information regarding new accounting pronouncements is included in Note 20-Recently Issued Accounting Standards, to the current period's consolidated financial statements.




Results of Operations



We evaluate the performance of our operating business segments based primarily
on income (loss) from operations. Accordingly, the income and expense line items
below income (loss) from operations are only included in our discussion of the
consolidated results of operations.



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Three and Nine Months Ended September 30, 2021 and Compared to Three and Nine Months Ended September 30, 2020




Genie Retail Energy Segment



                      Three months ended                                         Nine months ended
                         September 30,                  Change                     September 30,                 Change
(amounts in
thousands)          2021              2020           $            %             2021          2020           $            %
Revenues:
Electricity      $    82,801        $ 86,200     $  (3,399 )      (3.9 ) %   $  218,082     $ 210,350     $  7,732         3.7   %
Natural gas            3,516           2,724           792        29.1           25,878        24,190        1,688         7.0
Total revenues        86,317          88,924        (2,607 )      (2.9 )        243,960       234,540        9,420         4.0
Cost of
revenues              52,166          63,122       (10,956 )     (17.4 )        176,523       164,084       12,439         7.6
Gross profit          34,151          25,802         8,349        32.4           67,437        70,456       (3,019 )      (4.3 )
Selling,
general and
administrative
expenses              14,437          13,573           864         6.4           41,010        39,253        1,757         4.5
       Income
from                                                                                                                           )
operations       $    19,714        $ 12,229     $   7,485        61.2   %   $   26,427     $  31,203     $ (4,776 )     (15.3   %



Revenues. Electricity revenues decreased by 3.9% in three months ended September
30, 2021 compared to the same period in 2020. The decrease is due to a decrease
in electricity consumption partially offset by an increase in the average rate
per kilowatt hour sold in the three months ended September 30, 2021 compared to
the same period in 2020. Electricity consumption by GRE's REPs' customers
decreased by 9.2% in the three months ended September 30, 2021, compared to the
same period in 2020. The decrease in electricity consumption reflected a 5.9%
decrease in average number of meters served and a 3.5% decrease in average
consumption per meter. The average rate per kilowatt hour sold increased by 5.2%
in the three months ended September 30, 2021 compared to the same period
in 2020. The decrease in per meter consumption reflects a decrease in
residential electricity as many COVID-19 "stay-at-home" orders have been lifted
or relaxed in some territories.


Electricity revenues increased by 3.7% in nine months ended September 30, 2021
compared to the same period in 2020. The increase is due to increases in
electricity consumption and in the average rate per kilowatt hour sold in the
nine months ended September 30, 2021 compared to the same period in 2020.
Electricity consumption by GRE's REPs' customers increased 1.8% in the nine
months ended September 30, 2021, compared to the same period in 2020. The
increase in electricity consumption reflected a 5.5% increase in the average
consumption per meter partially offset by a 3.5% decrease in the average number
of meters served. The average rate per kilowatt hour sold increased by 1.8% in
the nine months ended September 30, 2021 compared to the same period in 2020.


GRE's natural gas revenues increased by 29.1% in the three months ended
September 30, 2021 compared to the same period in 2020.  The increase in natural
gas revenues in the three months ended September 30, 2021 compared to the same
period in 2020 was a result of increases in natural gas consumption and the
average rate per therm sold. Natural gas consumption by GRE's REPs' customers
increased by 9.3% in the three months ended September 30, 2021 compared to the
same period in 2020, reflecting a 0.6% increase in average consumption per meter
and an 8.7% increase in average meters served in the three months ended
September 30, 2021 compared to the same period in 2020. The average revenue per
therm increased by 18.1% in the three months ended September 30, 2021, compared
to the same period in 2020.


GRE's natural gas revenues increased by 7.0% in the nine months ended September
30, 2021 compared to the same period in 2020. The increase is due to increases
in natural gas consumption by GRE's REPs' customers and in the average rate per
therm sold in the nine months ended September 30, 2021, compared to the same
period in 2020. Natural gas consumption by GRE's REPs' customers increased by
6.1% in the nine months ended September 30, 2021 compared to the same period
in 2020 reflecting a 5.2% increase in average consumption per meter in the nine
months ended September 30, 2021 compared to the same period in 2020 and an
increase of 0.8% in average meters served in the nine months ended September 30,
2021 compared to the same period in 2020. Average rate per therm sold slightly
increased by 0.9% in the nine months ended September 30, 2021, compared to the
same period in 2020.


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The customer base for GRE's REPs as measured by meters served consisted of the
following:



                              September                                                                       September 30,
(in thousands)                30, 2021       June 30, 2021        March 31, 2021       December 31, 2020           2020
Meters at end of quarter:
Electricity customers               289                  292                  308                     305                309
Natural gas customers                72                   69                   65                      65                 67
Total meters                        361                  361                  373                     370                376




Gross meter acquisitions in three months ended September 30, 2021, were 46,000
compared to 44,000 for the same period in 2020. Gross meter acquisitions in nine
months ended September 30, 2021, were 144,000 compared to 154,000 for the same
period in 2020.


Meters served were flat at 361,000 meters at June 30, 2021 and September 30,
2021. Meters served decreased by 9,000 meters or 2.4% from December 31,
2020 to September 30, 2021. In the three months ended September 30, 2021,
average monthly churn slightly increased to 4.0% compared to 3.7% for same
period in 2020. In the nine months ended September 30, 2021, average monthly
churn slightly increase to 4.2% compared to 4.1% compared to same period
in 2020.



The average rates of annualized energy consumption, as measured by RCEs, are presented in the chart below. An RCE represents a natural gas customer with annual consumption of 100 mmbtu or an electricity customer with annual consumption of 10 MWh. Because different customers have different rates of energy consumption, RCEs are an industry standard metric for evaluating the consumption profile of a given retail customer base.



                              September                                                                      September 30,
(in thousands)                30, 2021       June 30, 2021       March 31, 2021       December 31, 2020           2020
RCEs at end of quarter:
Electricity customers               276                 272                  291                     284                294
Natural gas customers                60                  58                   56                      53                 56
Total RCEs                          336                 330                  347                     337                350




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RCEs increased by 1.8% at September 30, 2021 compared to June 30, 2021. RCEs were relatively flat at December 31, 2020 and September 30, 2021. The fluctuations reflect the focus on adding higher consumption meters.

Cost of Revenues and Gross Margin Percentage. GRE's cost of revenues and gross margin percentage were as follows:



                             Three Months Ended
                                September 30,                Change                     Nine months ended September 30,                   Change
(amounts in thousands)        2021          2020           $           %               2021                            2020           $            %
Cost of revenues:
Electricity                  $ 52,096     $ 61,467     $  (9,371 )   (15.2 ) %   $         164,440                   $ 150,720     $ 13,720         9.1   %
Natural gas                        70        1,655        (1,585 )   (95.8 )                12,083                      13,364       (1,281 )      (9.6 )
Total cost of revenues       $ 52,166     $ 63,122     $ (10,956 )   (17.4 ) %   $         176,523                   $ 164,084     $ 12,439         7.6   %




                                           Three months ended September 30                  Nine months ended September 30,
(amounts in thousands)              2021                         2020        Change         2021           2020        Change
Gross margin percentage:
Electricity                           37.1 %                      28.7 %        8.4 %         24.6 %        28.3 %       (3.8 ) %
Natural gas                           98.0                        39.2         58.8           53.3          44.8          8.6
Total gross margin percentage         39.6 %                      29.0 %       10.5 %         27.6 %        30.0 %       (2.4 ) %



nm-not meaningful


Cost of revenues for electricity decreased in the three months ended September
30, 2021 compared to the same period in 2020 primarily because of decreases in
electricity consumption by GRE's REPs' customers and the average unit cost of
electricity. The average unit cost of electricity decreased 6.7% in the three
months ended September 30, 2021 compared to the same period in 2020. Gross
margin on electricity sales increased in the three months ended September 30,
2021 compared to the same period in 2020 because the average rate charged to
customers increased while the average unit cost of electricity decreased.


Cost of revenues for electricity increased in the nine months ended September
30, 2021 compared to the same period in 2020 primarily because of increases in
electricity consumption by GRE's REPs' customers and the average unit cost of
electricity. The average unit cost of electricity increased 7.3% in the nine
months ended September 30, 2021 compared to the same period in 2020. A
significant portion of the increase resulted from incremental cost incurred as
an effect of the major winter storm in Texas discussed above. Gross margin on
electricity sales decreased in the nine months ended September 30, 2021 compared
to the same period in 2020 because the average rate charged to customers
increased less than the increase in the average unit cost of electricity.


Cost of revenues for natural gas decreased in the three months ended September
30, 2021 compared to the same period in 2020 primarily because of  a decrease in
the average unit cost of natural gas partially offset by an increase in natural
gas consumption by GRE's REPs' customers. The average unit cost of natural gas
decreased 96.2% in the three months ended September 30, 2021 compared to the
same period in 2020. A significant portion of the decrease resulted from the
favorable fluctuation of the fair value of the Company's natural gas
hedges. Gross margin on natural gas sales increased in the three months ended
September 30, 2021 compared to the same period in 2020 because the average rate
charged to customers increased while the average unit cost of natural gas
decreased.


Cost of revenues for natural gas decreased in the nine months ended September
30, 2021 compared to the same period in 2020 primarily because of a decrease in
the average unit cost of natural gas partially offset by an increase in natural
gas consumption by GRE's REPs' customers. The average unit cost of natural gas
decreased 15.6% in the nine months ended September 30, 2021 compared to the same
period in 2020. Gross margin on natural gas sales increased in the nine months
ended September 30, 2021 compared to the same period in 2020 because the average
rate charged to customers slightly increased while the average unit cost of
natural gas decreased.


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Selling, General and Administrative. The increase in selling, general and
administrative expenses in the three months ended September 30, 2021 compared to
the same period in 2020 was primarily due to an increase in marketing and
employee-related expenses. Employee-related expenses increased by $0.6 million
in the three months ended September 30, 2021, compared to the same period
in 2020 due to an increase in the number of employees. Marketing expenses
increased by $0.2 in the three months ended September 30, 2021, compared to the
same period in 2020 due to expenses incurred on different marketing channels to
offset the effect of COVID-19 related public health restrictions on door-to-door
marketing. As a percentage of GRE's total revenues, selling, general and
administrative expense increased from 15.3% in the three months ended September
30, 2020 to 16.7% in the three months ended September 30, 2021.



The increase in selling, general and administrative expenses in the nine months
ended September 30, 2021 compared to the same period in 2020 was primarily due
to increases in marketing expenses. Marketing expenses increased by $1.5 million
in the nine months ended September 30, 2021, compared to the same period
in 2020 due to expenses incurred on different marketing channels to offset the
effect of COVID-19 related public health restrictions on door-to-door marketing.
As a percentage of GRE's total revenues, selling, general and administrative
expenses increased from 15.3% in the nine months ended September 30, 2020 to
16.7%% in the nine months ended September 30, 2021.



GRE International Segment



                     Three Months Ended               Change                  Nine Months Ended
                       September 30,                                            September 30,                  Change
(amounts in            2021          2020          $            %             2021           2020          $            %
thousands)
Revenues
   Electricity    $    20,998     $  5,593     $ 15,405        275.4   %   $   72,701      $ 17,321     $ 55,380        319.7   %
   Natural gas          4,093            -        4,093           nm           22,580             -       22,580           nm
   Others                 418          236          182         77.1              800           499          301         60.3
Total revenues    $    25,509     $  5,829     $ 19,680        337.6       $   96,081      $ 17,820     $ 78,261        439.2
Cost of                17,739        4,741       12,998        274.2           82,342        15,105       67,237        445.1
revenue
Gross profit            7,770        1,088        6,682        614.2           13,739         2,715       11,024        406.0
Selling,
general and            12,055        2,663        9,392        352.7
administrative
expenses                                                                       27,719         7,416       20,303        273.8
Impairment of           6,650            -        6,650           nm
assets                                                                          6,650             -        6,650           nm
Loss from                                  )                                          )             )
operations        $  (10,935)     $ (1,575     $  9,360        594.3   %   $  (20,630      $ (4,701     $ 15,929        338.8   %
Equity in net
loss of                     -        1,502       (1,502 )     (100.0 )              -         1,502       (1,502 )     (100.0 )
Shoreditch


nm-not meaningful



GRE International holds our stakes in REPs outside of North America. These
businesses include Shoreditch, which operates as Orbit Energy in the U.K., Genie
Japan (prior to its sale in May 2021), our controlling stakes in Lumo Finland
and Lumo Sweden. Lumo Sweden began operations in the second quarter of 2020.



Prior to our acquisition of the remaining 23.0% of Shoreditch in October 2020,
we accounted for our 77.0% interest in Shoreditch under the equity method of
accounting. Under this method, we recorded our share in the net income or loss
of Shoreditch. Therefore, revenue generated, and expenses incurred were not
reflected in our consolidated revenue and expenses.



In January 2021, weather volatility and the lack of adequate gas reserves drove
the prices on the Japan Electric Power Exchange to $2,390 per megawatt hour for
an extended period of time. Although our supply commitment for our customers in
Japan was hedged reasonably for expected winter weather conditions, the extreme
price spike exposed us to further unexpected cost increases. The impact on our
first quarter 2021 consolidated result of operations was approximately $2.5
million.



On April 26, 2021, we entered into an Equity Purchase Agreement ("Purchase
Agreement") with Hanhwa Q Cells Japan Co., Ltd. ("Hanhwa"), pursuant to which,
we agreed to sell our interest in Genie Japan for ¥570.0 million (equivalent to
approximately $5.3 million at April 26, 2021) subject to certain terms and
conditions set forth in the Purchase Agreement. On May 11, 2021, upon the terms
and subject to the conditions of Purchase Agreement, we completed the
divestiture of Genie Japan for an aggregate cash consideration of ¥570.0 million
(equivalent to approximately $5.2 million at May 11, 2021). Hanhwa also assumed
the outstanding loans payable of Genie Japan. We paid $0.6 million of commission
to certain former employees of Genie Japan and recognized a pre-tax gain of
$4.2 million from the divestiture. For the period from January 1, 2021 to May
11, 2021, Genie Japan had revenues and cost of revenues of $3.9 million and $5.9
million, respectively.



Meters served by GRE International's REPs (including those served by Orbit
Energy for all periods) was flat at 193,000 at September 30, 2021 compared to
June 30, 2021 and slightly decreased by 2,000 compared to December 31, 2020. The
decreases are primarily due to the sale of Genie Japan partially offset by the
growth in Orbit Energy's customer bases.



RCEs served by GRE International's REPs (including those served by Orbit Energy
for all periods) decreased to 98,000 at September 30, 2021 from 106,000, at June
30, 2021 and 103,000 at December 31, 2020. The decrease are primarily due to the
sale of Genie Japan.



In the third quarter of 2021, as a result of the deterioration of the energy and
natural gas market in the United Kingdom, the Company initiated the process of
exiting the market and is in discussion with the regulators for an oderly
transfer of existing customers.



Revenue. GRE International's revenues increased in three and nine months ended
September 30, 2021 compared to the same periods in 2020 primarily due to the
consolidation of Orbit Energy in October 2020, partially offset by the decrease
from the sale of Genie Japan in May 2021. Orbit Energy increased GREI's revenue
in the three and nine months ended September 30, 2021 by $18.0 million and
$67.2 million, respectively.



37

--------------------------------------------------------------------------------




Cost of Revenues. Cost of revenue increased in the three and nine months ended
September 30, 2021 compared to the same periods in 2020. The increases in cost
of revenues were consistent with the increases in revenues for the periods.
Orbit Energy increased GREI's cost of revenue in the three and nine months ended
September 30, 2021 by $17.1 million and $58.8 million, respectively. Cost of
revenues for nine months ended September 30, 2021 includes $2.5 million
incremental cost recorded in Genie Japan as a result of weather volatility and
the lack of adequate gas reserves in Japan in the first quarter of 2021.


Selling, General and Administrative Expenses. The increase in selling, general
and administrative expenses in the three and nine months ended September 30,
2021 compared to the same periods in 2020 was primarily due to the consolidation
of Orbit Energy in October 2020, the continued growth of operations
at Lumo Finland and the start of commercial operation of Lumo Sweden in the
second quarter of 2020, partially offset by the sale of Genie Japan in May 2021.
Orbit Energy increased GREI's selling, general and administrative expenses for
the three and nine months ended September 30, 2021 by $10.7 million and $22.4
million, respectively.


Impairment of assets. In the third quarter of 2021, as a result of the
deterioration of the energy and natural gas market in the United Kingdom, the
Company initiated the process of exiting the market which resulted in the
impairment of trademark, customer relationship, non-compete agreements, property
and equipment and right of use assets for an aggregate amount of $6.7 million.



Genie Renewables Segment



The Genie Renewables (formerly GES) segment is composed of Genie Solar,
CityCom Solar, Diversegy and Prism, in which we hold a 60% controlling interest.


                  Three Months Ended             Change                    Nine Months
                     September 30,                                     Ended September 30,               Change
(amounts in          2021       2020           $           %            2021          2020           $            %
thousands)
Revenues         $   1,338     $ 1,573     $  (235 )     (14.9 ) %   $    6,170     $ 24,092     $ (17,922 )      (74.4 ) %
Cost of                883       1,147        (264 )     (23.0 )          3,675       21,555       (17,880 )      (83.0 )
revenues
Gross profit           455         426          29         6.8            2,495        2,537           (42 )       (1.7 )
Selling,
general and
administrative
expenses               658       1,040        (382 )     (36.7 )          1,805        2,929        (1,124 )      (38.4 )
Impairment of            -           -           -          nm
assets                                                                        -          993          (993 )         nm
(Loss) income
from
operations       $   (203)     $  (614 )   $  (411 )     (66.9 ) %   $      690     $ (1,385 )   $  (2,075 )     (149.8 ) %



nm-not meaningful


Revenue. Genie Renewables' revenues decreased in the three and nine months ended
September 30, 2021 compared to the same periods in 2020. The decreases in
revenues were the result of the discontinuance of a relationship with a customer
of Prism in the second quarter of 2020. Revenues from Diversegy include
commissions, entry fees and other fees from our energy brokerage and marketing
services businesses.  Revenues from CityCom Solar include commissions from
selling third-party products to customers.


Cost of Revenues. Cost of revenue decreased in the three and nine months ended
September 30, 2021 compared to the same periods in 2020. The decreases in cost
of revenues were consistent with the decreases in revenues for the periods. Cost
of revenues also includes commissions incurred by our energy brokerage and
marketing services businesses.


Selling, General and Administrative. Selling, general and administrative expenses decreased in the three and nine months ended September 30, 2021 compared to the same periods in 2020 primarily because of the streamlining of operations of Prism and the sale of the Prism facility in October 2020.

Impairment of assets. Impairment of assets in three and nine months ended September 30, 2020 pertains to the impairments of property, plant and equipment and customer relationship of Prism as a result of the disposal of Prism's property in New York and renegotiation of the contract with the customer.

38

--------------------------------------------------------------------------------

Corporate




Corporate does not generate any revenues, nor does it incur any cost of
revenues. Corporate costs include unallocated compensation, consulting fees,
legal fees, business development expense and other corporate-related general and
administrative expense.


(amounts in            Three months ended                                       Nine months ended
thousands)               September 30,                   Change                   September 30,                  Change
                     2021               2020          $           %             2021             2020          $           %
General and
administrative
expenses and
loss from
operations        $     1,703          $ 1,555     $   148         9.5   % $     4,832         $ 4,689     $   143         3.0   %




Corporate general and administrative expenses in the three and nine months ended
September 30, 2021 increased compared to the same periods in 2020, primarily due
to an increase in stock-based compensation. As a percentage of our consolidated
revenues, Corporate general and administrative expenses decreased to 1.5% in the
three months ended September 30, 2021 from 1.6% in the three months ended
September 30, 2020 and decreased to 1.4% in the nine months ended September 30,
2021 from 1.7% in the nine months ended September 30, 2020.



Consolidated



Selling, general and administrative expenses. Stock-based compensation expenses
included in consolidated selling, general and administrative expenses was $0.5
million and $0.4 million in the three months ended September 30, 2021 and 2020,
respectively and $1.7 million and $1.3 million in the nine months ended
September 30, 2021 and 2020, respectively. At September 30, 2021, aggregate
unrecognized compensation cost related to non-vested stock-based compensation
was $5.4 million. The unrecognized compensation cost is recognized over the
expected service period.



The following is a discussion of our consolidated income and expense line items below income from operations:



                        Three months ended                                      Nine months ended
                          September 30,                   Change                  September 30,               Change
 (amounts in
thousands)              2021           2020           $            %             2021         2020         $          %
Income from
operations           $     6,873     $  8,485     $ (1,612 )      (19.0) %   $    1,655    $ 20,428   $ (18,773 )    (91.9 ) %
Interest income                8           21          (13 )       (61.9 )           28         164        (136 )    (82.9 )
Interest expense             (99 )        (48 )        (51 )       106.3           (311 )      (223 )       (88 )     39.5
Equity in net
income (loss) in              52         (146 )        198        (135.6 )          215      (1,698 )     1,913     (112.7 )
equity method
investees
Other (loss)
income, net                  (17 )        291         (308 )      (105.8 )          267         390        (123 )    (31.5 )
Unrealized (loss)
gain on marketable        (5,312 )          -       (5,312 )          nm          1,710           -       1,710         nm
equity securities
and investments
Gain on sale of                -            -            -            nm          4,226           -       4,226         nm
subsidiary
Provision for
income taxes              (3,822 )     (2,406 )     (1,416 )        58.9         (7,515 )    (5,563 )    (1,952 )     35.1
Net (loss)  income        (2,317 )      6,197       (8,514 )       137.4            275      13,498     (13,223 )    (98.0 )
Net loss
attributable to
noncontrolling
interests                    (31 )       (531 )        500         (94.2 )         (821 )    (1,026 )       205      (20.0 )
Net (loss) income
attributable to                                                                                                 )
Genie                $    (2,286 )   $  6,728     $ (9,014 )     (134.0) %   $    1,096    $ 14,524   $ (13,428      (92.5 ) %




nm-not meaningful

39


--------------------------------------------------------------------------------

Other (loss) income, net. Other (loss) income, net in the three and nine months ended September 30, 2021 and 2020 consisted primarily foreign currency transactions.




Provision for Income Taxes. Our reported tax rate for the three months ended
September 30, 2021 was 254.0%, an increase as compared to 28.0% for the same
period in 2020. Our reported tax rate for the three months ended September 30,
2021 was 96.5%, an increase as compared to 29.2% for the same period
in 2020. The increases in the reported tax rate for the three and nine months
ended September 30, 2021 compared to the same periods in 2020 are a result of
changes in the mix of jurisdictions in which the taxable income was earned which
was not offset by income tax benefit in other jurisdictions that had losses due
to valuation allowances in those jurisdictions. The GRE International segment
incurred significant losses as discussed above which resulted in lower
consolidated income before income taxes.


Net Loss Attributable to Noncontrolling Interests. The decrease in the net loss
attributable to noncontrolling interests in the three months ended September 30,
2021 compared to the same periods in 2020 was primarily due to a decrease in net
losses of CCE, improvement of results of operations of Lumo Finland as discussed
above and the acquisition of a noncontrolling interest of GRE International in
the third quarter of 2021.


The decrease in the net loss attributable to noncontrolling interests in
the nine months ended September 30, 2021 compared to the same period in 2020 was
primarily due to a decrease in net losses of CCE, improvement of results of
operations of Lumo Finland as discussed above and the streamline of operations
at Prism.


Unrealized (loss) gain on marketable equity securities and investments. The
unrealized (loss) gain on marketable equity securities and investment for the
three and nine months ended September 30, 2021 pertains primarily to the
fluctuation of the market price of the Company's investments in common stock and
warrants to purchase common stock of Rafael Holdings, Inc. ("Rafael") which the
Company acquired in December 2020.


Equity in net income (loss) in equity method investees. The equity in net income (loss) in equity method investees for the three months ended September 30, 2021 and 2020 pertains to our share in the result of operations of certain investee that are accounted for using the equity method of accounting.



The equity in net income from equity method investees for the nine months ended
September 30, 2021 relates to our shares in the result of operation of certain
investee. The equity in net loss from equity method investees for the nine
months ended September 30, 2020, pertains to our share in the results of
operations of Orbit. Prior to the acquisition of the controlling interest of
Orbit in October 2020 as discussed above, we accounted for our ownership
interest in Orbit using the equity method since we had the ability to exercise
significant influence over Orbit's operating and financial matters, although we
did not control Shoreditch.


Gain on sale of subsidiary. The gain on the sale of the subsidiary for the nine
months ended September 30, 2021 pertains to the gain recognized related to the
sale of Genie Japan in May 2021.



Liquidity and Capital Resources



General



We currently expect that our cash flow from operations and the $34.0 million
balance of unrestricted cash and cash equivalents that we held at September 30,
2021 will be sufficient to meet our currently anticipated cash requirements for
at least the period from October 1, 2021 to November 8, 2022.



At September 30, 2021, we had working capital (current assets less current liabilities) of $44.4 million.

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