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GENIE ENERGY LTD.

(GNE)
  Report
Delayed Nyse  -  04:00 2022-10-06 pm EDT
8.770 USD   -2.34%
09/29Genie Energy Ltd. : Changes in Registrant's Certifying Accountant (form 8-K)
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GENIE ENERGY LTD. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/08/2022 | 12:29pm 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, 2021, 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, 2021. 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, 2021.


Overview


We are comprised of Genie Retail Energy ("GRE"), Genie Retail Energy International ("GRE International") and 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.


GRE International holds the Company's interest in REPs that serve
retail customers in Scandinavia. It holds 91.6% controlling interest in
Lumo Energia Oyj ("Lumo Finland"), a REP serving residential customers in
Finland and 97.7% interest in Lumo Energi AB ("Lumo Sweden"). GREI previously
held 98.8% in Genie Japan that was sold in May 2021. GRE International also
holds a 100% ownership of Orbit Energy, a REP operating in the U.K., which was
discontinued in November 2021 as discussed below.


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, Diversegy LLC ("Diversegy"), an energy broker
for commercial, and a 60.0% controlling interest in Prism Solar, a solar
solutions company that is engaged in U.S. 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.


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Discontinued Operations in United Kingdom




In 2021, the natural gas and energy market in the United Kingdom deteriorated
which prompted us to suspend the spin-off and start the process of orderly
withdrawal from the United Kingdom market. In October 2021, as part of the
orderly exit process from the United Kingdom market, Orbit and Shell U.K.
Limited ("Shell") agreed to terminate the exclusive supply contract between
them. As part of the termination agreement, Orbit was required to unwind all
physical forward hedges with Shell which resulted in net cash proceeds after
settlement of all related liabilities with Shell. A portion of the net cash
proceeds was transferred to us (see Note 5, Discontinued Operations and
Divestiture, to our financial statements included elsewhere in this Quarterly
Report on Form 10-Q).


Following the termination of the contract with Shell, we filed a petition with
the High Court of Justice Business and Property of England and Wales (the
"Court") to declare Orbit insolvent based on the Insolvency Act of 1986. On
November 29, 2021, the Court declared Orbit insolvent based on the Insolvency
Act of 1986, revoked Orbit's license to supply electricity and natural gas in
the United Kingdom, ordered that Orbit's current customers be transferred to a
"supplier of last resort" and transferred the administration of Orbit to
Administrators effective December 1, 2021. All of the customers of Orbit were
transferred to a third-party supplier effective December 1, 2021 as ordered by
the Court. All assets and liabilities of Orbit, including cash and receivables
remain with Orbit, the management and control of which was transferred to
Administrators.


We determined that exiting the United Kingdom represented a strategic shift that
would have a major effect on our operations and accordingly, presented the
results of operations and related cash flows as discontinued operations for all
periods presented. The assets and liabilities of the discontinued operations
have been presented separately, and are reflected within assets and liabilities
from discontinued operations in the accompanying consolidated balance sheets as
of June 30, 2022 and December 31, 2021.


Lumo Finland and Lumo Sweden



In July 2022, we initiated a plan to dispose of certain assets and liabilities
of Lumo Finland and Lumo Sweden. From July 13, 2022 to July 19, 2022, we entered
into a series of transactions to sell most of the electricity swap instruments
held by Lumo Finland and Lumo Sweden for a gross aggregate amount of
€41.1 million (equivalent to approximately $41.4 million) before fees and other
costs. The sale price is expected to be settled monthly based on monthly
commodity volume specified in the instruments from September 2022 to March 2025.
The net book value of the instrument sold was €35.8 million (equivalent to
$35.8 million) as of June 30, 2022.


In July 2022, Lumo Sweden entered into a transaction to transfer effective August 5, 2022, its customers to a third party for nominal consideration. We are exploring alternatives for ongoing servicing of the customers of Lumo Finland.



The aggregate net assets of Lumo Finland and Lumo Sweden were $39.8 million as
of June 30, 2022, including the $35.8 million in net book value of derivative
contracts disclosed above. The aggregate revenue of Lumo Finland and Lumo Sweden
was $8.1 million and $20.7 million in the three and six months ended June 30,
2022, respectively and $6.3 million and $17.5 million in the three and six
months ended June 30, 2021, respectively. The assets, liabilities and results of
operations of Lumo Finland and Lumo Sweden are included in GRE International
segment.


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We anticipate that the assets and liabilities of Lumo Finland and Lumo Sweden
that are expected to be sold or disposed will be reclassified as assets and
liabilities held for sale. A potential disposal would represent a strategic
shift that would have a major effect on our operations and financial statements
and would be accounted for as a discontinued operation upon completion of
disposal in 2022. Upon completion of the disposal of the assets and liabilities
of Lumo Finland and Lumo Sweden, the remaining assets and liabilities of GRE
International would be combined with the corporate segment.


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 year ended December 31, 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 consolidated income from operations for the three
and six months ended June 30, 2022 increased by  $43.9 million and $73.8 million
compared to the same periods in 2021.


Our customer base is predominantly residential, so we benefited from the
increased demand for electricity when customers are working from their homes. On
the other hand, like other retail energy 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 decrease in U.S. domestic meters served. The reduction
in gross meter acquisitions decreased our customer acquisition expense in the
year ended December 31, 2021 and 2020 compared to the period before the
pandemic.


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.


Beginning in 2021, public health restrictions were eased in most of our markets
which has allowed us to resume face-to-face sales and marketing. We believe that
the impact of public health restrictions on our meter acquisition efforts has
dissipated, however, any reversal of the easing of restrictions would impact
that situation.


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.


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Genie Retail Energy




GRE operates REPs that resell electricity and/or natural gas to residential and
small business customers in Connecticut, Delaware, Georgia, Illinois,
Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York,
Ohio, Pennsylvania, Florida, Texas, Rhode Island, and Washington, D.C. GRE's
revenues represented approximately 84.2% and 84.7% of our consolidated revenues
in the three and six months ended June 30, 2022, respectively and 87.7% and
85.7% of our consolidated revenues in the three and six months ended June 30,
2021, respectively.


Seasonality and Weather; Climate Change




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 44.5% and 47.9% of GRE's natural gas revenues for the relevant
years were generated in the first quarter of 2021 and 2020, 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 30.8% and 31.8% of GRE's electricity revenues
for 2021 and 2020, respectively, 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.


In addition to the direct physical impact that climate change may have on our
business, financial condition and results of operations because of the effect on
pricing, demand for our offerings and/or the energy supple markets, we may also
be adversely impacted by other environmental factors, including: (i)
technological advances designed to promote energy efficiency and limit
environmental impact; (ii) increased competition from alternative energy
sources; (iii) regulatory responses aimed at decreasing greenhouse gas
emissions; and (iv) litigation or regulatory actions that address the
environmental impact of our energy products and services.


Winter Storm in Texas



In 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 Electricity Reliability Council of Texas ("ERCOT"), real-time
commodity prices during the crisis escalated significantly. Although GRE's
commitment for their customers in Texas was hedged for foreseen winter weather
conditions, the market conditions exposed the Company to significant unexpected
cost increases. In the year ended December 31, 2021, GRE recognized
approximately $13.0 million in additional costs related to the situation, which
were included in the cost of revenue in the consolidated statements of
operation.


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 to the load
serving entities who originally incurred the charges. Under HB 4492, the Company
is 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.


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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. In the third quarter of 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 year ended December 31, 2021.
In June 2022, the Company received a $3.5 million refund related to the cost of
Winter Storm Uri.


Purchase of Receivables and Concentration of Credit Risk




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 the three and six months ended June 30, 2022 the
associated cost was approximately 1.0% and 1.1% of GRE's revenue, respectively
and approximately 1.0% for the three and six months ended June 30, 2021. At June
30, 2022, 85.0% of GRE's net accounts receivables were under a POR
program. Certain of the utility companies represent significant portions of our
consolidated revenues and consolidated gross trade accounts receivable balance
during certain periods, and such concentrations increase our risk associated
with nonpayment by those utility companies.


The following table summarizes the percentage of consolidated trade receivable
by customers that equal or exceed 10.0% of consolidated net trade receivables at
June 30, 2022 and December 31, 2021 (no other single customer accounted for
10.0% or greater of our consolidated net trade receivable as of June 30,
2022 or December 31, 2021.


             June 30, 2022      December 31, 2021
Customer A             12.5 %                   na


na-less than 10.0% of consolidated revenue in the period



The following table summarizes the percentage of revenues by customers that
equal or exceed 10.0% of consolidated revenues for the three and six months
ended June 30, 2022 and 2021 (no other single customer accounted for 10.0% or
greater of our consolidated revenues for the  three and six months ended June
30, 2022 or 2021):


                  Three Months Ended June 30             Six Months Ended June 30
               2022                          2021              2022             2021
Customer B          na                        13.6 %                      na       na
Customer A          na                        10.2                        na       na


na-less than 10.0% of consolidated revenue in the period

Legal Proceedings

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

See Note 18, Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is incorporated by reference.



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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 18,
Commitments and Contingencies, in this Quarterly Report on Form 10-Q, which is
incorporated by reference, for further detail on agency and regulatory
proceedings.



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 joined in the
investigation. On June 17, 2020, the PURA notified Town Square that it was
advancing it's investigation by assigning Prosecutorial ("PRO") 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.


Although Town Square denies any basis for those complaints and any wrongdoing on
its part, in May 2021, the parties reached a settlement in principle, subject to
finalization of a definitive settlement agreement, pursuant to which Town Square
paid $0.4 million. Town Square has also volunteered to refrain, from
door-to-door marketing activities in Connecticut for a period of 15 months.


As of June 30, 2022, Town Square's Connecticut customer base represented 6.9%
of GRE's total meters served and 7.8% of the total RCEs of GRE's customer base.
For three and six months ended June 30, 2022 and 2021, Town Square's gross
revenues from sales in Connecticut were $4.4 million and $8.1 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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Residents Energy



In August of 2020, Residents Energy began marketing retail energy services in
Connecticut. For the year ended December 31, 2021 Residents Energy's gross
revenues from sales in Connecticut was $0.2 million. 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. 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.


In May 2021, the parties reached a settlement, pursuant to which Residents will
pay $0.3 million. Residents Energy has also 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, 2021. 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 the 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, 2021.


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 Six Months Ended June 30, 2022 and Compared to Three and Six Months Ended June 30, 2021




Genie Retail Energy Segment





                          Three months ended                                          Six months ended
                               June 30,                      Change                       June 30,                    Change
(amounts in
thousands)              2022              2021           $            %             2022          2021            $            %
Revenues:
Electricity          $    53,063        $ 61,895     $  (8,832 )      (14.3 ) %   $ 112,443     $ 135,282     $ (22,839 )      (16.9 ) %
Natural gas               10,098           5,082         5,016         98.7          34,601        22,362        12,239         54.7
Total revenues            63,161          66,977        (3,816 )       (5.7 )       147,044       157,644       (10,600 )       (6.7 )
Cost of revenues          34,159          48,657       (14,498 )      (29.8 )        71,459       124,358       (52,899 )      (42.5 )
Gross profit              29,002          18,320        10,682         58.3          75,585        33,286        42,299        127.1
Selling, general
and administrative
expenses                  14,589          12,811         1,778         13.9 

30,996 26,574 4,422 16.6

       Income from                                                   (161.6 ) %
operations           $    14,413        $  5,509     $   8,904                    $  44,589     $   6,712     $  37,877        564.3   %




Revenues. Electricity revenues decreased by 14.3% in the three months ended June
30, 2022 compared to the same period in 2021. The decrease was due to a
decline in electricity consumption partially offset by an increase in the
average price per kilowatt hour charged to customers in the three months ended
June 30, 2022 compared to the same period in 2021. Electricity consumption
by GRE's REPs' customers decreased by 33.6% in the three months ended June 30,
2022, compared to the same period in 2021. The decrease in electricity
consumption reflected a 0.8% decrease in average consumption per meter and a
33.1% decrease in the average number of meters served. The reduction in meters
served was driven, in part, by our decision to pause certain customer
acquisitions efforts and allow certain lower margin customers, including those
acquired through municipal aggregation deals to move to other suppliers. The
average rate per kilowatt hour sold increased 29.1% in the three months ended
June 30, 2022 compared to the same period in 2021. The increase is due to the
increase in the average wholesale price of electricity in the three months ended
June 30, 2022 compared to the same period in 2021.



Electricity revenues decreased by 16.9% in the six months ended June 30,
2022 compared to the same period in 2021. The decrease was due to a decline in
electricity consumption partially offset by an increase in the average price
charged per kilowatt hour charged to customers in the six months ended June 30,
2022 compared to the same period in 2021. Electricity consumption by GRE's REPs'
customers decreased by 35.3% in the six months ended June 30, 2022, compared to
the same period in 2021. The decrease in electricity consumption reflected a
3.1% decrease in average consumption per meter and a 33.2% decrease in the
average number of meters served. As discussed above, the reduction in meters
served was driven, in part, by the decision to pause certain customer
acquisitions efforts and allow certain lower margin customers to move to other
suppliers. The average rate per kilowatt hour sold increased 28.4% in the six
months ended June 30, 2022 compared to the same period in 2021. The increase is
due to the increase in the wholesale price of electricity in the six months
ended June 30, 2022 compared to the same period in 2021.



GRE's natural gas revenues increased by 98.7% in the three months ended June 30,
2022 compared to the same period in 2021.  The increase in natural gas revenues
in the three months ended June 30, 2022 compared to the same period in 2021 was
a result of increases in natural gas consumption and in average revenue per
therm sold. Natural gas consumption by GRE's REPs' customers increased by 57.8%
in the three months ended June 30, 2022 compared to the same period in 2021,
reflecting a 48.6% increase in average consumption per meter and a 6.2% increase
in average meters served in the three months ended June 30, 2022 compared to the
same period in 2021. The increase in average consumption per meter in the three
months ended June 30, 2022 compared to the same period in 2021 was a result of
entering new, natural gas-only markets during the last four quarters and
enrolling relatively high average consumption natural gas meters. The average
revenue per therm sold increased by 25.9% in the three months ended June 30,
2022, compared to the same period in 2021.



GRE's natural gas revenues increased by 54.7% in the six months ended June 30,
2022 compared to the same period in 2021. The increase in natural gas revenues
in the six months ended June 30, 2022 compared to the same period in 2021 was a
result of increases in natural gas consumption partially offset by a decrease in
average revenue per therm sold. Natural gas consumption by GRE's REPs' customers
increased by 29.1% in the six months ended June 30, 2022 compared to the same
period in 2021, reflecting a 21.9% increase in average consumption per meter and
a 5.9% increase in average meters served in the six months ended June 30,
2022 compared to the same period in 2021. The average revenue per therm sold
increased by 19.9% in the six months ended June 30, 2022, compared to the same
period in 2021.


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



                                                                         December 31,     September 30,
(in thousands)                    June 30, 2022      March 31, 2022          2021             2021           June 30, 2021
Meters at end of quarter:
Electricity customers                       203                  209              210               289                 292
Natural gas customers                        77                   77               75                72                  69
Total meters                                280                  286              285               361                 361




Gross meter acquisitions in the three months ended June 30, 2022, were
34,000 compared to 35,000 for the same period in 2021. Gross meter acquisitions
in the six months ended June 30, 2022, were 79,000 compared to 97,000 for the
same period in 2021. The decrease in the gross meter acquisitions for the three
and six months ended June 30, 2022 compared to the same period in 2021 was due
to a "strategic pause" on certain customer acquisition channels to protect
margins due to unfavorable market conditions that started in the fourth quarter
2021.


Meters served slightly decreased by 6,000 meters or 2.1% from March 31, 2022 to
June 30, 2022. Meters served slightly decreased by 5,000 meters
or 1.8% from December 31, 2021 to June 30, 2022. The decreases in the number of
meters served at June 30, 2022 compared to March 31, 2022 and December 31, 2021
were due to a decrease in average churn during the period and the "strategic
pause" on certain customer acquisition channels discussed above. GRE's REPs also
returned some customers to their underlying utility in certain markets in the
fourth quarter of 2021 to minimize the impact of expected higher prices on our
margins. In the three months ended June 30, 2022, average monthly churn
increased to 4.4% compared to 3.8% for same period in 2021.  In the six months
ended June 30, 2022, the average monthly churn slightly increased to 4.5%
compared to 4.3% for same period in 2021.


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.




                                                    March 31,     December 31,     September 30,     June 30,
(in thousands)                    June 30, 2022       2022            2021             2021            2021
RCEs at end of quarter:
Electricity customers                       185           182              189               276           272
Natural gas customers                        77            78               71                60            58
Total RCEs                                  262           260              260               336           330




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RCEs decreased 20.6% at June 30, 2022 compared to June 30, 2021. The decreases
are primarily due to the "strategic pause" on customer acquisitions and transfer
of some customers to their underlying utilities as discussed
above. RCEs slightly increased by 0.8% at June 30, 2022 compared to December 31,
2021.


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



                           Three Months Ended
                                June 30,                   Change               Six Months Ended June 30,             Change
(amounts in thousands)     2022          2021           $            %             2022            2021            $            %
Cost of revenues:
Electricity              $  24,526     $ 45,883     $ (21,357 )     (46.5 )%   $      49,723     $ 112,344     $ (62,621 )     (55.7 )%
Natural gas                  9,633        2,774         6,859       247.3  

21,736 12,014 9,722 80.9 Total cost of revenues $ 34,159 $ 48,657 $ (14,498 ) (29.8 )% $ 71,459 $ 124,358 $ (52,899 ) (42.5 )%




                                  Three months ended June 30,                       Six months ended June 30,
(amounts in
thousands)               2022                      2021          Change      2022                 2021         Change
Gross margin
percentage:
Electricity               53.8 %                    25.9 %         27.9 %      55.8  %              17.0 %        38.8 %
Natural gas                4.6                      45.4          (40.8 )      37.2                 46.3          (9.1 )
Total gross margin
percentage                45.9 %                    27.4 %         18.6 %      51.4  %              21.1 %        30.3 %



Cost of revenues for electricity decreased in the three months ended June 30,
2022 compared to the same period in 2021 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 19.7% in the three
months ended June 30, 2022 compared to the same period in 2021. A significant
portion of the decrease in the average cost of electricity resulted from the
favorable results of hedging activities for the three months ended June 30,
2022 compared to the same period in 2021. We recognized gains from derivative
instruments of $22.2 million in the three months ended June 30, 2022 compared to
$0.2 million recognized in the same period of 2021. Gross margin on electricity
sales increased in the three months ended June 30, 2022 compared to the same
period in 2021 because the average rate charged to customers increased while the
average unit cost of electricity decreased.



Cost of revenues for electricity decreased in the six months ended June 30,
2022 compared to the same period in 2021 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 31.7% in the six
months ended June 30, 2022 compared to the same period in 2021. A significant
portion of the decrease in the average cost of electricity resulted from the
favorable results of hedging activities for the six months ended June 30,
2022 compared to the same period in 2021 and the incremental cost incurred in
the six months ended June 30, 2021 as an effect of a major winter storm in Texas
as discussed above. We recognized gains from derivative instruments of
$53.2 million in the six months ended June 30, 2022 compared to $3.2 million
recognized in the same period of 2021. Gross margin on electricity sales
increased in the six months ended June 30, 2022 compared to the same period in
2021 because the average rate charged to customers increased while the average
unit cost of electricity decreased.


Cost of revenues for natural gas increased in the three months ended June 30,
2022 compared to the same period in 2021 primarily because of increases in
natural gas consumption by GRE's REPs' customers and in average unit cost of
natural gas. The average unit cost of natural gas increased 120.1% in the three
months ended June 30, 2022 compared to the same period in 2021. Gross margin on
natural gas sales decreased in the three months ended June 30, 2022 compared to
the same period in 2021 because the average rate charged to customers increased
less than the increase in the average unit cost of natural gas.



Cost of revenues for natural gas increased in the six months ended June 30,
2022 compared to the same period in 2021 primarily because of increases
in natural gas consumption by GRE's REPs' customers and in average unit cost of
natural gas. The average unit cost of natural gas increased 40.2% in the six
months ended June 30, 2022 compared to the same period in 2021. Gross margin on
natural gas sales decreased in the six months ended June 30, 2022 compared to
the same period in 2021 because the average rate charged to customers increased
less than the increase in the average unit cost of natural gas.



40

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


Selling, General and Administrative. The increase in selling, general and
administrative expense in the three months ended June 30, 2022 compared to the
same period in 2021 was primarily due to increases in marketing and customer
acquisition costs and employee-related costs partially offset by a decrease in
legal settlement costs. Employee-related expenses increased by $0.7 million in
the three months ended June 30, 2022 compared to the same period
in 2021 primarily due to an increase in accrued bonuses as a result of improved
results of operations during the period. Marketing and customer acquisition
expenses increased by $1.1 million in the three months ended June 30, 2022
compared to the same period in 2021 as a result of expansion of marketing
activities to offset the effect of COVID-19 related to public health
restrictions to traditional customer acquisition methods. As a percentage of
GRE's total revenues, selling, general and administrative expense increased
from 19.1% in the three months ended June 30, 2021 to 23.1% in the three months
ended June 30, 2022.


The increase in selling, general and administrative expense in the six months
ended June 30, 2022 compared to the same period in 2021 was primarily due to
increases in marketing and customer acquisition costs and employee-related costs
partially offset by a decrease in legal settlement costs. Employee-related
expenses increased by $1.8 million in the six months ended June 30,
2022 compared to the same period in 2021 primarily due to an increase in accrued
bonuses as a result of improved results of operations during the period.
Marketing and customer acquisition expenses increased by $3.1 million in the six
months ended June 30, 2022 compared to the same period in 2021 as a result of
expansion of marketing activities to offset the effect of COVID-19 related to
public health restrictions to traditional customer acquisition methods. As a
percentage of GRE's total revenues, selling, general and administrative expense
increased from 16.9% in the six months ended June 30, 2021 to 21.1%% in the six
months ended June 30, 2022.



GRE International Segment


GRE International holds our stakes in REPs outside of North America. These businesses currently include our controlling stakes in Lumo Finland and Lumo Sweden and included Genie Japan prior to its sale in May 2021. GRE International also holds our stake in Orbit, which discontinued operations at the end of November 2021.



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
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.



                     Three Months Ended June                                Six Months Ended June 30,               Change
                               30,                      Change
(amounts in             2022          2021           $            %             2022             2021           $            %
thousands)
Revenues
   Electricity       $    7,769      $ 6,786     $     983        14.5     $       20,173      $ 21,012     $    (839 )       (4.0 )%
   Others                   317          272            45        16.5                516           382           134         35.1
Total revenues       $    8,086      $ 7,058     $   1,028        14.6     $       20,689      $ 21,394     $    (705 )       (3.3 )
Cost of revenue         (29,568 )      5,092       (34,660 )        nm            (15,400 )      22,858       (38,258 )     (167.4 )

Gross profit             37,654        1,966        35,688          nm             36,089        (1,464 )      37,553           nm
(loss)
Selling, general
and administrative
expenses                  1,289        1,821          (532 )     (29.2 )            2,532         3,940        (1,408 )      (35.7 )
Income (loss) from
operations           $   36,365      $   145     $  36,220          nm     $       33,557      $ (5,404 )   $  38,961           nm



nm-not meaningful

41

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


Meters served by GRE International's REPs slightly increased to 62,000 at June
30, 2022 from 61,000 at March 31, 2022 and decreased from 67,000 at December 31,
2021 primarily due to a "strategic pause" on customer acquisition to protect
margins due to unfavorable market conditions that started in the fourth quarter
2021.


RCEs of GRE International at June 30, 2022 is relatively flat at 40,000 compared
to March 31, 2022 and December 31, 2021 primarily due to the "strategic pause"
as discussed above.


Revenues. GRE International's revenues increased in the three months ended June
30, 2022 compared to the same period in 2021 primarily due to an increase in the
average price charged to customers of Lumo Finland and Lumo Sweden partially
offset by a decrease in electricity consumption of customers of Lumo Finland and
Lumo Sweden and the effect of the sale of Genie Japan in May 2021. The average
price charged to customers of Lumo Finland and Lumo Sweden increased by 123.3%
for the three months ended June 30, 2022 compared to the same period in 2021.
The increase in the average price charged to customers in the three months ended
June 30, 2022 compared to the same period in 2021 is due to a significant
increase in the price of electricity in the wholesale market. Electricity
consumption of customers of Lumo Finland and Lumos Sweden decreased by 26.8% for
the three months ended June 30, 2022 compared to the same period in 2021.
Revenues from Genie Japan were $0.8 million for the three months ended June 30,
2021.


GRE International's revenues decreased in the six months ended June 30,
2022 compared to the same period in 2021 primarily due to the sale of Genie
Japan in May 2021 and a decrease in electricity consumption of customers
of Lumo Finland and Lumo Sweden partially offset by the increase in the average
price charged to customers of Lumo Finland and Lumo Sweden. Revenues from Genie
Japan were $3.9 million for the six months ended June 30, 2021. Electricity
consumption of customers of Lumo Finland and Lumos Sweden decreased by 35.2% for
the six months ended June 30, 2022 compared to the same period in 2021. The
average price charged to customers of Lumo Finland and Lumo Sweden increased
by 133.7% for the six months ended June 30, 2022 compared to the same period in
2021. The increase in the average price charged to customers in the six months
ended June 30, 2022 compared to the same period in 2021 is due to a significant
increase in the price of electricity in the wholesale market.


Cost of Revenues. GRE International's cost of revenue decreased in the three
months ended June 30, 2022 compared to the same period primarily due to the
significant gain recognized from the settlement and change in fair values of
hedge instruments held by Lumo Finland and Lumo Sweden. Gain from settlement and
change in fair values of hedges of Lumo Finland and Lumo Sweden increased to
$39.2 million for the three months ended June 30, 2022 from $1.5 million for the
three months ended June 30, 2021. The gains are primarily due to significant
volatility in the wholesale electricity market in the Nordic regions since the
third quarter of 2021.


GRE International's cost of revenue decreased in the six months ended June 30,
2022 compared to the same period primarily due to the significant gain
recognized from the settlement and change in fair values of hedge instruments
held by Lumo Finland and Lumo Sweden and the sale of Genie Japan in May 2021.
Gain from settlement and change in fair values of hedges of Lumo Finland
and Lumo Sweden increased to $39.4 for the six months ended June 30, 2022 from
$1.9 million for the six months ended June 30, 2021. Cost of revenue from Genie
Japan was $5.9 million for the six months ended June 30, 2021.


Selling, General and Administrative Expenses. The decreases in selling, general
and administrative expenses in the three and six months ended June 30, 2022
compared to the same periods in 2021 was primarily due to the sale of Genie
Japan in May 2021 partially offset by an increase in employee-related cost as a
result of hiring additional personnel during the period.



Genie Renewables Segment


The Genie Renewables (formerly GES) segment is composed of Genie Solar, CityCom Solar, Diversegy and Prism, in which we hold a 60.0% controlling interest.



                   Three Months Ended June                               Six Months Ended June 30,             Change
                             30,                      Change
(amounts in          2022           2021          $           %              2022            2021          $           %
thousands)
Revenues           $   3,779       $ 2,344     $ 1,435         61.2      $ 

5,821 $ 4,832 $ 989 20.5 % Cost of revenue 2,961 1,422 1,539 108.2

     4,480        2,792       1,688         60.5

Gross profit             818           922        (104 )      (11.3 )      

1,341 2,040 (699 ) (34.3 ) Selling, general and

                    1,335           588         747        127.0              2,338        1,146       1,192        104.0
administrative
expenses
(Loss) income
from operations    $    (517 )     $   334     $   851       (254.8 )%   $        (997 )    $   894     $ 1,891       (211.5 )%



42

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


Revenue. Genie Renewables' revenues increased in the three and six months ended
June 30, 2022 compared to the same periods in 2021. The increases in revenues
were the result of increases in the activities of Genie Solar projects and
commissions from selling third-party products to customers by
CityCom Solar. Revenues from Diversegy include commissions, entry fees and other
fees from our energy brokerage and marketing services businesses.


Cost of Revenues. Cost of revenue increased in the three and six months ended June 30, 2022 compared to the same periods in 2021. The increases in cost revenues reflects the increase in revenues of Genie Solar and CityCom Solar.



Selling, General and Administrative. Selling, general and administrative
expenses increased in the three and six months ended June 30, 2022 compared to
the same period in 2021 primarily due to increases in headcount in Genie Solar
and Diversegy and consulting fees at Genie Solar.


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.


                           Three months ended                              Six Months Ended
(amounts in thousands)          June 30,                 Change                June 30,                Change
                              2022        2021         $          %         2022        2021          $        %
General and
administrative expenses
and loss from
operations                $   1,785     $ 1,452     $  333       22.9 %    
4,241       3,130       1,111     35.5




Corporate general and administrative expenses increased in the three and six
months ended June 30, 2022 compared to the same period in 2021 primarily because
of increases in employee related cost and in stock-based compensation expense.
As a percentage of our consolidated revenues, Corporate general and
administrative expense increased to 2.4% in the three months ended June 30, 2022
from 1.9% in the three months ended June 30, 2021 and decreased to 2.4% in the
six months ended June 30, 2022 from 1.7% in the six months ended June 30, 2021.



43

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

Consolidated




Selling, general and administrative expenses. Stock-based compensation expense
included in consolidated selling, general and administrative expense was $0.7
million and $0.6 million in the three months ended June 30, 2022 and 2021,
respectively and $1.6 million and $1.1 million in the six months ended June 30,
2022 and 2021, respectively. At June 30, 2022, aggregate unrecognized
compensation cost related to non-vested stock-based compensation was $5.5
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                                      Six Months ended
                                        June 30,                    Change                     June 30,                    Change
(amounts in thousands)             2022           2021           $           %            2022          2021           $            %
Income from operations          $    48,476     $  4,536     $ 43,940       (968.7 )%   $  72,908     $   (928 )   $  73,836           nm
Interest income                          48           10           38        380.0             65           20            45        225.0
Interest expense                        (52 )       (103 )         51        (49.5 )         (102 )       (212 )         110        (51.9 )
Other income (loss), net               (372 )         39         (411 )         nm           (799 )      7,022        (7,821 )     (111.4 )
Unrealized gain on marketable
equity securities and                  (146 )      2,915       (3,061 )         nm           (869 )        447        (1,316 )     (294.4 )
investments
Gain from sale of subsidiary              -        4,226       (4,226 )         nm              -        4,226       (4,226)           nm
Provision for benefit from
income taxes                        (10,581 )     (3,143 )     (7,438 )     

236.7 (17,094 ) (3,679 ) (13,415 ) 364.6 Net income from continuing operations

                           37,373        8,480       28,893       

340.7 54,109 6,896 47,213 684.6

    Loss from discontinued                -       (3,195 )      3,195      
    nm              -       (4,305 )       4,305       (100.0 )
operations, net of tax
Net income                           37,373        5,285       32,088       (607.2 )       54,109        2,591        51,518           nm
    Net income (loss)
attributable to
noncontrolling interests              2,894          (82 )      2,976           nm          1,741         (790 )       2,531       (320.4 )
   Net income attributable to
Genie Energy Ltd.               $    34,479     $  5,367     $ 29,112       (542.4 )%   $  52,368     $  3,381     $  48,987           nm




nm-not meaningful

44

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



Other Income (loss), net. Other income (loss), net in the three and six months
ended June 30, 2022 and 2021 consisted primarily foreign currency transactions
and equity in net loss in equity method investees.



Provision for Income Taxes. The change in the reported tax rate for the three
and six months ended June 30, 2022 compared to the same periods in 2021, are the
result of favorable results of operations in the U.S. and GRE International and
changes in the mix of jurisdiction in which taxable income was earned which was
not offset by income tax benefit in some jurisdictions that had losses due to
valuation allowances in those jurisdictions.


Net Income (Loss) Attributable to Noncontrolling Interests. The increase in net
income attributable to noncontrolling interests in the three and six months
ended June 30, 2022 compared to the same periods in 2021 was primarily due to an
increase in the share of noncontrolling interest in the net income of
Lumo Sweden and Lumo Finland.


Unrealized (loss) gain on Marketable Equity Securities and Investments. The
unrealized (loss) gain on marketable equity securities and investment for the
three and six months ended June 30, 2022 pertains to the change in fair value of
the Company's investments in common stock of Rafael Holdings, Inc. ("Rafael")
which the Company acquired in December 2020.


Loss (Income) from Discontinued Operations, net of tax. Income from discontinued
operations, net of tax in the three and six months ended June 30, 2021 is mainly
due to losses incurred from the operations of Orbit.



Liquidity and Capital Resources



General



We currently expect that our cash flow from operations and the $61.1 million
balance of unrestricted cash and cash equivalents that we held at June 30, 2022
will be sufficient to meet our currently anticipated cash requirements for at
least the period from July 1, 2022 to August 8, 2023.



At June 30, 2022, we had working capital (current assets less current liabilities) of $125.8 million.

© Edgar Online, source Glimpses

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