GENIE ENERGY LTD. 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 endedDecember 31, 2021 , as filed with theU.S. Securities and Exchange Commission (orSEC ).
As used below, unless the context otherwise requires, the terms "the Company,"
"Genie," "we," "us," and "our" refer to
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 endedDecember 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 theSEC 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 endedDecember 31, 2021 . Overview We are comprised ofGenie Retail Energy ("GRE") and Genie Renewables. In the third quarter of 2022, we discontinued the operations of Lumo Finland andSweden as discussed below. Following these discontinuance of operations,GRE International ceased to be a segment and the remaining assets and liabilities and results of continuing operations ofGRE International were combined with corporate. GRE owns and operates retail energy providers ("REPs"), includingIDT 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 andTexas . 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 , an energy broker for commercial, and a 60.0% controlling interest in Prism Solar, a solar solutions company that is engaged inU.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
As a result of continued volatility in the energy market inEurope , in the third quarter of 2022, we decided to discontinue the operations of Lumo Energia Oyj ("Lumo Finland") andLumo Energi AB ("Lumo Sweden"). FromJuly 13, 2022 toJuly 19, 2022 , the Company entered into a series of transactions to sell most of the electricity swap instruments held by Lumo Sweden for a gross aggregate amount of €41.1 million (equivalent to approximately$41.4 million at the dates of the transactions) before fees and other costs. The sale price is expected to be settled monthly based on the monthly commodity volume specified in the instruments fromSeptember 2022 toMarch 2025 . The net book value of the instruments sold was €34.2 million (equivalent to$35.8 million ). InJuly 2022 , Lumo Sweden entered into a transaction to transfer, effectiveAugust 5, 2022 , its customers to a third party for nominal consideration. InAugust 2022 Lumo Finland entered in a transaction to transfer its variable rate customers to a third party for €$1.9 million (equivalent to$2.0 million ), and transferred the fixed rate customers to other utilities with no considerations. We determined that exitingFinland andSweden markets 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 ofSeptember 30, 2022 andDecember 31, 2021 . Lumo Finland and Lumo Sweden will continue to liquidate their remaining receivables and settle any remaining liabilities. OnNovember 3, 2022 , we acquired additional minority interests in Lumo Finland and Lumo Sweden from an employee for 132,302 of our restricted Class B common stock, which will vest ratably fromNovember 2022 toMay 2025 . We increased our interest in Lumo Finland from 91.6% to 96.6% and increased from 98.8% to 100% in Lumo Sweden. Net loss from discontinued operations of Lumo Finland and Lumo Sweden, net of taxes was$1.5 million for the three months endedSeptember 30, 2022 . Net income from discontinued operations of Lumo Finland and Lumo Sweden, net of taxes was$25.9 million for the nine months endedSeptember 30, 2022 , and$5.5 million $3.7 million for the three and nine months endedSeptember 30, 2021 , respectively. Following the discontinuance of operations of Lumo Finland and Lumo Sweden,GRE International ceased to be a segment and the remaining assets and liabilities and results of continuing operations ofGRE International were combined with corporate.
Discontinued Operations in
In 2021, the natural gas and energy market in theUnited Kingdom deteriorated which prompted us to suspend the spin-off and start the process of orderly withdrawal from theUnited Kingdom market. InOctober 2021 , as part of the orderly exit process from theUnited Kingdom market,Orbit andShell 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 theHigh Court of Justice Business and Property of England andWales (the "Court") to declare Orbit insolvent based on the Insolvency Act of 1986. OnNovember 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 theUnited Kingdom , ordered that Orbit's current customers be transferred to a "supplier of last resort" and transferred the administration of Orbit to Administrators effectiveDecember 1, 2021 . All of the customers of Orbit were transferred to a third-party supplier effectiveDecember 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 theUnited 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 ofSeptember 30, 2022 andDecember 31, 2021 .
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Coronavirus Disease (COVID 19)
Starting in the first quarter 2020, the world and
For the year endedDecember 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 nine months endedSeptember 30, 2022 increased by$6.1 million and$44.0 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 inMarch 2020 as public health measures were implemented to combat COVID-19, resulting in a decrease in gross meter acquisitions and a decrease inU.S. domestic meters served. The reduction in gross meter acquisitions decreased our customer acquisition expense in the year endedDecember 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. 34
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GRE operates REPs that resell electricity and/or natural gas to residential and small business customers inConnecticut ,Delaware ,Georgia ,Illinois ,Indiana ,Maine ,Maryland ,Massachusetts ,Michigan ,New Hampshire ,New Jersey , NewYork, Ohio ,Pennsylvania ,Florida ,Texas ,Rhode Island , andWashington, D.C. GRE's revenues represented approximately 98.3% and 96.9% of our consolidated revenues in the three and nine months endedSeptember 30, 2022 , respectively and 98.4% and 96.9% of our consolidated revenues in the three and nine months endedSeptember 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 inTexas In February of 2021, theState 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 theElectricity Reliability Council of Texas ("ERCOT"), real-time commodity prices during the crisis escalated significantly. Although GRE's commitment for their customers inTexas was hedged for foreseen winter weather conditions, the market conditions exposed the Company to significant unexpected cost increases. In the year endedDecember 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. InJune 2021 , the state legislature of theState 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 . 35
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InSeptember 2021 , thePublic Utility Commission of Texas ("PUC") approved the Debt Obligation Order to grantERCOT'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 endedDecember 31, 2021 . InJune 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 nine months endedSeptember 30, 2022 the associated cost was approximately 1.2% and approximately 1.0% for the three and nine months endedSeptember 30, 2021 . AtSeptember 30, 2022 , 85.1% 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 atSeptember 30, 2022 andDecember 31, 2021 (no other single customer accounted for 10.0% or greater of our consolidated net trade receivable as ofSeptember 30, 2022 orDecember 31, 2021 ). September 30, 2022 December 31, 2021 Customer A 15.2 % 12.5 % Customer B 11.0 na
na-less than 10.0% of consolidated net trade receivables
The following table summarizes the percentage of revenues by customers that equal or exceed 10.0% of consolidated revenues for the three and nine months endedSeptember 30, 2022 and 2021 (no other single customer accounted for 10.0% or greater of our consolidated revenues for the three and nine months endedSeptember 30, 2022 or 2021): Three Months Ended Nine Months Ended September 30 September 30 2022 2021 2022 2021 Customer A 11.4 % na % 10.6 % na % Customer B 11.6 na na na Customer C na 15.8 na 12.5
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 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.
Town Square OnSeptember 19, 2018 , theState of Connecticut Public Utilities Regulatory Authority ("PURA") commenced an investigation intoTown Square following customer complaints of allegedly misleading and deceptive sales practices on the part ofTown Square .The Connecticut Office of Consumer Counsel joined in the investigation. OnJune 17, 2020 , the PURA notifiedTown Square that it was advancing its investigation by assigning Prosecutorial ("PRO") staff for the purpose of investigatingTown Square's compliance with licensed electric supplier billing, marketing, and licensing requirements, and, if appropriate, facilitating settlement discussions among the parties. AlthoughTown Square denies any basis for those complaints and any wrongdoing on its part, inMay 2021 , the parties reached a settlement in principle, subject to finalization of a definitive settlement agreement, pursuant to whichTown Square paid$0.4 million .Town Square has also volunteered to refrain, from door-to-door marketing activities inConnecticut for a period of 15 months.
As of
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. 37
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Residents Energy
In August of 2020, Residents Energy began marketing retail energy services inConnecticut . For the year endedDecember 31, 2021 Residents Energy's gross revenues from sales inConnecticut 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. OnMarch 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. InMay 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 inConnecticut 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 inthe United States of America , orU.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 endedDecember 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 endedDecember 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. 38
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Three and Nine Months Ended
Genie Retail Energy Segment
Three months ended Nine months ended
September 30, Change September 30, Change(amounts in thousands) 2022 2021 $ % 2022 2021 $ % Revenues: Electricity$ 73,764 $ 82,801 $ (9,037 ) (10.9 ) %$ 186,207 $ 218,082 $ (31,875 ) (14.6 ) % Natural gas 6,153 3,516 2,637 75.0 40,754 25,878 14,876 57.5 Total revenues 79,917 86,317 (6,400 ) (7.4 ) 226,961 243,960 (16,999 ) (7.0 ) Cost of revenues 36,689 52,166 (15,477 ) (29.7 ) 108,148 176,523 (68,375 ) (38.7 ) Gross profit 43,228 34,151 9,077 26.6 118,813 67,437 51,376 76.2 Selling, general and administrative expenses 15,813 14,437 1,376 9.5 46,809 41,010 5,799 14.1 Income from % operations$ 27,415 $ 19,714 $ 7,701 39.1$ 72,004 $ 26,427 $ 45,577 172.5 % Revenues. Electricity revenues decreased by 10.9% in the three months endedSeptember 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 endedSeptember 30, 2022 compared to the same period in 2021. Electricity consumption by GRE's REPs' customers decreased by 36.1% in the three months endedSeptember 30, 2022 , compared to the same period in 2021. The decrease in electricity consumption reflected a 5.9% decrease in average consumption per meter and a 32.1% decrease in the average number of meters served. The reduction in meters served was driven, in part, by our decision to pause certain customer acquisition 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 39.4% in the three months endedSeptember 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 endedSeptember 30, 2022 compared to the same period in 2021. Electricity revenues decreased by 14.6% in the nine months endedSeptember 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 nine months endedSeptember 30, 2022 compared to the same period in 2021. Electricity consumption by GRE's REPs' customers decreased by 35.6% in the nine months endedSeptember 30, 2022 , compared to the same period in 2021. The decrease in electricity consumption reflected a 4.1% decrease in average consumption per meter and a 32.8% 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 acquisition efforts and allow certain lower margin customers to move to other suppliers. The average rate per kilowatt hour sold increased 32.6% in the nine months endedSeptember 30, 2022 compared to the same period in 2021. The increase is due to the increase in the wholesale price of electricity in the nine months endedSeptember 30, 2022 compared to the same period in 2021. GRE's natural gas revenues increased by 75.0% in the three months endedSeptember 30, 2022 compared to the same period in 2021. The increase in natural gas revenues in the three months endedSeptember 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 32.1% in the three months endedSeptember 30, 2022 compared to the same period in 2021, reflecting a 22.3% increase in average consumption per meter and a 8.0% increase in average meters served in the three months endedSeptember 30, 2022 compared to the same period in 2021. The increase in average consumption per meter in the three months endedSeptember 30, 2022 compared to the same period in 2021 was a result of entering new, natural gas-only markets during the last five quarters and enrolling relatively high average consumption natural gas meters. The average revenue per therm sold increased by 32.5% in the three months endedSeptember 30, 2022 , compared to the same period in 2021. GRE's natural gas revenues increased by 57.5% in the nine months endedSeptember 30, 2022 compared to the same period in 2021. The increase in natural gas revenues in the nine months endedSeptember 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 29.5% in the nine months endedSeptember 30, 2022 compared to the same period in 2021, reflecting a 21.4% increase in average consumption per meter and a 6.7% increase in average meters served in the nine months endedSeptember 30, 2022 compared to the same period in 2021. The average revenue per therm sold increased by 21.6% in the nine months endedSeptember 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:
September December 31, September 30,
(in thousands) 30, 2022 June 30, 2022 March 31, 2022 2021 2021
Meters at end of quarter:
Electricity customers 193 203 209 210 289
Natural gas customers 77 77 77 75 72
Total meters 270 280 286 285 361
Gross meter acquisitions in the three months ended September 30, 2022 , were
33,000 compared to 46,000 for the same period in 2021. Gross meter acquisitions
in the nine months ended September 30, 2022 , were 112,000 compared
to 144,000 for the same period in 2021. The decrease in the gross meter
acquisitions for the three and nine months ended September 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 10,000 meters or 3.6% from June 30, 2022 to
September 30, 2022 . Meters served decreased by 15,000 meters
or 5.3% from December 31, 2021 to September 30, 2022 . The decreases in
the number of meters served at September 30, 2022 compared to June 30, 2022
and December 31, 2021 were due to an increase 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 September 30, 2022 ,
average monthly churn increased to 4.7% compared to 4.0% for same period
in 2021. In the nine months ended September 30, 2022 , the average monthly churn
slightly increased to 4.5% compared to 4.2% 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.
September June 30, March 31, December 31, September 30,
(in thousands) 30, 2022 2022 2022 2021 2021RCEs at end of quarter: Electricity customers 174 185 182 189 276 Natural gas customers 77 77 78 71 60 Total RCEs 251 262 260 260 336 40
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RCEs decreased 25.3% atSeptember 30, 2022 compared toSeptember 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 3.5% atSeptember 30, 2022 compared toDecember 31, 2021 , mostly due to the seasonal increase in usage during third quarter due to increased air conditioning use, partially offset by the decrease in number of meters as discussed above.
Cost of Revenues and Gross Margin Percentage. GRE's cost of revenues and gross margin percentage were as follows:
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
(amounts in thousands) 2022 2021 $ % 2022 2021 $ %
Cost of revenues:
Electricity $ 33,997 $ 52,096 $ (18,099 ) (34.7 )% $ 83,720 $ 164,440 $ (80,720 ) (49.1 )%
Natural gas 2,692 70 2,622 nm
24,428 12,083 12,345 102.2
Total cost of revenues
nm-not meaningful
Three months ended September 30, Nine months ended September 30,
(amounts in
thousands) 2022 2021 Change 2022 2021 Change
Gross margin
percentage:
Electricity 53.9 % 37.1 % 16.8 % 55.0 % 24.6 % 30.4 %
Natural gas 56.2 98.0 (41.8 ) 40.1 53.3 (13.2 )
Total gross margin
percentage 54.1 % 39.6 % 14.5 % 52.3 % 27.6 % 24.7 %
Cost of revenues for electricity decreased in the three months ended September
30, 2022 compared to the same period in 2021 primarily because of the decrease
in electricity consumption by GRE's REPs' customers partially offset by an
increase in the average unit cost of electricity. The average unit cost of
electricity increased 2.1% in the three months ended September 30, 2022 compared
to the same period in 2021. Gross margin on electricity sales increased in
the three months ended September 30, 2022 compared to the same period
in 2021 because the average rate charged to customers increased more than the
increase in the average unit cost of electricity.
Cost of revenues for electricity decreased in the nine months ended September
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 21.0% in the nine
months ended September 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 nine months ended
September 30, 2022 compared to the same period in 2021 and the incremental cost
incurred in the nine months ended September 30, 2021 as an effect of a major
winter storm in Texas as discussed above. We recognized gains from derivative
instruments of $88.3 million in the nine months ended September 30,
2022 compared to $16.3 million recognized in the same period of 2021. Gross
margin on electricity sales increased in the nine months ended September 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 September
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 to $0.380 per therm
in the three months ended September 30, 2022 compared to $0.013 for the same
period in 2021. The significant increase is due to an increase in the wholesale
price of natural gas during three months ended September 30, 2022 compared to
the same period in 2021 as well as a more favorable fluctuation of the fair
value of the Company's natural gas hedges in the three months ended September
30, 2021 compared to the same period in 2022. Gross margin on natural gas sales
decreased in the three months ended September 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 nine months ended September
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 56.1% in the nine
months ended September 30, 2022 compared to the same period in 2021. The
significant increase is due to an increase in the wholesale price of natural gas
during nine months ended September 30, 2022 compared to the same period in
2021. Gross margin on natural gas sales decreased in the nine months ended
September 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.
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Selling, General and Administrative. The increase in selling, general and administrative expenses in the three months endedSeptember 30, 2022 compared to the same period in 2021 was primarily due to increases in marketing and customer acquisition costs, employee-related costs and provision for bad debt expenses. Employee-related expenses increased by$0.4 million in the three months endedSeptember 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$0.4 million in the three months endedSeptember 30, 2022 compared to the same period in 2021 as a result of an increase in spending in our commercial business of expansion and to offset the effect of COVID-19 related to public health restrictions to traditional customer acquisition methods, partially offset by the decrease in residential customer acquisition. Provision for bad debt expenses increased by$0.5 million in the three months endedSeptember 30, 2022 compared to the same period in 2021 as a result of expansion of activities in non-POR markets. As a percentage of GRE's total revenues, selling, general and administrative expense increased from 16.7% in the three months endedSeptember 30, 2021 to 19.8% in the three months endedSeptember 30, 2022 . The increase in selling, general and administrative expenses in the nine months endedSeptember 30, 2022 compared to the same period in 2021 was primarily due to increases in marketing and customer acquisition costs, employee-related costs and provision for bad debt partially offset by a decrease in legal settlement costs. Employee-related expenses increased by$2.3 million in the nine months endedSeptember 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$3.5 million in the nine months endedSeptember 30, 2022 compared to the same period in 2021 as a result of an increase in spending in our commercial business and to offset the effect of COVID-19 related to public health restrictions to traditional customer acquisition methods partially offset by the decrease in residential customer meter acquisition. Provision for bad debt expenses increased by$0.7 million in the three months endedSeptember 30, 2022 compared to the same period in 2021 as a result of expansion of activities in non-POR markets. As discussed above, Residents Energy andTown Square paid$0.8 million in a legal settlement inConnecticut in the nine months endedSeptember 30, 2021 . No legal settlement paid in nine months endedSeptember 30, 2022 . As a percentage of GRE's total revenues, selling, general and administrative expense increased from 16.8% in the nine months endedSeptember 30, 2021 to 20.6% in the nine months endedSeptember 30, 2022 . 42
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Genie Renewables Segment The Genie Renewables (formerly GES) segment is composed ofGenie Solar , CityCom Solar, Diversegy and Prism, in which we hold a 60.0% controlling interest. Three Months Ended Nine Months Ended Change September 30, Change September 30, (amounts in 2022 2021 $ % 2022 2021 $ %
thousands)
Revenues$ 1,368 $ 1,338 $ 30 2.2$ 7,189 $ 6,170 $ 1,019 16.5 % Cost of revenue 1,453 883 570 64.6 5,934 3,675 2,259 61.5 Gross profit (85 ) 455 (540 ) (118.7 ) 1,255 2,495 (1,240 ) (49.7 ) Selling, general and 1,418 658 760 115.5 3,755 1,805 1,950 108.0 administrative expenses (Loss) income from operations$ (1,503 ) $ (203 ) $ 1,300 640.4 %$ (997 ) $ 690 $ (3,190 ) (462.3 )% 43
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Revenue. Genie Renewables' revenues increased in the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021. The increases in revenues were the result of increases in the activities ofGenie 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 nine months endedSeptember 30, 2022 compared to the same periods in 2021. The increases in cost revenues reflects the increase in revenues ofGenie Solar and CityCom Solar.
Selling, General and Administrative. Selling, general and administrative
expenses increased in the three and nine months ended
Corporate As discussed above, the remaining accounts ofGREI International were transferred to the corporate starting in the third quarter of 2022, which includes accounts ofGenie Japan before we sold our stake inMay 2021 . Other entities under corporate do 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 expenses. Three Months Ended Nine Months Ended Change September 30, Change September 30, (amounts in 2022 2021 $ % 2022 2021 $ % thousands) Revenues $ - $ - $ - nm $ -$ 3,930 $ (3,930 ) nm % Cost of revenue - - - nm - 5,954 (5,954 ) nm Gross loss - - - nm - (2,024 ) (2,024 ) nm Selling, general and administrative expenses 2,374 2,048 326 15.9 7,232 6,813 419 6.2 (Loss) income ) ) )
from operations
(7,232 ) $ (8,837 $ (2,443 (27.6 )% nm-not meaningful InJanuary 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 inJapan 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 . OnApril 26, 2021 , we entered into an Equity Purchase Agreement ("Purchase Agreement") withHanhwa Q Cells Japan Co., Ltd. ("Hanhwa"), pursuant to which, we agreed to sell our interest inGenie Japan for ¥570.0 million (equivalent to approximately$5.3 million atApril 26, 2021 ) subject to certain terms and conditions set forth in the Purchase Agreement. OnMay 11, 2021 , upon the terms and subject to the conditions of Purchase Agreement, we completed the divestiture ofGenie Japan for an aggregate cash consideration of ¥570.0 million (equivalent to approximately$5.2 million atMay 11, 2021 ). Hanhwa also assumed the outstanding loans payable ofGenie Japan . We paid$0.6 million of commission to certain former employees ofGenie Japan and recognized a pre-tax gain of$4.2 million from the divestiture. For the period fromJanuary 1, 2021 toMay 11, 2021 ,Genie Japan had revenues and cost of revenues of$3.9 million and$5.9 million , respectively. Corporate general and administrative expenses increased in the three and nine months endedSeptember 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 2.9% in the three months endedSeptember 30, 2022 from 2.3% in the three months endedSeptember 30, 2021 and decreased to 3.1% in the nine months endedSeptember 30, 2022 from 2.7% in the nine months endedSeptember 30, 2021 . 44
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Consolidated
Selling, general and administrative expenses. Stock-based compensation expense included in consolidated selling, general and administrative expense was$0.7 million and$0.5 million in the three months endedSeptember 30, 2022 and 2021, respectively and$2.2 million and$1.6 million in the nine months endedSeptember 30, 2022 and 2021, respectively. AtSeptember 30, 2022 , aggregate unrecognized compensation cost related to non-vested stock-based compensation was$4.1 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) 2022 2021 $ % 2022 2021 $ %
Income from operations $ 23,538 $ 17,463 $ 6,075 (34.8 )% $ 62,272 $ 18,280 $ 43,992 240.7
Interest income 194 8 186 nm 259 28 231 nm
Interest expense (33 ) (99 ) (66 ) (66.7 ) (135 ) (311 ) (176 ) (56.6 )
Other income (loss), net 156 35 121 nm (742 ) 1,710 (2,452 ) (143.4 )
Unrealized gain on
marketable equity securities 57 (5,312 ) 5,369 nm (712 ) 482 (1,194 ) (247.7 )
and investments
Gain from sale of subsidiary - - - nm - 4,226 (4,226 ) nm
Provision for benefit from
income taxes (6,482 ) (3,498 ) 2,984 85.3 (16,791 ) (7,149 ) (9,642 ) (134.9 ) Net income from continuing operations
17,430 8,597 14,669 170.6 44,151 17,266 26,533 153.7
(Loss) income from
discontinued operations, net (1,459 ) (10,914 ) (9,455 ) (86.6 ) 25,929 (16,991 ) 42,920 252.6
of tax
Net income (loss) 15,971 (2,317 ) 5,214 225.0 70,080 275 69,453 nm
Net income (loss)
attributable to
noncontrolling interests (2,797 ) (31 ) (2,766 ) nm (1,056 ) (821 ) 235 28.6
Net income (loss)
attributable to Genie Energy
Ltd. $ 18,768 $ (2,286 ) $ 21,054 921.0 % $ 71,136 $ 1,096 $ 69,218 nm
nm-not meaningful
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Other Income (loss), net. Other income (loss), net in the three and nine months
ended
Provision for Income Taxes. The change in the reported tax rate for the three and nine months endedSeptember 30, 2022 compared to the same periods in 2021, are the result of favorable results of operations in theU.S. andGRE 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 nine months endedSeptember 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 onMarketable Equity Securities and Investments. The unrealized (loss) gain on marketable equity securities and investment for the three and nine months endedSeptember 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 inDecember 2020 . (Loss) Income from Discontinued Operations, net of tax. (Loss) income from discontinued operations, net of tax in the three and nine months endedSeptember 30, 2022 is mainly due to results of operations of Lumo Finland and Lumo Sweden. Income (loss) from discontinued operations, net of tax in the three and nine months endedSeptember 30, 2021 is mainly due to results of operations of Lumo Finland and Lumo Sweden as well Orbit which we discontinued in fourth quarter of 2021.
Liquidity and Capital Resources
General We currently expect that our cash flow from operations and the$81.7 million balance of unrestricted cash and cash equivalents that we held atSeptember 30, 2022 will be sufficient to meet our currently anticipated cash requirements for at least the period toNovember 9, 2023 .
At
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