SUMMER ENERGY HOLDINGS, INC. The following discussion of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act, and is subject to the safe harbors created by those sections. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "will" and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements. Due to possible uncertainties and risks, readers are cautioned not to place undue reliance on the forward-looking statements contained in this Quarterly Report, which speak only as of the date of this Quarterly Report, or to make predictions about future performance based solely on historical financial performance. We disclaim any obligation to update forward-looking statements contained in this Quarterly Report. Readers should carefully review the risk factors described below under the heading "Risk Factors" and in other documents we file from time to time with theSEC , including our Form 10-K for the fiscal year endedDecember 31, 2019 , and our Form 10-Q for the fiscal quarter endedMarch 31, 2020 . You should interpret many of the risks identified in these reports as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Our filings with theSEC , including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those filings, pursuant to Sections 13(a) and 15(d) of the Exchange Act, are available free of charge at www.summerenergy.com, when such reports are available via the EDGAR system maintained by theSEC at www.sec.gov. Recent Developments COVID-19
The recent outbreak of the novel Coronavirus ("COVID-19") is a rapidly developing situation around the globe that has adversely impacted economic activity and conditions worldwide. Some industries have been impacted more severely than others.
In response to the COVID-19 pandemic, the Company deployed a remote working strategy for the Company's call center that enabled certain employees of the Company to work from home, provided timely communication to team members and customers, implemented protocols for team members' safety, and initiated strategies for monitoring and responding to local COVID-19 impacts. The Company's preparedness efforts, coupled with quick and decisive plan implementation, resulted in minimal impacts to operations. The Company is closely monitoring bad debt as a result of the COVID-19 pandemic. We are continuing to monitor developments involving our workforce, customers and suppliers and cannot predict at this time the extent of the impact that COVID-19 will have on our operations, business, financial condition, liquidity or results of operations going forward. Please see "Item 1A - Risk Factors" in this Report. Appointment of President EffectiveApril 1, 2020 ,Neil Leibman was appointed by the Company's Board of Directors to serve as President of the Company, in addition to his current role of Chief Executive Officer. Organization The condensed consolidated financial statements above include the accounts ofSummer Energy Holdings, Inc. and its wholly-owned subsidiariesSummer Energy, LLC ("Summer LLC "),Summer Energy Midwest, LLC ("Summer Midwest"),Summer EM Marketing, LLC ("Marketing LLC") andSummer Energy Northeast, LLC ("Summer Northeast") (collectively referred to as the "Company," "we," "us," or "our"). All significant intercompany transactions and balances have been eliminated in these consolidated financial statements. OnMarch 27, 2012 ,Summer LLC became a wholly-owned subsidiary ofSummer Energy Holdings, Inc. (previously known asCastwell Precast Corporation ) through a reverse acquisition transaction, which resulted in the former members ofSummer LLC owning approximately 92.3% ofSummer Energy Holdings, Inc.'s outstanding common stock. The transaction was treated as a -------------------------------------------------------------------------------- 28
--------------------------------------------------------------------------------
recapitalization of
Summer LLC is a Retail Electricity Provider ("REP") in the state ofTexas under a license with thePublic Utility Commission of Texas ("PUCT").Summer LLC procures wholesale energy and resells to commercial and residential customers.Summer LLC was organized onApril 6, 2011 , under the laws of the state ofTexas .
Summer Midwest was formed in the state ofOhio onDecember 16, 2013 to procure and sell electricity in the state ofOhio .The Public Utilities Commission of Ohio issued a certificate as a Retail Electric Service Provider to Summer Midwest onJune 16, 2015 . OnMay 2, 2019 , theIllinois Commerce Commission approved Summer Midwest as a Retail Electric Service Provider in the state ofIllinois .Summer Northeast , aTexas limited liability company, was acquired onNovember 1, 2017 and became a wholly-owned subsidiary ofSummer Energy Holdings, Inc. Summer Northeast is a REP serving electric load to both residential and commercial customers inNew Hampshire andMassachusetts and holds licenses inMassachusetts ,Rhode Island ,New Hampshire andConnecticut . Plan of Operation Our wholly-owned subsidiary,Summer LLC , is a licensed REP in the state ofTexas . In general,Texas regulatory structure permits REPs, such asSummer LLC , to procure and sell electricity at unregulated prices. REPs pay the local transmission and distribution utilities a regulated tariff rate for delivering electricity to their customers. As a REP,Summer LLC sells electricity and provides the related billing, customer service, collections and remittance services to residential and commercial customers.Summer LLC offers retail electricity to commercial and residential customers in designated target markets within the state ofTexas . In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we also selectively pursue larger commercial customers through Management's existing, historical relationships. Residential customers are a secondary target market. We anticipate that a majority ofSummer LLC's customers will be located in theHouston andDallas-Fort Worth metropolitan areas; although, we anticipate a growing number will be located in a variety of other metropolitan and rural areas withinTexas . We began delivering electricity to customers in theTexas marketmid-February 2012 . Our wholly-owned subsidiary,Summer Northeast , is a licensed REP in the states ofMassachusetts ,New Hampshire ,Rhode Island andConnecticut . In general, the regulatory structure in these states permits REPs, such asSummer Northeast , to procure and sell electricity at unregulated prices. As a REP,Summer Northeast sells electricity to residential and commercial customers. In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we will also selectively pursue larger commercial customers through Management's existing, historical relationships. Residential customers are a secondary target market. As of the date of this Report,Summer Northeast sold electricity inMassachusetts andNew Hampshire . There were no sales activity in the states ofConnecticut andRhode Island . Our wholly-owned subsidiary, Summer Midwest, is a licensed REP in the states ofOhio andIllinois . In general, the regulatory structure in these states permits REPs, such as Summer Midwest, to procure and sell electricity at unregulated prices. As a REP, Summer Midwest sells electricity to residential and commercial customers. In the commercial market, the primary target is small to medium-sized customers (less than one megawatt of peak usage), but we will also selectively pursue larger commercial customers through Management's existing, historical relationships. Residential customers are a secondary target market. Summer Midwest began flowing electricity in the state ofOhio which is in thePennsylvania , Jersey,Maryland Power Pool ("PJM") market during the month ofJuly 2019 and in the state ofIllinois during the month ofJanuary 2020 . -------------------------------------------------------------------------------- 29 --------------------------------------------------------------------------------
Results of Operations
Three Months Ended
The success of our business and our profitability is impacted by a number of drivers with customer growth and weather conditions being at the forefront.
Customer Growth Customer growth is a key driver of our operations as well as our ability to acquire customers organically, by acquisition or through customer attrition. Our organic sales strategies are designed to offer competitive pricing and price certainty to residential and commercial customers. We manage growth on a market-by-market basis by developing price curves in each of the markets we serve and comparing the market prices to the price offered by the local regulated utility. We then determine if there is an opportunity in a particular market based on our ability to create a competitive product on economic terms that provides customer value and satisfies our profitability objectives. We develop marketing campaigns using a combination of sales channels. Our marketing team continuously evaluates the effectiveness of each customer acquisition channel and makes adjustments in order to achieve desired targets. Customer attrition occurs primarily as a result of: (i) customer-initiated switches; (ii) residential moves and (iii) disconnection resulting from customer payment defaults. Our customer growth strategy includes growing organically through traditional sales channels complemented by customer portfolio and business acquisitions as well as our expansion into new markets. In 2020, the Company's growth strategy is to continue to focus on the expansion of the PJM market within the states ofOhio, Illinois andPennsylvania as well as to continue to expand within theERCOT pre-paid market. Management plans to continue to execute on its current sales and marketing program to solicit individual commercial and residential customers and to evaluate and acquire portfolios of commercial and residential customers where they make sense economically or strategically. The current COVID-19 pandemic has caused regulatory agencies and other governmental authorities to take, and potentially continue to take, emergency or other actions in light of the pandemic that may impact our overall customer attrition, including prohibiting the termination of service for non-payment during the current COVID-19 pandemic. Those orders may cause our attrition to be lower than what it would be otherwise. We are unable to predict the ultimate impact of these actions on overall customer attrition at this time. Please see "Item 1A-Risk Factors" in this Report. For the quarter endedJune 30, 2020 compared to 2019, the Company's overall delivered volumes of electricity increased by 10.20% attributed primarily to the increase in theERCOT market, theERCOT pre-paid market and the start-up of operations in the PJM market. The delivered volumes in the Northeast market continues to decline as the customer base declines. Delivered volumes for the Northeast market declined 51.73% during the quarter endedJune 2020 compared to the quarter endedJune 2019 . Weather Conditions Weather conditions are a key driver to our success and weather directly influences the demand for electricity and affects the prices of energy commodities. We are particularly sensitive to this variability with our residential customers in which energy is highly sensitive to weather conditions that impart heating and cooling demand. Our hedging strategy is based on forecasted customer energy usage, which can vary substantially as a result of weather patterns deviating from historical norms. Our risk management policies direct that we hedge substantially all of our forecasted demand, which is typically hedged to long-term weather patterns. We also attempt to add additional contracts from time to time to protect us from volatility in markets where we have historically experienced higher exposure to extreme weather conditions. Because we attempt to match commodity purchases to anticipated demand, unanticipated changes in weather patterns can have a significant impact on our operating results and cash flows from period to period. Due to the COVID-19 pandemic, we are experiencing changes in customer demand that we cannot fully anticipate. While not weather related, these changes in demand may lead us to experience financial gains and/or losses in much the same fashion as a weather event as the current circumstances make it more difficult to accurately predict demand. While we continue to conduct analytics on our customer base to anticipate these changes in demand, we cannot predict how the COVID-19 pandemic will ultimately impact our hedging strategy with regard to our load forecasts. Please see "Item 1A-Risk Factors" in this Report. Delivered volumes were higher during the second quarter endedJune 2020 compared toJune 2019 although slightly below expectations due to the COVID-19 pandemic. Weather adjusted volumes indicate the impact of the COVID-19 pandemic to 10% to 15% decline in volumes for theERCOT market and a 15% to 18% decline in volumes for the PJM and ISO-NE markets. Despite the decline in the anticipated delivered volumes for the second quarter 2020, profit margins for the quarter endedJune 30, 2020 -------------------------------------------------------------------------------- 30
--------------------------------------------------------------------------------
were 36.72% higher between the quarter ended
For the quarter endedJune 30, 2020 compared to 2019, the Company's unit gross margin is as follows: For the Three Months Ended June 30, Percentage 2020 2019 Variance Variance Revenue$ 42,522,436 $ 40,498,587 2,023,849 5.00% Cost of goods sold Power purchases and balancing/ancillary 21,977,158 22,027,541 (50,383) -0.23% Transportation and distribution providers charge 15,958,473 15,116,171 842,302 5.57% Total cost of goods sold 37,935,631 37,143,712 791,919 2.13% Gross Margin$ 4,586,805 $ 3,354,875 1,231,930 36.72% Revenue - For the quarter endedJune 30, 2020 , we generated$42,522,436 in electricity revenue primarily from commercial customers, and from various long and short-term residential customers. The majority of our revenue comes from the flow of electricity to customers and includes revenues from contract cancellation fees, disconnection fees and late fees of$919,547 .
Revenues for the quarter ended
For the Three Months Ended June 30,
2020 2019 Variances
Delivered Delivered
Volume Volume Change in
after after Delivered Volume
Line Loss Line Loss Volume Percentage $$ Percentage
(Mwh) $$ (Mwh) $$ (Mwh) Change Change in $$ Change
Electricity
Revenues
from
Contracts
with
Customers
ERCOT
Market 468,685 $ 38,599,697 423,881 $ 36,294,807 44,804 10.57% $ 2,304,890 6.35%
ERCOT
Pre-Paid
Market 14,945 1,843,514 12,027 1,387,147 2,918 24.26% 456,367 32.90%
Northeast
Market 7,923 861,350 16,414 1,906,856 (8,491) -51.73% (1,045,506) -54.83%
Midwest
Market 6,892 298,328 - - 6,892 100.00% 298,328 100.00%
Total 498,445 41,602,889 452,322 39,588,810 46,123 10.20% 2,014,079 5.09%
Other
Revenues:
Fees
Revenue 919,547 909,777 9,770 1.07%
Total
Revenues: $ 42,522,436 $ 40,498,587 $ 2,023,849 5.00%
Total revenues for the quarter ended June 30, 2020 compared to June 30, 2019
increased by approximately 5.00%. In the ERCOT Pre-Paid Market, the revenue
increased by 32.90% due to customer growth. The Northeast market had a 54.83%
decrease in revenue related to the continuing decrease in the customer base in
2020 compared to 2019. The Company began flowing electricity in the PJM market
in July 2019 and the anticipated customer base as this market grows will consist
of residential and commercial customers.
Management plans to continue to execute on its sales and marketing program to
solicit individual commercial and residential customers and to realign key sales
personnel to focus on rebuilding the customer base in the Northeast market. In
addition, management also plans to continue to acquire portfolios of commercial
and residential customers when offered at reasonable prices.
--------------------------------------------------------------------------------
31
--------------------------------------------------------------------------------
Cost of Goods Sold and Gross Margin - For the three months ended June 30, 2020 ,
cost of goods sold and gross profit totaled $37,935,631 and $4,586,805 ,
respectively. Cost of goods sold and gross margin for the three months ended
June 30, 2019 was $37,143,712 and $3,354,875 , respectively.
For the Three Months Ended June 30,
Increase
(Decrease) Percentage
in Costs Increase
2020 2019 ($$) (Decrease)
Power Purchases and
balancing/ancillary
ERCOT Market $ 36,729,439 $ 34,814,204 $ 1,915,235 5.50%
Northeast Market 947,969 2,329,508 (1,381,539) -59.31%
Midwest Market 258,223 - 258,223 100.00%
$ 37,935,631 $ 37,143,712 $ 791,919 2.13%
Cost of goods sold for the quarter ended June 30, 2020 compared to June 30,
2019 , increased in total by approximately 2.13% due to the increased volumes
delivered. The gross profit margin increased for the quarter ended June 30, 2020
compared to June 30, 2019 by 36.72%. The delivered volumes were higher during
the second quarter ended June 2020 compared to June 2019 , and the overall
revenue rate increased. The escalation in the revenue rate coupled with the
marginal increase in costs of goods sold resulted in an increase in the gross
margin. The Northeast market decreased by 59.31% due to continued compression of
the customer base during 2020 compared to 2019.
Operating Expenses - Operating expenses for the quarter ended June 30, 2020 ,
totaled $5,603,791 , consisting primarily of general and administrative expenses
of $3,089,878 , stock compensation of $572,867 , bank service fees of $348,500 ,
professional fees of $78,213 , outside commissions of $1,265,117 , collection
fees/sales verification fees $16,594 , and $232,622 of billing fees. Billing fees
are primarily costs paid to a third-party Electronic Data Inter-Chain (EDI)
provider to handle transactions between us, ERCOT and the TDSPs in order to
produce customer bills.
Operating expenses for the quarter ended
For the Three Months Ended
June 30,
Percentage
2020 2019 Variance Change
General and
administrative $ 3,089,878 $ 2,782,975 $ 306,903 11.03%
Stock compensation 572,867 301,210 271,657 90.19%
Bank service fees 348,500 305,662 42,838 14.01%
Professional fees 78,213 576,247 (498,034) -86.43%
Outside commission
expense 1,265,117 1,102,748 162,369 14.72%
Collection fees/sales
verification fees 16,594 21,625 (5,031) -23.26%
Billing fees 232,622 269,250 (36,628) -13.60%
$ 5,603,791 $ 5,359,717 $ 244,074 4.55%
Operating expenses for the three months ended June 30, 2020 reflects an increase
of approximately $244,074 , or 4.55%, as compared to the three months ended June
30, 2019 . This increase was primarily attributable to increase in stock
compensation related to the issuance of stock options to key employees and to
the Company's board of directors as well as expenses related to increased volume
of customers, specifically bank fees and outside commissions to brokers.
Professional fees for the quarter ended June 2020 compared to the quarter ended
June 2019 decreased by 86.43%.
Net Loss - Net loss for the three months ended
--------------------------------------------------------------------------------
32
--------------------------------------------------------------------------------
Six Months Ended
Revenue - For the six months endedJune 30, 2020 , we generated$79,607,622 in electricity revenue primarily from commercial customers, and from the addition of various long and short-term residential customers. The majority of our revenue comes from the flow of electricity to customers. However, we also generated revenues from contract cancellation fees, disconnection fees and late fees of$1,781,804 . For the six months endedJune 30, 2019 , the Company generated$73,529,709 in electricity revenue and$1,794,747 from contract cancellation, disconnection fees and late fees. For the Six Months Ended June 30, 2020 2019 Variances Delivered Delivered Volume Volume Change in after after Delivered Volume $$ Line Loss Line Loss Volume Percentage Percentage (Mwh) $$ (Mwh) $$ (Mwh) Change Change in $$ Change Electricity Revenues from Contracts with Customers ERCOT Market 886,410$ 73,860,940 781,693$ 67,097,505 104,717 13.40%$ 6,763,435 10.08% ERCOT Pre-Paid Market 26,843 3,290,291 22,259 2,600,937 4,584 20.59% 689,354 26.50% Northeast Market 17,272 1,968,628 34,049 3,831,267 (16,777) -49.27% (1,862,639) -48.62% Midwest Market 11,147 487,763 - - 11,147 100.00% 487,763 100.00% Total 941,672 79,607,622 838,001 73,529,709 103,671 12.37% 6,077,913 8.27% Other Revenues: Fees Revenue 1,781,804 1,794,747 (12,943) -0.72% Total Revenues:$ 81,389,426 $ 75,324,456 $ 6,064,970 8.05% Total revenues for the six months endedJune 30, 2020 compared toJune 30, 2019 , increased by approximately 8.05%. In the ERCOT Pre-Paid Market, revenues increased by 26.50% due to customer growth. The Northeast Market had a 48.62% decrease in revenue related to the decrease in the customer base in 2020 compared to 2019. Cost of Goods Sold and Gross Margin - For the six months endedJune 30, 2020 , cost of goods sold and gross profit totaled$71,223,979 and$10,165,447 , respectively. Cost of goods sold and gross profit in the six months endedJune 30, 2019 totaled$66,163,527 and$9,160,929 . For the Six Months Ended June 30, Increase (Decrease) Percentage in Costs Increase 2020 2019 ($$) (Decrease) Power Purchases and balancing/ancillary ERCOT Market$ 68,781,415 $ 61,800,939$ 6,980,476 11.30% Northeast Market 2,044,403 4,362,588 (2,318,185) -53.14% Midwest Market 398,161 - 398,161 100.00%$ 71,223,979 $ 66,163,527$ 5,060,452 7.65% The six months endedJune 30, 2020 compared to the six months endedJune 30, 2019 reflects a 10.97% higher profit margin which is the result of increased volumes and efficiencies. Operating Expenses - Operating expenses for the six months endedJune 30, 2020 totaled$11,438,832 , consisting primarily of general and administrative expenses of$6,597,385 , stock compensation expense of$879,287 , bank service fees of$693,746 , commission expense of$2,454,454 , collection fees/sales and verification fees of$36,119 , professional fees of$263,807 , and$514,034 of billing fees. Billing fees are primarily costs paid to third party Electronic Data Inter-Chain (EDI) provider to handle transactions between us,ERCOT and the TDSPs in order to produce customer bills. -------------------------------------------------------------------------------- 33 -------------------------------------------------------------------------------- Operating expenses for the six months endedJune 30, 2019 totaled$10,633,483 , consisting primarily of general and administrative expenses of$5,958,041 , stock compensation expense of$455,594 , bank service fees of$591,948 , commission expense of$2,292,552 , collection fees/sales and verification fees of$37,574 , professional fees of$791,553 , and$506,221 of billing fees. For the Six Months Ended June 30, Percentage 2020 2019 Variance Change General and administrative$ 6,597,385 $ 5,958,041 $ 639,344 10.73% Stock compensation 879,287 455,594 423,693 93.00% Bank service fees 693,746 591,948 101,798 17.20% Professional fees 263,807 791,553 (527,746) -66.67% Outside commission expense 2,454,454 2,292,552 161,902 7.06% Collection fees/sales verification fees 36,119 37,574 (1,455) -3.87% Billing fees 514,034 506,221 7,813 1.54%$ 11,438,832 $ 10,633,483 $ 805,349 7.57% Operating expenses for the six months endedJune 30, 2020 reflects an increase of approximately$805,349 , or 7.57%, as compared to the six months endedJune 30, 2019 . This increase was primarily attributable to an increase in stock compensation, outside commission expense, and payroll cost.
Net loss - Net loss for the six months ended
Liquidity and Capital Resources
AtJune 30, 2020 andDecember 31, 2019 , our cash totaled$3,533,068 and$814,360 , respectively. Our principal cash requirements for the quarter endedJune 30, 2020 were for operating expenses and cost of goods sold (including power purchases, employee cost, and customer acquisition), collateral for TDSPs and capital expenditures. During the six months endedJune 30, 2020 , the primary source of cash was from electricity revenues, proceeds of a private placement offering in the amount of$45,000 , gross loan proceeds of$11,342,300 of which included$2,342,300 from the Paycheck Protection Program ("PPP Loan"). During the six months endedJune 30, 2019 , the primary source of cash was from electricity revenues and proceeds in a private placement offering in the amount of$5,730,000 . General - The Company's decrease in net cash flow during the first six months of 2020 is attributable to$2,985,689 cash used in operating activities,$22,661 cash used in investing activities, and$4,555,373 provided by financing activities, which includes$45,000 from proceeds received in private placement and gross loan proceeds of$11,342,300 . The Company's increase in net cash flow during the six months endedJune 30, 2019 is attributable to$3,110,767 cash used in operating activities,$0 used in investing activities for the purchase of property and equipment, and$4,457,615 provided by financing activities of which$5,730,000 were from private placement proceeds. The Company has no present agreements or commitments with respect to any material acquisitions of other businesses, products, product rights or technologies. However, we will continue to evaluate acquisitions of and/or investments in products, technologies, or companies that complement our business and may make such acquisitions and/or investments in the future. Accordingly, we may need to obtain additional sources of capital in the future to finance any such acquisitions and/or investments. We may not be able to obtain such financing on commercially reasonable terms, if at all. If we are able to obtain additional financing, such financing may result in restrictions on our operations, in the case of debt financing, or substantial dilution for stockholders, in the case of equity financing.
Cash Outflows for Capital Assets, Customer Acquisition and Deposits
We expect to expend funds for capital assets, customer acquisition and deposits in connection with the expansion of our business during the remainder of the current fiscal year. The anticipated source of funds will be cash on hand and the capital raised or borrowed during the year endedDecember 31, 2020 . -------------------------------------------------------------------------------- 34 --------------------------------------------------------------------------------
Future Financing Needs With the proceeds received from equity investments and loans (including the PPP Loan), management believes that we have adequate liquidity to support operations, but this belief is based upon many assumptions and is subject to numerous risks. While we believe in the viability of our plan of operations and strategy to generate revenues and in our ability to raise additional funds, there can be no assurances that our plan of operations or ability to raise capital will be successful. The ability to grow is dependent upon our ability to further implement our business plan, generate revenues, and obtain additional financing, if and as needed. As stated above, in late 2019, a novel strain of coronavirus (COVID-19) was first detected inWuhan, China . Following the outbreak of this virus, governments throughout the world, including inthe United States of America , have quarantined certain affected regions, restricted travel and imposed significant limitations on other economic activities. The Company's operations team is closely monitoring the potential impact to the Company's business, including its cash flows, customers and employees. If the situation continues to impact our customers, our cash flows, financial position and operating results for fiscal year 2020 and beyond will be negatively impacted. Neither the length of time nor the magnitude of the negative impacts can be presently determined. Our financial results for the second quarter of 2020 were impacted by COVID-19, primarily due to approximately 10% to 15% decline in delivered volume than projected for the quarter inERCOT and approximately 15% to 18% decline in delivered volume for the quarter in PJM and ISO-NE. The severity and duration of the COVID-19 pandemic is uncertain and such uncertainty will likely continue in the near term and we will continue to actively monitor the situation taking into account the impact to our employees, customers, suppliers and partners. The impact of the COVID-19 pandemic on the economy and our operations is fluid and constantly evolving, we will continue to assess a variety of measures to improve our financial performance and liquidity.
Off-Balance Sheet Arrangements
Our existing wholesale power purchase agreement provides that we will provide additional credit support to cover mark-to-market risk in connection with the purchase of long-term power. A mark-to-market credit risk occurs when the price of previously purchased long term power is greater than the current market price for power purchased for the same term. While we believe that the current environment of historically low power prices limits our exposure to risk, a collateral call, should it occur, could limit our working capital and, if we fail to meet the collateral call, could cause liquidation of power positions.
© Edgar Online, source
