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-Qs for the fiscal quarters endedMarch 31, 2020 andJune 30, 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. 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 recapitalization ofSummer LLC , andSummer LLC (and its historical financial statements) is the continuing -------------------------------------------------------------------------------- 28
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entity for financial reporting purposes.
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 are 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, Illinois andPennsylvania . 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 , in the state ofIllinois during the month ofJanuary 2020 , and in the state ofPennsylvania during the month ofAugust 2020 . 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
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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 of Ohio, Illinois and Pennsylvania as well
as to continue to expand within the ERCOT 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. Due to the COVID-19 pandemic, certain Public
Utilities Commissions, regulatory agencies and other governmental authorities in
certain markets continue to maintain orders prohibiting energy services
companies from door-to-door marketing and in some cases telemarketing during the
pandemic, which has restricted some of the manners used by the Company to market
for organic sales especially within the Northeast and PJM markets.
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 ended September 30, 2020 compared to 2019, the Company's overall
delivered volumes of electricity increased by 5.79% attributed primarily to the
increase in the ERCOT market and the ERCOT pre-paid market. The delivered
volumes in the Northeast market continues to decline as the customer base
declines. Delivered volumes for the Northeast market declined 41% during the
quarter ended September 2020 compared to the quarter ended September 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 third quarter ended September 2020
compared to September 2019 , although slightly below expectations due to the
COVID-19 pandemic. Weather adjusted volumes indicate the impact of the COVID-19
pandemic will likely result in a 10% to 15% decline in volumes for the ERCOT
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 third quarter
2020, profit margins for the quarter ended September 30, 2020 were 11.58% higher
than the quarter ended September 30, 2019 .
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For the quarter ended September 30, 2020 compared to 2019, the Company's unit
gross margin is as follows:
For the Three Months Ended
September 30,
Percentage
2020 2019 Variance Variance
Revenue $ 57,665,261 $ 54,696,761 $ 2,968,500 5.43%
Cost of goods sold
Power purchases and
balancing/ancillary 32,923,504 34,554,826 (1,631,322) -4.72%
Transportation and
distribution providers
charge 20,704,972 17,415,238 3,289,734 18.89%
Total cost of goods sold 53,628,476 51,970,064 1,658,412 3.19%
Gross Margin $ 4,036,785 $ 2,726,697 $ 1,310,088 48.05%
Revenue - For the quarter ended September 30, 2020 , we generated $56,673,497 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 $991,764 .
Revenues for the quarter ended
For the Three Months Ended September 30,
2020 2019 Variances
Change in
Delivered Delivered Delivered Volume
Volume Volume Volume Percentage $$ Percentage
(Mwh) $$ (Mwh) $$ (Mwh) Change Change in $$ Change
Electricity
Revenues
from
Contracts
with
Customers
ERCOT
Market 622,193 $ 52,253,657 558,274 $ 49,708,164 63,919 11.45% $ 2,645,493 5.32%
ERCOT
Pre-Paid
Market 19,168 2,640,791 16,599 1,956,958 2,569 15.48% 683,833 34.94%
Northeast
Market 10,891 1,179,208 20,374 1,998,663 (9,483) -46.54% (819,455) -41.00%
Midwest
Market 11,960 599,841 46 2,540 11,914 100.00% 597,301 100.00%
Total 664,212 56,673,497 595,293 53,666,325 68,919 11.58% 3,107,172 5.79%
Other
Revenues:
Fees
Revenue 991,764 1,030,436 (38,672) -3.75%
Total
Revenues: $ 57,665,261 $ 54,696,761 $ 3,068,500 5.61%
Total revenues for the quarter ended September 30, 2020 compared to September
30, 2019 increased by approximately 5.61%. In the ERCOT Pre-Paid Market, the
revenue increased by 34.94% due to customer growth. The Northeast market had a
41% decrease in revenue related to the decrease in the customer base during 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. The anticipated growth of the PJM market
by the Company is less than projected due to restrictions on marketing during
the COVID-19 pandemic.
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.
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Cost of Goods Sold and Gross Margin - For the three months ended September 30,
2020 , cost of goods sold and gross profit totaled $53,628,476 and $4,036,785 ,
respectively. Cost of goods sold and gross margin for the three months ended
September 30, 2019 was $51,970,064 and $2,726,697 , respectively.
For the Three Months Ended
September 30,
Percentage
Increase/(decrease) in Increase
2020 2019 Costs ($$) (Decrease)
ERCOT
Market $ 52,022,732 $ 49,851,403 $ 2,171,329 4.36%
Northeast
Market 1,074,639 2,110,370 (1,035,731) -49.08%
Midwest
Market 531,105 8,291 522,814 100.00%
$ 53,628,476 $ 51,970,064 $ 1,658,412 3.19%
Cost of goods sold for the quarter ended September 30, 2020 compared to
September 30, 2019 , increased in total by approximately 3.19% due to the
increased volumes delivered. The gross profit margin increased for the quarter
ended September 30, 2020 compared to September 30, 2019 by 48.05%. The delivered
volumes were higher during the third quarter ended September 2020 compared to
September 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 49.08% due
to continued compression of the customer base for the quarter ended September
30, 2020 compared to September 30, 2019 .
Operating Expenses - Operating expenses for the quarter ended September 30, 2020
totaled $5,232,702 , consisting primarily of general and administrative expenses
of $2,428,415 , stock compensation of $248,921 , bank service fees of $438,703 ,
professional fees of $88,563 , outside commissions of $1,731,770 , collection
fees/sales verification fees $40,479 , and $255,851 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 September 30, 2019 , totaled $5,634,108
consisting primarily of general and administrative expenses of $3,225,323 , stock
compensation of $227,237 , bank service fees of $374,742 , professional fees of
$109,853 outside commissions of $1,445,530 , collection fees/sales verification
fees $23,070 and $228,353 of billing fees.
For the Three Months Ended
September 30,
Percentage
2020 2019 Variance Change
General and
administrative $ 2,428,415 $ 3,225,323 $ (796,908) -24.71%
Stock compensation 248,921 227,237 21,684 9.54%
Bank service fees 438,703 374,742 63,961 17.07%
Professional fees 88,563 109,853 (21,290) -19.38%
Outside commission
expense 1,731,770 1,445,530 286,240 19.80%
Collection fees/sales
verification fees 40,479 23,070 17,409 75.46%
Billing fees 255,851 228,353 27,498 12.04%
$ 5,232,702 $ 5,634,108 $ (401,406) -7.12%
Operating expenses for the three months ended September 30, 2020 reflects a
decrease of $401,406 , as compared to the three months ended September 30, 2019 .
This variance was primarily attributable to decrease of 19.38% in professional
fees and a decrease in general and administrative expenses of 24.71%.
Net Loss - Net loss for the three months ended
Nine Months Ended
Revenue - For the nine months endedSeptember 30, 2020 , we generated$136,281,119 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$2,773,568 . For the nine months endedSeptember 30, 2019 , the Company generated$127,196,034 in electricity revenue and$2,825,183 from contract cancellation, disconnection fees and late fees. -------------------------------------------------------------------------------- 32 --------------------------------------------------------------------------------
For the Nine Months Ended September 30,
2020 2019 Variances
Change in
Delivered Delivered Delivered Volume
Volume Volume Volume Percentage $$ Percentage
(Mwh) $$ (Mwh) $$ (Mwh) Change Change in $$ Change
Electricity
Revenues
from
Contracts
with
Customers
ERCOT
Market 1,508,603 $ 126,114,597 1,339,967 $ 116,805,669 168,636 12.59% $ 9,308,928 7.97%
ERCOT
Pre-Paid
Market 46,011 5,931,082 38,858 4,557,895 7,153 18.41% 1,373,187 30.13%
Northeast
Market 28,163 3,147,836 64,991 5,829,930 (36,828) -56.67% (2,682,094) -46.01%
Midwest
Market 23,107 1,087,604 46 2,540 23,061 100.00% 1,085,064 100.00%
Total 1,605,884 136,281,119 1,443,862 127,196,034 162,022 11.22% 9,085,085 7.14%
Other
Revenues:
Fees
Revenue 2,773,568 2,825,183 (51,615) -1.83%
Total
Revenues: $ 139,054,687 $ 130,021,217 $ 9,033,470 6.95%
Total revenues for the nine months ended
Cost of Goods Sold and Gross Margin - For the nine months endedSeptember 30, 2020 , cost of goods sold and gross profit totaled$124,852,455 and$14,202,232 , respectively. Cost of goods sold and gross profit in the nine months endedSeptember 30, 2019 totaled$118,133,591 and$11,887,626 . Percentage Increase/(decrease) in Increase 2020 2019 Costs ($$) (Decrease) ERCOT Market$ 120,804,147 $ 111,652,342 $ 9,151,805 8.20% Northeast Market 3,119,042 6,472,958 (3,353,916) -51.81% Midwest Market 929,266 8,291 920,975 100.00%$ 124,852,455 $ 118,133,591 $ 6,718,864 5.69%
The nine months ended
Operating Expenses - Operating expenses for the nine months endedSeptember 30, 2020 totaled$16,671,534 , consisting primarily of general and administrative expenses of$9,025,800 , stock compensation expense of$1,128,208 , bank service fees of$1,132,449 , commission expense of$4,186,224 , collection fees/sales and verification fees of$76,598 , professional fees of$352,370 , and$769,885 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.
Operating expenses for the nine months ended
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For the Nine Months Ended
September 30,
Percentage
2020 2019 Variance Change
General and
administrative $ 9,025,800 $ 9,183,365 $ (157,565) -1.72%
Stock compensation 1,128,208 682,831 445,377 65.23%
Bank service fees 1,132,449 966,690 165,759 17.15%
Professional fees 352,370 901,405 (549,035) -60.91%
Outside commission
expense 4,186,224 3,738,082 448,142 11.99%
Collection fees/sales
verification fees 76,598 60,644 15,954 26.31%
Billing fees 769,885 734,574 35,311 4.81%
$ 16,671,534 $ 16,267,591 $ 403,943 2.48%
Operating expenses for the nine months ended
Net loss - Net loss for the nine months ended
Liquidity and Capital Resources
AtSeptember 30, 2020 andDecember 31, 2019 , our cash totaled$4,227,953 and$814,360 , respectively. Our principal cash requirements for the quarter endedSeptember 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 nine months endedSeptember 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 (the "PPP Loan"). During the nine months endedSeptember 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 increase in net cash flow during the first nine months of 2020 is attributable to$2,302,707 cash used in operating activities,$26,492 cash used in investing activities, and$4,519,705 provided by financing activities, which includes$45,000 and from proceeds received in private placement and gross loan proceeds of$11,342,300 . The Company's increase in net cash flow during the nine months endedSeptember 30, 2019 is attributable to$2,438,646 cash used in operating activities,$0 used in investing activities for the purchase of property and equipment, and$3,981,793 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 . 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
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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 third quarter of 2020 were impacted by COVID-19, primarily due to approximately 10% to 15% decline in delivered volume than projected for the quarter in theERCOT market and approximately 15% to 18% decline in delivered volume for the quarter in the PJM and ISO-NE markets. 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.
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