As used in this Annual Report, unless the context otherwise requires, the terms “the Company,” “Genie,” “we,” “us,” and “our” refer to Genie Energy Ltd., a Delaware corporation, and its subsidiaries, collectively.
BUSINESS OVERVIEW
Genie Energy Ltd. is end-to-end provider of energy services. We manage our business and report results through two reporting segments.
- Genie Retail Energy (“GRE”) supplies electricity and natural gas to residential and small business customers through retail energy providers ("REPs") operating in certain deregulated markets within the United States; and
- Genie Renewables includes the following three lines of businesses:
- Genie Solar is an integrated solar energy company that develops, constructs and operates solar energy projects for commercial and industrial ("C&I") customers as well as its own portfolio;
- CityCom Solar (“CityCom”) marketer of community solar energy solutions; and
- Diversegy LLC (“Diversegy”) provides energy brokerage and advisory services to C&I customers.
The Company through its wholly-owned subsidiary, Genie Energy International Corporation (“GEIC”), owns 100% of Genie Retail Energy, Inc. and 95.5% of Genie Energy Services, LLC (“GES”). GES holds our interest in the entities comprising the Genie Renewables segment. In March 2021, the Company renamed the GES segment to Genie Renewables. In the third quarter of 2022, the Company ceased to operate a former segment, GRE International (“GREI”). Certain GREI's assets and liabilities and operations were classified as discontinued operations and the segment's remaining assets and liabilities were combined with corporate.
GRE owns and operates REPs, including IDT Energy, Inc. (“IDT Energy”), Residents Energy, LLC (“Residents Energy”), Town Square Energy, LLC and Town Square Energy East, LLC (collectively, “TSE”), Southern Federal Power (“SFP”) and Mirabito Natural Gas, ("Mirabito"). GRE's REP businesses resell electricity and natural gas to residential and small business and small commercial customers. The majority of GRE's REPs' customers are located in the Eastern and Midwestern United States and Texas. Mirabito supplies natural gas to commercial customers in Florida.
Genie Renewables consists of our 95.5% interest in Genie Solar, an integrated solar energy company, our 92.8% interest in CityCom Solar, a marketer of community solar and other sales solutions and 91.5% interest in Diversegy, an energy broker.
Genie Solar holds our
80.0% interest in Sunlight Energy, a solar energy developer and operator and
our 60.0% interest in Prism Solar Technologies (“Prism”) which designs and manufactures specialized
solar panels.
DISCONTINUED OPERATIONS IN UNITED KINGDOM, FINLAND AND SWEDEN
Previously, the company had a third segment, GREI, which supplied electricity and natural gas to residential and small business customers in certain markets in Europe. The comp any operated Orbit
Energy Limited ("Orbit”), which operated in the United Kingdom,
Lumo Energia Oyj (“Lumo Finland”) which operated
in Finland and Lumo Energi AB (“Lumo Sweden”) which
operated in Sweden.
On November 29, 2021, Orbit was declared insolvent and its customers were transferred to the “supplier of last resort.” Effective December 1, 2021, the administration of Orbit was transferred to third-party Administrators. The accounts of Orbit were deconsolidated from those of the Company effective December 1, 2021.
On November 28, 2023, the administration of Orbit ceased and the control of Orbit reverted back to the Company from the Administrators. The accounts of Orbit were consolidated with those of the Company effective November 28, 2023.
In the third quarter of 2022, the Company decided to discontinue the operations of Lumo Energia Oyj (“Lumo Finland”) and Lumo Energi AB (“Lumo Sweden”). In July 2022, the Company entered into a series of transactions to sell most of the electricity swap instruments held by Lumo Sweden. The Company also entered into a series of transactions to transfer the customers of Lumo Finland and Lumo Sweden to other suppliers.
In November 2022, Lumo Finland declared bankruptcy and the administration of Lumo Finland was transferred to an administrator (the “Lumo Administrators”). All assets and liabilities of Lumo Finland remain with Lumo Finland, in which the Company retains its ownership interest, however, the management and control of Lumo Finland were transferred to the Lumo Administrators. Since the Company lost control of the management of Lumo Finland in favor of the Lumo Administrators, the accounts of Lumo Finland were deconsolidated effective November 9, 2022.
We account for the operations in the United Kingdom, Finland and Sweden as discontinued operations.
Following the discontinuance of operations of Lumo Finland and Lumo Sweden, GRE International ceased to be a separate segment and certain GREI's assets and liabilities and operations were classified as discontinued operations and the segment's remaining assets and liabilities and results of continuing operations of GRE International were combined with corporate.
REPORTABLE SEGMENTS
We have two reportable business segments: GRE and Genie Renewables. Our reportable segments are distinguished by types of service, customers and customer geography. Financial information by segment and geographic areas is presented in “Note 18 — Business Segment and Geographic Information” in the Notes to our Consolidated Financial Statements in this Annual Report.
GENERAL BUSINESS INFORMATION
Our main offices are located at 520 Broad Street, Newark, New Jersey 07102. Our telephone number is (973) 438-3500 and our web site is www.genie.com.
We make available free of charge through the investor relations page of our web site (http://genie.com/investors/sec-filings/) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, and all beneficial ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity securities as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. We have adopted a Code of Business Conduct and Ethics for all of our employees, including our principal executive officer and principal financial officer. Copies of our Code of Business Conduct and Ethics are available on our web site.
No portion of our web site (https://genie.com), including the various pages thereof (e.g. the investor relations pages and the materials available thereon) and the information contained therein or incorporated therein are incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.
KEY EVENTS IN OUR HISTORY
In November 2004, IDT Corporation, or IDT, our former corporate parent, launched a retail energy provider business in New York State under the brand name IDT Energy.
In October 2011, we were spun-off by IDT and became an independent public company with our Class B common stock listed on the New York Stock Exchange.
In November 2016, GRE purchased Retail Energy Holdings, LLC, which operated REPs under the brand name Town Square Energy.
In August 2017, GRE acquired Mirabito Natural Gas, a commercial supplier located in Florida. The acquisition expanded GRE’s serviceable markets into Florida.
In October 2018, we acquired a 60.0% interest in Prism, a solar solutions company that is engaged in U.S.-based manufacturing of solar panels, solar installation design and project management.
In July 2019, we launched our Southern Federal Power REP and entered the energy supply market in Texas.
In 2022, Genie Solar began to focus on developing utility scale solar projects that it will own and separate.
In July 2022, we established Sunlight Energy, an investment vehicle to finance ownership of Genie Renewable-originated solar generation projects and projects developed by third parties.
In December 2022, Genie Solar obtained the notice to proceed for its first company-owned project, a 4-megawatt, or MW community solar firm in upstate New York.
In November 2023, we acquired a portfolio of ten operating solar system facilities in Ohio
and Michigan and agreed to purchase an additional solar system
facility in Indiana from the same owners, subject to the satisfaction of certain closing conditions, which were met in February 2024.
RECENT DEVELOPMENTS
In April 2023, Genie Solar broke ground on its
first company-owned solar generation project in Upstate New York.
In June 2023, we announced the redemption of all
remaining outstanding shares of our Series A 2012 Preferred Stock.
In July 2023, Genie Solar announced that it had
achieved notice to proceed (NTP) on its second company owned project, a 6.25 MW
array also in Upstate New York.
DIVIDENDS
We pay a quarterly dividend on our Class A and Class B common stock and, prior to redemption of all outstanding shares of our Series 2012-A Preferred Stock (the “Preferred Stock”), on our Preferred Stock.
The aggregate dividends paid in the year ended December 31, 2023 on our Class A and Class B common stock (the “Common Stock”) was $8.0 million, as follows:
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On March 1, 2023, we paid a quarterly dividend of $0.0750 per share on our Common Stock for the fourth quarter of 2022 to stockholders of record at the close of business on February 21, 2023. |
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On May 30, 2023, we paid a quarterly dividend of $0.0750 per share on our Common Stock for the first quarter of 2023 to stockholders of record at the close of business on May 19, 2023. |
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On August 21, 2023, we paid a quarterly dividend of $0.0750 per share on our Common Stock for the second quarter of 2023 to stockholders of record at the close of business on August 14, 2023. |
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On November 21, 2023, we paid a quarterly dividend of $0.0750 per share on our Common Stock for the third quarter of 2023 to stockholders of record as of the close of business on November 13, 2023. |
On February 28, 2024, we paid a quarterly dividend of $0.075 per share on our Common Stock for the fourth quarter of 2023 to stockholders of record as of the close of business on February 20, 2024.
On February 7, 2022, the Board of Directors of the Company authorized a program to redeem, beginning, in the second quarter of 2022, up to $1.0 million per quarter of our Preferred Stock at the liquidation preference of $8.50 per share. In 2023 and 2022, we redeemed 983,385 and 1,339,341 shares of
Preferred Stock, respectively, at the liquidation preference of $8.50 for an aggregate amount
of $8.4 million and $ 11.4 million, respectively.
Prior to redemption of all outstanding shares of Preferred Stock, we paid a quarterly dividend on our Preferred Stock. The aggregate dividend paid in the year ended December 31, 2023 on our Preferred Stock was $0.9 million, as follows:
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On February 15, 2023, we paid a quarterly Base Dividend of $0.1594 per share on our Preferred Stock for the fourth quarter of 2022 to stockholders of record at the close of business on February 7, 2023. |
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On May 15, 2023, we paid a quarterly Base Dividend of $0.1594 per share plus Additional Dividends of $0.5301 per share on the outstanding shares of Preferred Stock for the first a quarter of 2023 to stockholders of record at the close of business on May 5, 2023. |
On December 31, 2022, we accrued Additional Dividends of $0.5301 per share on our Preferred Stock, equal to an aggregate of $0.5 million. The accrual was made in light of the performance of GRE through December 31, 2022. and was paid on May 15, 2023.
BUSINESS
Genie Retail Energy
Overview
GRE is comprised of REPs and related businesses. GRE’s REP businesses acquire residential and business electricity and natural gas customers in deregulated markets in the United States. GRE purchases electricity and natural gas on the wholesale markets and resells these commodities to GRE's REPs' customers. The positive difference between the net sales price of electricity and natural gas sold to its customers and the cost of their electricity and natural gas supplies and related costs are the REP businesses’ gross profits.
GRE’s REP businesses operate in certain utility territories within the deregulated retail energy markets of eighteen states in the United States: Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island and Texas, as well as in Washington, D.C. As part of our ongoing business development efforts, we routinely evaluate opportunities in other deregulated jurisdictions to accelerate the growth of our customer base and to reduce operational and regulatory risks associated with geographical concentration.
GRE’s REP businesses operate under several brand names including IDT Energy, Residents Energy, Town Square Energy, Southern Federal Power and Mirabito. GRE's diverse offerings, in both the electricity and natural gas markets included variable rate or fixed rate offerings or both. Throughout many of their markets, GRE's REPs offer green electricity and green natural gas. Green electricity supply is matched with renewable energy certificates, or RECs that reflect the generation of electricity from renewable sources. Green natural gas supply is matched with carbon offsets certificates generated mostly from greenhouse emission reduction projects.
Historically, GRE has expanded its REP businesses through organic growth of its REPs – adding new customers through customer acquisition programs at a rate faster than customers lost through attrition or churn – as well as through acquisitions of other REPs and books of business. New customers are generally acquired through a combination of marketing and sales channels including door-to-door solicitation, telemarketing, online and digital marketing, direct mail, and municipal aggregation through a competitive bidding for exclusive contracts awarded by certain municipalities, where authorized by state laws. These municipal aggregation contracts award participating residents’ electricity supply to a single supplier at a fixed price that is typically established through a competitive bidding process.
GRE evaluates its customer base both in terms of the numbers of commodity meters served and the number of Residential Customer Equivalents ("RCEs") represented by these meters. An RCE is a unit of measure denoting the typical annual commodity consumption of a single-family residential customer. One RCE represents 1,000 therms of natural gas or 10,000 kWh of electricity.
Customer churn is a significant factor in the REP business. GRE's REPs' monthly churn rates average between four and seven percent per month. Customer churn tends to decrease when commodity prices fall, when weather-driven consumption decreases, when the price to REP customers decreases relative to competitors including the incumbent utility provider, or when the REPs incentivize customer tenure. Customer churn tends to increase when commodity prices rise, when weather driven consumption increases or spikes, or when the price to REP customers increases relative to the prices charged by competitors including incumbent utility providers. Newly acquired customers typically have higher rates of churn than longer-tenured customers. Expiration of municipal aggregation deals also
impacts churn as the customers are moved to the new supplier.
GRE’s revenue represented approximately 95.6% and 96.3% of our total consolidated revenue in 2023 and 2022, respectively. In 2023, GRE generated revenue of $409.9 million comprised of $350.8 million from sales of electricity and $56.0 million from sales of natural gas, as compared with revenue of $304.0 million in 2022, comprised of $241.8 million from the sales of electricity and $62.1 million from the sales of natural gas. GRE's electricity sales as a percentage of total sales have increased in recent years as our sales channels have acquired more electric customers than gas customers. The change in the electric and natural gas proportions is due to the Company's expansion and growth in states where only electricity has been deregulated such as Massachusetts and Texas.
GRE’s REP revenue is seasonal. Approximately 48.1% and 39.7% of our natural gas revenues in 2023 and 2022, respectively, were generated during the first quarter, when the demand for heating in our service areas tends to be highest. Although the demand for electricity is not as seasonal as natural gas, approximately 32.5% and 30.5% of total revenues from electricity sales in 2023 and 2022, respectively, were generated in the third quarter when the demand for cooling in our service areas tends to be highest.
Severe and unusual weather patterns can significantly impact GRE’s financial results. Examples, a polar vortex that impacted the northeast in the first quarter of 2014 and WinterStorm Uri that impacted Texas in the first quarter of 2021.
Potential global climate change 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.
As of December 31, 2023, GRE serviced 361,000 meters (279,000 electric and 82,000 natural gas), compared to 275,000 meters (196,000 electric and 79,000 natural gas) as of December 31, 2022. As of December 31, 2023, GRE has 350,000 RCEs (272,000 electric and 78,000 natural gas), compared to 262,000 RCEs (181,000 electric and 81,000 natural gas) as of December 31, 2022.
REP Industry Overview
REPs operate in deregulated retail energy markets in the US. REPs purchase electricity and natural gas on the wholesale markets and resell these commodities to their customers including homeowners, renters and small to mid-sized commercial and governmental operations and institutions. Generally, incumbent local utilities continue to handle electricity and natural gas distribution, billing, and collections. The utilities remit the proceeds collected for the commodity supply portion of their bills less certain fees to the REPs.
REPs generally have no significant fixed assets and low levels of capital expenditure. Their cost of revenue is incurred to purchase electricity and natural gas in their respective wholesale markets and other factors. Selling, general and administrative expenses are primarily related to customer acquisition, customer retention, billing and purchase of receivables, or POR, fees paid to the utilities, and program management.
As of December 31, 2023, there were thirty U.S. states in which there is some level of energy deregulation. We currently market in all the states where residential deregulation covers both electricity and natural gas, and in some states, where residential deregulation covers only one commodity. We are in the process of applying for licenses or setting up operations in certain such states and are constantly evaluating market opportunities in others.
Some competitors in certain REP markets have engaged in unfair business practices in order to recruit new customers. These practices can create an unfavorable impression about our industry with consumers, regulators or political bodies. Further, such practices can lead to regulatory action that negatively impact us and the industry.
Marketing
The services of GRE’s REPs - IDT Energy, Residents Energy, TSE, SFP and Mirabito - are made available to customers under several offerings with distinct terms and conditions. The offerings include variable rate programs whose prices change month-to-month, fixed contracts whose unit price remains the same for the agreed upon term and renewable contracts. A significant portion of our customer base is enrolled in variable rate products, which enable us to adjust the rates we charge to our customers. The frequency and degree of these rate adjustments are determined by GRE. Variable rate products are available to all customers in all states served by GRE’s REPs except for Connecticut.
As of December 31, 2023, customers on variable rate products constituted approximately 43.5% of our consolidated revenue. The balance comprised customers on fixed rate agreements.
GRE’s REPs offer renewable or green energy supply options in all their markets. Renewable electricity supply is 100% matched with renewable energy certificates, or RECs, that reflect the generation of electricity from sources such as hydro-electric wind, solar and biomass.
The electricity and natural gas we sell through all of our offerings are metered and delivered to customers by the local utilities. The utilities also provide billing and collection services for the majority of our customers.
In many states, GRE’s REPs’ receivables are purchased by the utilities in their territories for a percentage of their face value. In exchange, the utility accepts a first priority lien against the customer receivable without recourse to the REP. Programs operating within this framework are preferred to as purchase of receivables, or POR, programs, and they mitigate our credit risk. Over the course of 2023, the associated cost was approximately 0.9% of GRE's revenue. At December 31, 2023, 84.4% of GRE’s net accounts receivable were under a POR program.
Certain utilities in Connecticut, Ohio, New York, Pennsylvania, Illinois, Washington, D.C., Massachusetts and Maryland offer POR programs, without recourse. These programs permit customers with past-due balances to remain in the POR and consolidated bill programs. However, utilities in New Jersey generally do not permit customers with past-due balances beyond 120 days to enroll or remain in their POR programs. After a certain amount of time (determined based on the specific commodity), the REP becomes responsible for the billing and collection of the commodity portion of the future invoices for its delinquent customers. Certain utilities in Delaware, Illinois, New Hampshire, Ohio and Rhode Island do not offer POR, but they do offer consolidated billing. In Florida and Texas, there are no POR programs.
GRE targets markets in which we can procure energy in an efficient and transparent manner. We seek to purchase wholesale energy where there is a real-time market that reflects a fair commodity price for all participants. This allows GRE to reflect a true market cost base and adjust its rates to its variable rate customers taking into account prevailing market rates.
We regularly monitor deregulated or deregulating markets in states where we do not yet operate to determine whether and under what conditions we could operate profitability. We may initiate the licensing process in a selected region to facilitate entry into that region contingent upon favorable deregulatory developments.
Procurement and Management of Gas and Electric Supply
Certain of GRE's REPs are party to an Amended and Restated Preferred Supplier Agreement with BP Energy Company, or BP, through November 30, 2026. Under the agreement, the REPs purchase electricity and natural gas at the market rate plus a fee. The obligations to BP are secured by a first security interest in deposits or receivables from utilities in connection with their purchase of the REP’s customer’s receivables, and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. The ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants. At December 31, 2023, the Company was in compliance with such covenants.
GRE is required to meet certain minimum green energy supply criteria in many of the markets in which it operates. We meet those thresholds by acquiring renewable energy certificates, or RECs. In addition, GRE offers green or other renewable energy products to its customers in all of the territories in which we operate. GRE acquires green renewable energy conversion rights or attributes and RECs to satisfy the load requirements for these customers.
GRE does not own electrical power generation, transmission, or distribution facilities, or natural gas production, pipeline or distribution facilities. For their natural gas supply, GRE’s REPs currently contract with Dominion Transmission, Inc., National Fuel Supply, Williams Gas Pipeline and Texas Eastern Transmission and others for natural gas pipeline, storage and transportation services. For electricity supply, they utilize the New York Independent System Operator, Inc., or NYISO, and PJM Interconnection, LLC, or PJM, for electric transmission and distribution. NYISO operates the high-voltage electric transmission network in New York State, and administers and monitors New York’s wholesale electricity markets. PJM is a regional transmission organization that coordinates the movement of wholesale electricity in all or parts of thirteen states (including New Jersey, Pennsylvania, Maryland and Illinois) and the District of Columbia. In Texas, SFP acquires power through the Electric Reliability Council of Texas (ERCOT).
For risk management purposes, GRE’s REPs utilize forward physical delivery contracts for a portion of their purchases of electricity and natural gas, which are defined as commodity derivative contracts. In addition, GRE’s REPs enter into put and call options as hedges against unfavorable fluctuations in market prices of electricity and natural gas.
The ISOs perform real-time load balancing for each of the electrical power grids in which GRE REPs operate. Similarly, load balancing is performed by the utilities or local distribution company, or LDC, for each of the natural gas markets in which GRE operates. Load balancing ensures that the amount of electricity and natural gas that GRE’s REPs purchase is equal to the amount necessary to service its customers’ demands at any specific point in time. GRE’s REPs are charged or credited for balancing the electricity and natural gas purchased and sold for their account by their suppliers and the LDCs. GRE’s REPs manage the differences between the actual electricity and natural gas demands of their customers and their bulk or block purchases by buying and selling in the spot market, and through monthly cash settlements and/or adjustments to future deliveries in accordance with the load balancing performed by utilities, LDCs, and/or ISOs.
Competition
As an operator of REPs, GRE often competes with the local utility companies in each of the markets in which it provides services and with many other licensed REPs. In some markets, competitor REPs are affiliated with local utilities. GRE also competes with several large vertically integrated energy companies as well as smaller independent operators. Competition with the utilities and REPs impacts GRE’s gross margins, customer acquisition rates and customer churn rates.
REPs and utilities offering fixed rate products or guaranteed pricing often are unable to change their sell rates offered to customers in response to underlying commodity price volatility. In a downward moving commodity cost environment, variable rate REPs typically become more competitive as they benefit from the lag that utilities experience in reducing their sell rate to reflect the lower commodity costs, and they may benefit from decreases in margin pressure, improvements in the customer acquisition environment, and lower rates of churn. In a rising commodity cost environment, REPs that offer variable rate products, and reflect real-time commodity costs, will typically become less competitive with fixed rate providers, experience increased margin pressure, a more challenging customer acquisition environment and higher rates of customer churn.
Increasing our market share depends in part on our ability to persuade more customers to switch from other providers to one of our REPs at a higher rate than our customers churn to other providers. Moreover, local utilities and some REPs may have certain advantages such as name recognition, financial strength and long-standing relationships with customers. Persuading potential customers to switch to GRE requires significant marketing and sales operations.
Regulation
REPs such as ours must be licensed in each state and utility service territory in which they operate. Each is subject to the rules and regulations governing the operations of REPs in each jurisdiction.
Although the rates charged by GRE’s REPs are not regulated in the same way as the rates of utility companies, the manner in which the REPs market to potential customers, and the relationships between the REPs and their customers, are heavily regulated. GRE’s REPs must also comply with various quarterly and/or annual reporting requirements in order to maintain their eligibility to provide service. In certain jurisdictions the REPs are required to publish product offers with the applicable regulatory commissions, or in the public domain, generally on a website established for such purpose. In addition to the regulations that govern the relationships between GRE’s REPs and their customers, GRE’s REPs also maintain specific Terms & Conditions or Terms of Service for each product in each jurisdiction that the parties agree to be bound by.
From time to time, the Company is party to legal proceedings that arise in the ordinary course of business including those with utility commissions or other government regulatory or law enforcement agencies.
As of December 31, 2023, GRE’s REPs operate in Washington D.C., New York, Pennsylvania, New Jersey, Maryland, Illinois, Indiana, Ohio, Michigan, New Hampshire, Rhode Island, Connecticut, Florida, Massachusetts, Delaware, Maine, Texas and Georgia. The federal government and related public service/utility commissions, among others, establish the rules and regulations for our REP operations.
Like all operators of REPs, GRE is affected by the actions of governmental agencies, mostly on the state level, by the respective state Public Service/Utility Commissions, and other organizations (such as NYISO, ERCOT and PJM) and indirectly by the Federal Energy Regulatory Commission, or FERC. Regulations applicable to electricity and natural gas have undergone substantial changes over the past several years as a result of restructuring initiatives at both the state and federal levels. We may be subject to new laws, orders or regulations or the revision or interpretation of existing laws, orders or regulations.
Environment
In March 2021, the Biden Administration announced a framework for the "Build Back Better" agenda. The proposed framework included policies to address climate change across the federal government through the tax code, an energy efficiency and clean energy standard, research and development, among other areas of focus.
In April 2021, President Biden announced that the United States' Nationally Defined Contribution to the international Paris Climate Agreement will be an economy-wide reduction in greenhouse gas emissions ("GHG") emissions of 50-52% by 2030, relative to 2005 levels. In advance of the November 2021 Conference of the Parties 26 meeting in Glasgow, Scotland, the Biden Administration released details on its strategy to achieve those targets as part of the "Build Back Better" agenda.
On August 16, 2022, President Biden signed the Inflation Reduction Act ("IRA"), which aims to reduce U.S. carbon emissions and promote economic development through investments in clean and renewable energy projects. The consumer-facing clean energy tax credits created or expanded by the IRA are intended to drive rapid adoption of energy efficiency, electric transportation, and solar energy which would require the utility industry to expand and modernize infrastructure, systems and services to integrate and optimize these resources.
In addition to climate-related initiatives at the federal level, some states have adopted provisions designed to regulate GHG emissions and renewable and other portfolio standards, which impact the power sector. See discussion below for additional information on renewable and other portfolio standards.
Certain northeast and mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia) currently participate in the Regional Greenhouse Gas Initiative ("RGGI"). The program requires most fossil fuel-fired power plant owners and operators in the region to hold allowances, purchased at auction, for each ton of carbon dioxide emissions. Non-emitting resources do not have to purchase or hold these allowances. Pennsylvania joined RGGI in April 2022.
Broader state programs impact other sectors as well, such as the District of Columbia's Clean Energy DC Omnibus Act and cross-sector GHG reduction plans. Maryland expects to meet and exceed the mandate set in the Greenhouse Gas Emissions Reduction Act to reduce statewide GHG emissions 40% (from 2006 levels) by 2030, and the state’s Climate Solutions Now Act of 2022 further updates requirements with a proposal to reduce emissions 60% (from 2006 levels) by 2031. New Jersey accelerated its goals through Executive Order 274, which establishes an interim goal of 50% reductions below 2006 levels by 2030 and affirms its goal of achieving 80% reductions by 2050 and includes programs to drive greater amounts of electrified transportation. Delaware's
Climate Change Solutions Act established in August 2023 sets a statewide GHG
emissions reduction goal of 50% by January 1, 2030 and a net-zero GHG emissions
goal by January 1, 2050, on a net basis as compared to a 2005 baseline. Illinois’ climate bill, Clean Energy Jobs Act, establishes decarbonization requirements for the state to transition to 100% clean energy by 2050 and supports programs to improve energy efficiency, manage energy demand, attract clean energy investment and accelerate job creation.
The Company cannot predict the nature of future regulations or how such regulations might impact its future operations.
The adoption and implementation of any foreign laws or regulations imposing obligations on, or limiting GHG emissions from, our equipment and operations could adversely affect pricing or demand for our offerings. We may not be able to pass on increases in costs to customers. In addition, changes in regulatory policies that result in a reduction in the demand for hydrocarbon products and carbon-emitting fuel sources that are deemed to contribute to climate change, or restrict the use of such products or fuel sources, may reduce demand for our offerings or impact the energy supply markets.
Employees
As of March 1, 2024, GRE
employed 159 employees, 64 of
whom are located in the Jamestown, New York office, 60 of whom are located in our New Jersey
office, 20 of whom are located in our
Arizona office and 15 of
whom are located in Texas with SFP.
Genie Renewables
Overview
Genie Renewables is comprised of businesses that market and provide renewable and other energy solutions. Genie Renewables currently consists of (i) our 95.5% interest in Genie Solar, (ii) our 92.8% interest in CityCom, and (iii) our 91.5% interest in Diversegy.
Genie Solar is a developer,
owner and operator of large-scale roof, ground and carport-based photovoltaic
("PV") and energy storage systems, serving commercial and industrial,
public sector and community solar customers. Our goal is to offer a clean electrification ecosystem for our customers
and stakeholders leveraging best-in-class technology and operations. We utilize in-house expertise to source, develop, build and provide
operations and maintenance services for our assets. Genie Solar holds our
80.0% interest in Sunlight Energy, a solar energy developer and operator and
our 60.0% interest in Prism which designs and manufactures specialized
solar panels.
CityCom Solar operates as a
customer acquisition solution for the rapidly expanding community solar
industry, as well as other products and services.
Diversegy is a
commercial energy broker and advisor to industrial, commercial and municipal
customers across deregulated energy markets in the U.S. It also offers
ancillary energy services in both deregulated and regulated state
markets.
Market
Genie Solar and CityCom Solar are primarily engaged in different business areas within the solar industry.
Solar energy is one of the fastest growing forms of renewable energy with numerous economic and environmental benefits that make it an attractive complement to and/or substitute for traditional forms of energy generation. Demand for renewable energy
has accelerated recently with the renewable targets and decarbonization goals across
all industry segments, including the public sector, the private sector and
residential customers.
In recent years, the price of solar power systems, and accordingly the cost of producing electricity from such systems, has dropped to levels that are competitive with or even below the wholesale price of electricity in many markets. Worldwide solar markets continue to develop, aided by the above factors as well as demand elasticity resulting from declining industry average selling prices, both at the module and system level, which make solar power more affordable.
Multiple markets within the United States, exemplify favorable characteristics for a solar market, including (i) sizeable electricity demand, particularly around growing population centers and industrial areas; (ii) strong demand for renewable energy generation; and (iii) abundant solar resources. In those areas and applications in which these factors are more pronounced, our solar energy solutions compete favorably on an economic basis with traditional forms of energy generation.
Diversegy competes for
industrial, commercial and
municipal customers in markets across the
United States.
Business Operations
Genie Solar is a developer,
owner and operator of large-scale roof, ground and carport-based PV and energy storage systems, serving commercial and industrial,
public sector and community solar customers. Genie Solar holds our
80.0% interest in Sunlight Energy, a solar energy developer and operator and
our 60.0% interest in Prism which designs and manufactures specialized
solar panels.
Genie Solar targets
projects with attractive return characteristics that are usually in the 1-15 MW range. Projects
are either Distributed Generation (DG) where the power is used by customers in a
defined proximity to the project or “behind the meter” where the power is
consumed by a customer on the same premise as the project.
Our current
portfolio consists of an 9.4 MW operating portfolio of projects in Ohio and
Michigan, ~10 MW of community Solar projects in NY that are at the construction
phase 6 MW of projects in permitting and an additional 72MW of projects under
site control.
In 2023,
Genie Solar accounted for 1.0% and 23.8% of our consolidated
revenue and Genie Renewables segment's revenue, respectively.
CityCom Solar operates as a
customer acquisition solution for the rapidly expanding community solar
industry, as well as other products and services.
In 2023, CityCom Solar accounted
for 1.6% and 36.9% of our consolidated revenue and Genie
Renewables segment's revenue, respectively.
Diversegy is a
commercial energy broker and advisor to industrial, commercial and municipal
customers across deregulated energy markets in the U.S. It also offers
ancillary energy services in both deregulated and regulated state
markets.
Diversegy works with
clients to maximize the benefits afforded by energy deregulation through the
solicitation and analysis of competing offers from its
supplier-partners. This service is typically provided at no cost to our
clients.
In 2023, Diversegy accounted for 1.7% and 39.3%
of our consolidated revenue and Genie Renewables segment's revenue,
respectively.
Regulations
On May 23, 2023, the EPA
published in the Federal Register proposed new source performance standards
under Clean Air Act (CAA) section 111(b) that would establish standards of
performance for emissions of greenhouse gases (expressed as carbon dioxide (CO2))
for newly constructed, modified, and reconstructed fossil fuel-fired electric
utility steam generating units and fossil fuel-fired stationary combustion
turbines. On that same day, in a separate rulemaking under CAA section 111(d),
the EPA published proposed emission guidelines for states to use in developing
plans to limit CO2 emissions from existing fossil fuel-fired electric
generating units and certain large existing stationary combustion turbines.
Additionally, a number of
federal regulations have increased the cost of fossil generation across the
country over the last several decades. The Clean Air Act of 1970 originally provided the EPA with authority to
regulate emissions, but it was not until the 2000s
that EPA restrictions on sulfur dioxide and nitrogen oxides emissions required
installation of scrubbers or other emissions control equipment. More
recently, EPA’s continued air quality level regulations have driven
controls on all types of units along with stringent operational limitations.
EPA has also set broader standards for greenhouse gas emissions particularly
from new, modified, and reconstructed fossil-fired power plants forcing
efficiency improvements and increasing maintenance costs. At the state level, a
number of carbon pricing schemes have been implemented, including
a cap-and-trade program in California and a carbon tax in the
Northeast via the RGGI.
In addition, the Biden Administration
continues to propose legislation and both regulatory and executive actions to
help accelerate the clean energy transition, including new tax incentives,
additional restrictions on methane and other GHG emissions, and other policies
intended to combat climate change. For example, in December 2021, President
Biden signed an executive order calling for the federal government to
achieve net zero emissions by 2050, with a 65%
reduction by 2030. The order specifically directs
the federal government to use its scale and procurement power to achieve 100% carbon pollution-free electricity by 2030, with at least half coming from locally supplied
clean energy, as well as 100% zero-emission vehicle acquisitions by 2035 and a net-zero
emissions building portfolio by 2045, all of
which may contribute to increased demand for alternative energy technologies,
including renewable energy and energy storage. The Administration has also set
a goal of economy-wide net zero emissions in the
United States by 2050.
Government Incentives
The U.S. federal government
provides an uncapped investment tax credit, or “Federal ITC,” that originally
allowed a taxpayer to claim a credit of 30% of
qualified expenditures for a residential or commercial solar generation
facility. The Tax Act did not make any changes to the existing laws surrounding
tax credits for renewable energy. The Federal ITC is currently at 26% for a solar generation facility. A permanent 10% Federal ITC is available for non-residential solar
generation facility construction that begins on or after January 1, 2022.
On August 16, 2023, the
Inflation Reduction Act (IRA) was enacted. The IRA extended the ITC through
December 31, 2025, for solar, wind, geothermal, biogas, combined heat and power
("CHP") facilities, and microgrid projects that begin construction
before December 31, 2025. The IRA established a Federal ITC level of 30.0 % for all projects that meet Prevailing Wage and
Apprenticeship standards as well as additional 10.0%
- 20.0% credits for projects that meet certain
domestic materials requirements, placement within an energy community or
placement within an environmental justice area. The IRA also allows for
interconnection costs within qualified ITC costs and extends the
Federal ITC for eligible costs associated with standalone energy storage.
Many states offer a personal and/or corporate investment or production tax credit for renewable energy facilities, which is additive to the Federal ITC. Further, more than half of the states, and many local jurisdictions, have established property tax incentives for renewable energy facilities that include exemptions, exclusions, abatements and credits. Many renewable energy facilities in the U.S. have been financed with a tax equity financing structure, whereby the tax equity investor is a member holding equity in the limited liability company that directly or indirectly owns the solar generation facility or wind power plant and receives the benefits of various tax credits. Additionally, Solar Development often benefits from state incentives that may provide valuable Renewable Energy Certificates, cash refunds and/or guaranteed revenue per unit of electricity produced by utility scale solar projects like community solar.
Many states also have adopted procurement requirements for renewable energy production. Thirty states, Washington, D.C., and two territories have active renewable or clean energy requirements, while an additional 3 states and 1 territory have set voluntary renewable energy goals. Renewable portfolio standard ("RPS") legislation has seen two opposing trends in recent years. On one hand, many states with RPS targets are expanding or renewing those goals. Since 2018, 15 states, 2 territories, and Washington, D.C., have passed legislation to increase or expand their renewable or clean energy targets. Eleven states and one territory have allowed their RPS targets to expire.
There are 41 states that have a regulatory policy known as net metering. Net metering typically allows our customers to interconnect their on-site solar generation facilities to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar generation facility in excess of electric load that is exported to the grid. Some states require utilities to provide net metering to their customers until the total generating capacity of net metered systems exceeds a set percentage of the utilities’ aggregate customer peak demand.
Marketing
Genie Solar markets its solar
energy offerings through a scalable sales organization and intermediaries that
connect clients and developers directly to the company. We also generate sales
volume through client and partner referrals. We believe that is necessary to
maintain a customer-centric approach that optimizes the customer and other
stakeholder experience to maintain relationships with developers that can lead
to repeat projects.
CityCom markets its
services directly to community solar operators as well as other service
providers. The company leverages in-house business development professionals as
well as marketing and referral services.
Diversegy markets its
services through its
in-house sales team comprised of experienced sales representatives and
recruiting independent sales agents and brokers with existing books of
business. To attract new clients directly, Diversegy utilizes customer
marketing campaigns focused on propriety pricing software. It recruits affinity
groups, associations and organizations in specific market verticals for
cross-sell opportunities. Diversegy is well-positioned to increase market
share by leveraging its custom energy software, energy market expertise and
strong agent support.
Competition
In the solar energy space, the market for customer and attractive projects is highly competitive and continually evolving. In the last year, we faced increased competition, resulting in price reductions in the market and reduced margins, which may continue and could lead to loss of market share.
We also face competition from resellers that have developed related offerings that compete with our product and service offerings, or have entered into strategic relationships with other existing solar power system providers. We compete for limited government funding for research and development contracts, customer tax rebates and other programs that promote the use of solar, and other renewable forms of energy with other renewable energy providers and customers.
At Diversegy, the energy brokerage market is highly competitive with a number of different competition types.
Employees
As of March 1, 2024, Genie Renewables employed 26 employees, 25 of whom are located in our
New Jersey office and 1 of whom is in our
Arizona office.
Climate Change
As indicated by the Intergovernmental Panel on Climate Change, emissions of GHG, including carbon dioxide, are very likely changing the world’s climate. Climate change could affect customer demand for the Company's product offerings. It might also cause physical damage to the energy production ecosystem that the Company's REPs rely on to procure electricity and natural gas for their customers. Additionally, climate change could affect the availability of risk management products and services that the Company REPs rely on to manage its risk position.
In September 2016, the U.S. joined in adopting the agreement reached on December 12, 2015, at the United Nations Framework Convention on Climate Change meetings in Paris to reduce GHGs. The Paris Agreement’s non-binding obligations to limit global warming to below two degrees Celsius became effective on November 4, 2016. Genie cannot currently estimate the financial impact of climate change policies, although potential legislative or regulatory programs restricting CO2 emissions, or litigation alleging damages from GHG emissions, could require material capital and other expenditures or result in changes to its operations.
In December 2009, the EPA released its final “Endangerment and Cause or Contribute Findings for GHGs under the Clean Air Act (CAA),” concluding that concentrations of several key GHGs constitute an "endangerment" and may be regulated as "air pollutants" under the CAA and mandated measurement and reporting of GHG emissions from certain sources, including electric generating units (EGU). Subsequently, the EPA released its final Clean Power Plan (CPP) regulations in August 2015 to reduce CO2 emissions from existing fossil fuel-fired EGUs and finalized state regulations imposing CO2 emission limits for new, modified, and reconstructed fossil fuel-fired EGUs. Numerous states and private parties filed appeals and motions to stay the CPP with the D.C. Circuit in October 2015. On February 9, 2016, the U.S. Supreme Court stayed the rule during the pendency of the challenges to the Washington D.C. Circuit and U.S. Supreme Court. On March 28, 2017, an executive order, entitled “Promoting Energy Independence and Economic Growth,” instructed the EPA to review the CPP and related rules addressing GHG emissions and suspend, revise or rescind the rules if appropriate. On June 19, 2019, the EPA repealed the CPP and replaced it with the affordable clean energy (ACE) rule that established guidelines for states to develop standards of performance to address GHG emissions from existing coal-fired generation. On January 19, 2021, the Washington D.C. Circuit vacated and remanded the ACE rule declaring that the EPA was “arbitrary and capricious” in its rule making and, as such, the ACE rule is no longer in effect and all actions thus far taken by states to implement the federally mandated rule are now null and void. The D.C. Circuit decision is subject to legal challenge. Depending on the outcomes of further appeals and how any final rules are ultimately implemented, the future cost of compliance may be material. On May 23, 2023, the EPA proposed significantly revising the manner in which new and existing Electric Generating Units’ GHG emissions should be regulated including using hydrogen as a fuel, capturing and storing/sequestering CO2 and requiring new units to be more efficient. The EPA has stated that it intends to finalize these revisions in 2024. The Company expects that the final rule will be challenged in the courts and accordingly uncertain over the next several years.
In December 2021, President Biden signed an executive order calling for the federal government to achieve net zero emissions by 2050, with a 65% reduction by 2030. The order specifically directs the federal government to use its scale and procurement power to achieve 100% carbon pollution-free electricity by 2030, with at least half coming from locally supplied clean energy, as well as 100% zero-emission vehicle acquisitions by 2035 and a net-zero emissions building portfolio by 2045, all of which may contribute to increased demand for alternative energy technologies, including renewable energy and energy storage.
Additionally, a number of other federal and state regulations have increased the cost of fossil generation across the country over the last several decades. The Clean Air Act of 1970 originally provided the EPA with authority to regulate emissions, but it was not until the 2000s that EPA restrictions on sulfur dioxide and nitrogen oxides emissions required installation of scrubbers or other emissions control equipment. More recently, EPA’s continued air quality level regulations have driven controls on all types of units along with stringent operational limitations. EPA has also set broader standards for greenhouse gas emissions particularly from new, modified, and reconstructed fossil-fired power plants forcing efficiency improvements and increasing maintenance costs. At the state level, a number of carbon pricing schemes have been implemented, including a cap-and-trade program in California and a carbon tax in the Northeast via the RGGI.
The cost to the Company to comply with any legislation, regulations or initiatives limiting GHG or emissions or otherwise seeking to limit the impact of climate change could be substantial. Moreover, regulations imposing obligations on, or limiting GHG emissions from, our equipment and operations could adversely affect pricing or demand for our offerings. We may not be able to pass on increases in costs to customers. In addition, changes in regulatory policies that result in a reduction in the demand for hydrocarbon products and carbon-emitting fuel sources that are deemed to contribute to climate change, or restrict the use of such products or fuel sources, may reduce demand for our offerings or impact the energy supply markets.
Additionally, on March 21, 2022, the U.S. Securities and Exchange Commission issued a proposed rule regarding the enhancement and standardization of mandatory climate-related disclosures for investors. The proposed rule would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including, but not limited to, information about the registrant’s governance of climate-related risks and relevant risk management processes; climate-related risks that are reasonably likely to have a material impact on the registrant’s business, results of operations or financial condition and their actual and likely climate-related impacts on the registrant’s business strategy, model and outlook; climate-related targets, goals and transition plan (if any); certain climate-related financial statement metrics in a note to their audited financial statements; Scope 1 and Scope 2 GHG emissions; and Scope 3 GHG emissions and intensity, if material, or if the registrant has set a GHG emissions reduction target, goal or plan that includes Scope 3 GHG emissions. Although the proposed rule’s ultimate date of effectiveness and the final form and substance of these requirements is not yet known and the ultimate scope and impact on our business is uncertain, compliance with the proposed rule, if finalized, may result in increased legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on our personnel, systems and resources.
Further, legislative and regulatory initiatives are underway to that purpose. The Inflation Reduction Act of 2022 (“IRA”), signed into law in August 2022, appropriates significant federal funding for renewable energy initiatives and, for the first time ever, imposes a fee on GHG emissions from certain oil and gas sources and facilities. The emissions fee and funding provisions of the law could increase operating costs within the oil and gas industry and accelerate a transition away from fossil fuels, which could in turn adversely affect our business and results of operations. The U.S. Congress has also considered legislation that would control GHG emissions through a “cap and trade” program and several states have already implemented programs to reduce GHG emissions. Additionally, following the U.S. Supreme Court finding that GHG emissions fall within the CAA definition of an “air pollutant,” the EPA has adopted regulations that, among other things, establish construction and operating permit review for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources, and together with the United States Department of Transportation, implement GHG emissions limits on vehicles manufactured for operation in the United States. The EPA has also proposed rules in November 2021 and 2022 intended to reduce methane emissions from new and existing oil and gas sources. Furthermore, many state and local leaders have intensified or stated their intent to intensify efforts to support international climate commitments and treaties, in addition to developing programs that are aimed at reducing GHG emissions by means of cap and trade programs, carbon taxes or encouraging the use of renewable energy or alternative low-carbon fuels.
Many states in which we operate have state and regional programs to reduce GHG emissions and renewable and other portfolio standards, which impact the power sector and other sectors as well. A total of 25 states and the District of Columbia have 100% clean energy targets, deep GHG reductions, or both, encompassing 53% of U.S residential electricity customers.
Employees and Human Capital Resources
Attracting and retaining qualified personnel familiar with our businesses who head our different businesses units is critical to our success. As of March 1, 2024, we had a total of 198 employees, of which 192 were full-time employees.
Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. To accomplish that, our compensation practices are designed to attract and retain qualified and motivated personnel and align their interests with the goals of the Company and with the best interests of our stockholders. Our compensation philosophy is to provide compensation to attract the individuals necessary for our current needs and growth initiatives, and provide them with the proper incentives to motivate those individuals to achieve our long-term plans, which includes among other things, equity and cash incentive plans that attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards.
We believe that talent attraction and retention are critical to our ability to achieve our strategy and that a trained, diverse and inspired workforce is integral to delivering on our objectives. Our recruiting process reaches a wide array of potential employees, and we employ a rigorous screening process to ensure that we identify and hire quality professionals.
We are committed to diversity and inclusion in the workforce including a policy of non-discriminatory treatment and respect of human rights for all current and prospective employees. Discrimination on the basis of an individual’s race, religion, creed, color, sex, sexual orientation, age, marital status, disability, national origin or veteran’s status is not permitted by us and is illegal in many jurisdictions. We respect the human rights of all employees and strive to treat them with dignity consistent with standards and practices recognized by the international community.
Intellectual Property
We rely on a combination of patents, copyrights, trademarks, domain name registrations and trade secret laws in the United States and other jurisdictions and contractual restrictions to protect our intellectual property rights and our brand names. All of our employees sign confidentiality agreements. These agreements provide that the employee may not use or disclose our confidential information except as expressly permitted in connection with the performance of his or her duties for us, or in other limited circumstances. These agreements also state that, to the extent rights in any invention conceived of by the employee while employed by us do not vest in us automatically by operation of law, the employee is required to assign his or her rights to us.
RISK FACTORS
Our business, operating results or financial condition could be materially adversely affected by any of the following risks as well as the other risks highlighted elsewhere in this document, particularly the discussions about regulation, competition and intellectual property. The trading price of our Class B common stock could decline due to any of these risks.
Risks Related to Genie Retail Energy
The REP business is highly competitive, and we may be forced to reduce prices or incur additional costs.
GRE’s REP businesses face substantial competition both from the traditional incumbent utilities as well as from other REPs, including REP affiliates of the incumbent utilities in specific territories. As a result, we may be forced to reduce prices, incur increased costs or lose market share and cannot always pass along increases in commodity costs to customers. We compete on the basis of provision of services, customer service and price. Present or future competitors may have greater financial, technical or other resources which could put us at a disadvantage. Additionally, our experience has shown that utilities do not change their rates offered to customers immediately in response to increased prices for the underlying commodities.
Increasing our market share depends in part on our ability to persuade more customers to switch to GRE’s services than those that churn from us to other providers or back to the local utility. Moreover, local utilities and some REPs may have certain advantages such as name recognition, financial strength and long-standing relationships with customers. Persuading potential customers to switch to GRE’s REPs requires significant marketing and sales operations. As we enter new international markets, we will face additional competitive environments. If GRE is not successful in convincing customers to switch both domestically and internationally, our REP businesses, results of operations and financial condition will all be adversely affected.
Our strategy is based on current regulatory conditions and assumptions, which could change or prove to be incorrect.
From time to time, various states may propose or modify legislation regulations which could adversely affect our marketing practices and ability to acquire and serve customers. The Company and the REP industry as a whole is working with government representatives, legislators, and advocacy interest groups to lobby for legislation and regulation that most effectively protects customer interests while preserving the competitive structure of deregulated markets. We also seek to expand and diversify into new markets with regulatory structures that are more favorable to the competitive retail supply of energy.
For example, on April 16, 2021, the New York Public Service Commission (“PSC”) issued an order limiting the types of services energy retailer marketers may offer new customers or renewals, in terms of pricing for non-renewable commodities and renewable product offerings (the “2021 Orders”). Such compliance could impact customer acquisition and renewal revenue and profitability. The Company is working to ensure that its products and services are fully compatible with the 2021 Orders. As of December 31, 2023, New York represented 16.1% of GRE’s total meters served and 15.0% of the total residential customer equivalents (“RCEs”) of GRE’s customer base. For the years ended December 31, 2023 and 2022, gross revenue from New York was $66.0 million and $63.5 million, respectively.
In Maryland, the legislature is currently considering companion bills (SB0001 and HB0267) calling for changes to be made to the retail energy marketplace, including among other things, restrictions and limitations on customer pricing, fees and contract renewals, licensing requirements for sales agents, and the modification of certain billing and collection arrangements between REPs and the utility. As of December 31, 2023, Maryland represented 3.2% of GRE’s total meters served and 2.5% of the total residential customer equivalents (“RCEs”) of GRE’s customer base. For the years ended December 31, 2023 and 2022, gross revenue from Maryland was $9.7 million and $10.9 million, respectively.
In Massachusetts, the legislature is also considering a new bill (H.3155) calling for various changes to be made to the retail energy marketplace, including, among other things, significant bonding requirements, additional training and regulation of customer acquisition standards and practices, creation of an oversight agency and a publicly available complaint database to monitor REP compliance, restrictions on supplying low-income customers, and prohibition on early termination fees. As of December 31, 2023, Massachusetts represented 10.9% of GRE’s total meters served and 8.9% of the total RCE of GRE’s customer base. For the years ended December 31, 2023 and 2022, gross revenue from Massachusetts was $60.4 million and $54.6 million, respectively.
Although the Company is participating in industry groups and lobbying to minimize against adverse legislation, such legislation could have a material impact on the Company’s ability to sell and market energy supply in those states.
Any legislative or regulatory changes that negatively impacts the sale of fossil fuels or electricity derived therefrom would adversely affect the results of our operations and financial conditions.
Unusual weather conditions, which may become more commonplace, may have significant direct and indirect impacts on GRE's results of operations.
Potential global climate change 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.
Because our variable pricing plan resulted in increased prices charged to customers, we experienced an increase in customer churn as utilities and fixed price REPs appeared to have more attractive pricing, although those increased churn levels have peaked. A failure to mitigate an increase in churn could result in decreases in meters served and revenues.
In certain markets, we contractually commit to provide customers with a fixed price, irrespective of our cost of supply in the wholesale energy markets. Even under variable contracts, we seek to manage customer price expectations by using reasonable efforts to avoid or mitigate potential pass-throughs related to unforeseeable weather events (even where such pass-throughs are contractually permissible). Although we use our best efforts to reasonably hedge our commodity positions to absorb weather-related cost spikes, we cannot always anticipate unforeseeable extreme weather events, and we may be forced to absorb these cost increases in order to serve our customers.
For example, a confluence of issues in January and February 2014 associated with the winter season’s polar vortex resulted in extraordinarily large spikes in the prices of wholesale electricity and natural gas in markets where GRE and other retail providers purchase their supply. Repeats of the circumstances or similar circumstances could similarly harm margins and profitability in the future, and we could find it necessary to take similar or other actions that would have a negative impact on our financial condition and results of operations.
Additionally, in mid-February of 2021, the State of Texas experienced unprecedented cold weather and snow. With the grid overtaxed and rolling blackouts being enforced, by order of ERCOT, real-time commodity prices during the crisis escalated astronomically. Although our supply commitment for our customers in Texas was reasonably hedged for expected winter weather conditions, the extreme usage spike exposed us to further unexpected cost increases. Despite our cost increases related to the unprecedented price volatility in real-time electricity prices, we maintained customer rates under current agreements with customers. The impact on our consolidated profitability for the year ended December 31, 2021 was approximately $10.6 million.
Our REP business may be subject to increased costs or liabilities related to the impact of GHG emissions or climate change. which may lead to substantially increased costs, including those beyond our ability to satisfy.
There has been a trend in recent years toward increased scrutiny and regulatory oversight of the oil and gas and energy industries, including, among other things, proposed or enacted laws and regulations aimed at reducing or restricting oil and gas production or making the production, marketing or usage of oil and gas, including for generation of electricity, more expensive.
Future laws or regulation or legal or regulatory efforts could also seek to impose liability on participants in the supply chain for natural gas or electricity produced from carbon-emitting fuel sources, including REPs like those we own and operate, for the current and historical effects of GHG and climate change, including health impacts, personal injuries and property and other damages.
As discussed more fully in the section entitled “Climate Change” of this Annual Report on Form 10-K, the cost to us to comply with any legislation, regulations or initiatives limiting GHG or emissions or otherwise seeking to limit the impact of climate change could be substantial. Moreover, regulations imposing obligations on, or limiting GHG emissions that may be deemed to result from our operations could adversely affect pricing or demand for our offerings. We may not be able to pass on increases in costs to customers. In addition, changes in regulatory policies that result in a reduction in the demand for natural gas or electricity generated from carbon-emitting fuel sources that are deemed to contribute to climate change, or restrict the use of such products or fuel sources, may reduce demand for our offerings or impact the energy supply markets.
Moreover, environmental agencies may seek penalties for failure to comply with laws, regulations or permits from parties involved in the supply chain for natural gas or electricity produced from carbon-emitting fuel sources, including REPs like those we own and operate, whose operations do not actually directly emit carbon fuels.
We may also be subject to penalties from other regulatory agencies and be subject to increased operating costs for remediation and clean-up costs, civil penalties, or subject to claims from regulatory agencies, law enforcement or private parties for alleged effects of GHG and climate change, including health impacts, personal injuries and property and other damages.
GRE's business is subject to physical, market and economic risks relating to potential effects of climate change, and policies at the national, regional and state levels to regulate GHG emissions and mitigate climate change could adversely impact our results of operations, financial condition and cash flows.
Fluctuations in weather and other environmental conditions, including temperature and precipitation levels, may affect consumer demand for electricity or natural gas. In addition, the potential physical effects of climate change, such as increased frequency and severity of storms, floods and other climatic events, could disrupt GRE's operations and supply chain, and cause it to incur significant costs in preparing for or responding to these effects. These or other changes in climate could lead to increased operating costs or capital expenses. GRE's customers may also experience the potential physical impacts of climate change and may incur significant costs in preparing for or responding to these efforts, including increasing the mix and resiliency of their energy solutions and supply.
Fixed Rate Products or Guaranteed Pricing Programs could result in losses or decreased profits if GRE fails to estimate future commodity prices and commodity consumption accurately.
REPs and utilities offering fixed rate products or guaranteed pricing often are unable to change their sell rates offered to customers in response to volatility in the prices of the underlying commodities or changes in the regulatory environment. Sudden spikes in commodity prices, particularly when coupled with rapid, unexpected increases in consumptions, expose us to the risk that we will incur significant unforeseen costs in performing fixed rate contracts. During the year ended December 31, 2023, GRE’s meters enrolled in offerings with fixed rate characteristics constituted approximately 57.9% and 31.1% of GRE’s electric and natural gas revenues, respectively. Fixed rate products are becoming a greater part of our offering as they are currently preferred by many customers and regulators.
However, it is difficult to predict future commodity costs. Any shortfalls resulting from the risks associated with fixed rate programs will reduce our working capital and profitability. Our inability to accurately estimate the cost of providing services under these programs could have an adverse effect on our profitability and cash flows. We employ an active and robust hedging program. Within this exercise there are inherent assumptions about consumption and pricing. There is risk that volatility will take place outside of the range of potential outcomes contemplated by the program. In these instances, the hedge will not be sufficient to control for risk and losses may occur.
Commodity price volatility could have an adverse effect on our cost of revenues and our results of operations.
Volatility in the markets for certain commodities can have an adverse impact on our costs for the purchase of the electricity and natural gas that GRE sells to its customers as what occurred in Texas and Japan during January and February of 2021. Similar or increased unprecedented volatility events can have a material adverse impact on our financial condition because of our fixed or guaranteed price products, we cannot, and in our variable price products, due to customer or competitive factors, we may not always be able or choose to, pass along increases in costs to our customers. This would have an adverse impact on our margins and results of operations. Alternatively, volatility in pricing for GRE’s electricity and natural gas related to the cost of the underlying commodities can lead to increased customer churn. In times of high commodity costs, our variable pricing model and commodity purchasing approach can lead to competitive disadvantages as we must pass along all or some portion of our increased costs to our customers.
GRE’s growth depends in part on its ability to enter new markets.
New markets, both domestic and international, are evaluated based on many factors, which include the regulatory environment, as well as GRE’s REP businesses' ability to procure energy in an efficient and transparent manner. We seek to purchase wholesale energy where there is a real time market that reflects a fair price for the commodity for all participants. Once new markets are determined to be suitable for GRE’s REP businesses, we expend substantial efforts to obtain necessary licenses and will incur significant customer acquisition costs and there can be no assurance that we will be successful in new markets. Furthermore, there are regulatory differences between the markets that we currently operate in and new markets, including, but not limited to, exposure to credit risk, additional churn caused by tariff requirements, rate-setting requirements and incremental billing costs. A failure to identify, become licensed in, and enter new territories may have a material negative impact on our growth, financial condition and results of operations.
GRE is subject to litigation that may limit its operations.
In connection with the 2013-2014 events described in the Risk Factor above entitled “Unusual weather conditions which may become more commonplace, may have significant direct and indirect impacts on GRE's and GREI's business and results of operations,” IDT Energy was also sued in separate putative class action suits in New York, New Jersey and Pennsylvania, partially related to the price increases during the winter of 2014. From time to time, IDT Energy is also subject to inquiries, investigation or action from public utility commissions or other governmental regulatory or law enforcement agencies related to compliance of its practices with statutory or regulatory schemes.
IDT Energy does not believe that it was at fault or acted in any way improperly with respect to the events of winter 2014 or in connection with any other practices that are subject to investigation or litigation. Although we have taken action to insulate us and our customers from future similar events, we cannot assure that those actions will be effective and we will not be subject to litigation in the future.
Such class action lawsuits or other claims against us could have a material adverse impact on our financial condition, competitive position or results of operations.
Transition risks associated with climate change, including those related to regulatory mandates could negatively impact our financial results.
Where federal or state legislation mandates the use of renewable fuel sources, such as wind and solar and such legislation does not also provide for adequate cost recovery, it could result in significant changes in our business, including material increases in REC and power purchase costs. Such mandatory renewable portfolio requirements may have an adverse effect on our financial condition and results of operations.
A number of regulatory and legislative bodies have introduced requirements and/or incentives to reduce peak demand and energy consumption. Such conservation programs could result in customer consumption reduction and adversely impact our financial results in different ways.
In the past, we have been adversely impacted by reduced electric usage due in part to energy conservation efforts such as the use of efficient lighting products such as CFLs, halogens and LEDs. We are unable to determine what impact, if any, conservation will have on our financial condition or results of operations.
We face risks that are beyond our control due to our reliance on third parties both domestically and internationally and our general reliance on the electrical power and transmission infrastructure within the United States.
Our ability to provide energy delivery and commodity services depends on the operations and facilities of third parties, including, among others, BP, NYISO and PJM. Our reliance on the electrical power generation and transmission infrastructure within the United States makes us vulnerable to large-scale power blackouts. The loss of use or destruction of third party facilities that are used to generate or transmit electricity due to extreme weather conditions, breakdowns, war, acts of terrorism or other occurrences could greatly reduce our potential earnings and cash flows.
The REP business, including our relationship with our suppliers, is dependent on access to capital and liquidity.
Our business involves entering into contracts to purchase large quantities of electricity and natural gas. Because of seasonal fluctuations, we are generally required to purchase electricity or natural gas in advance and finance that purchase until we can recover such amounts from revenues. Certain of GRE’s REPs have a Preferred Supplier Agreement with BP pursuant to which we purchase electricity and natural gas at market rate plus a fee. The agreement has been modified and extended since 2009, and is scheduled to terminate on November 30, 2026, subject to renewal by agreement of the parties. In addition to other advantages of this agreement, we are only required to post security with BP. There can be no assurance that we will be able to maintain the required covenants, that BP will be able to maintain their required credit rating, or that the agreement will be renewed upon its expiration. In addition, the security requirements outside of the BP agreement may increase as we enter other markets. Difficulty in obtaining adequate credit and liquidity on commercially reasonable terms may adversely affect our business, prospects and financial conditions.
A revision to certain utility best practices and programs in which we participate and with which we comply could disrupt our operations and adversely affect our results and operations.
Certain retail access “best practices” and programs proposed and/or required by state regulators have been implemented by utilities in most of the service territories in which we operate. One such practice is participation in purchase of receivables programs under which certain utilities purchase customer receivables for approximately 98.0% of their face value in exchange for a first priority lien in the customer receivables without recourse against a REP. This program is a key to our control of bad debt risk in our REP business.
The REP business depends on maintaining the licenses in the states in which we operate and any loss of those licenses would adversely affect our business, prospects and financial conditions.
GRE’s REP businesses require licenses from public utility commissions and other regulatory organizations to operate its business. Those agencies may impose various requirements to obtain or maintain licenses. Further, certain non-governmental organizations have been focusing on the REP industry and the treatment of customers by certain REPs. Any negative publicity regarding the REP industry in general, including, but not limited to, legislatures potentially seeking to restrict the activities of REPs and GRE in particular or any increase in customer complaints regarding GRE’s REP businesses could negatively affect our relationship with the various commissions and regulatory agencies and could negatively impact our ability to obtain new licenses to expand operations or maintain the licenses currently held. In the aftermath of the polar vortex, several regulatory bodies adopted more aggressive policies toward REPs, including the action against IDT Energy in Pennsylvania described elsewhere in this Annual Report on Form 10-K. Any loss of our REP licenses would cause a negative impact on our results of operations, financial condition and cash flow.
Our growth strategy depends, in part, on our acquiring complementary businesses and assets and expanding our existing operations, which we may be unable to do.
Our growth strategy is based, in part, on our ability to acquire businesses and assets that are complementary to our existing operations. We may also seek to acquire other businesses. The success of this acquisition strategy will depend, in part, on our ability to accomplish the following:
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identify suitable businesses or assets to buy;
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complete the purchase of those businesses on terms acceptable to us;
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complete the acquisition in the time frame we expect;
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improve the results of operations of the businesses that we buy and successfully integrate their operations into our own; and
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avoid or overcome any concerns expressed by regulators, including antitrust concerns.
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There can be no assurance that we will be successful in pursuing any or all of these steps. Our failure to implement our acquisition strategy could have an adverse effect on other aspects of our business strategy and our business in general. We may not be able to find appropriate acquisition candidates, acquire those candidates that we find or integrate acquired businesses effectively or profitably.
Risks Related to Genie Renewables
Competition in solar markets globally and across the solar value chain is intense, and could remain that way for an extended period of time.
We face significant competition both in attracting customers to our products as well as in the operating market where we are competing for access to land rights or attractive development projects. As the demand for solar energy grows, more companies and investors enter the market, increasing competition and potentially lowering prices and profits.
Changes in government regulations and policies can impact the financial viability of solar projects.
The success of solar energy projects is highly dependent on government regulations and policies that impact the financial viability of the projects. This can include changes to tax incentives, subsidies, grid access and net metering policies. It can also include changes in building and safety codes, environmental regulations, and land use policies that impact the ability to construct and operate solar projects. The reduction, modification or elimination of any of these policies in one or more of our customer markets would materially and adversely affect the growth of such markets or result in increased price competition, either of which could cause our revenue to decline and materially adversely affect our financial results.
An increase in interest rates or tightening of the supply of capital in the global financial markets could increase the cost of borrowing and negatively impact our projects.
Genie Solar intends to utilize long-term debt financing for its operating portfolio. As a result, an increase in interest rates, or a reduction in the supply of project debt financing could reduce the number of solar projects that we are able to construct and operate.
The operation and maintenance of our solar facilities are subject to operational risks, the consequences of which could have a material adverse effect on our business operations, financial condition, and the results of operations.
The required operation, maintenance, refurbishment, and construction of our facilities involve risks, including performance below expected levels of output or system efficiency. There can be no guarantee that our maintenance program will be able to detect all potential failures in our facilities or eliminate all adverse consequences of such a failure. In addition, work stoppages and other unforeseen problems may disrupt the construction, operation and maintenance of our facilities. We intend to enter into service and maintenance agreements with the manufacturers of certain key equipment.
In developing projects we face risks related to project siting, utility interconnection, third party financing, construction, permitting, governmental approvals and the negotiation of project development agreements.
We own, develop, construct, manage and operate electric-generation facilities. We must periodically apply for licenses and permits from various local, state, and federal regulatory authorities and abide by their respective conditions. A lack of successes in obtaining necessary licenses or permits on acceptable terms or resolving challenges to such licenses or permits could impact our ability to develop projects. Additionally, any delay in obtaining or renewing necessary licenses or permits or if regulatory authorities initiate any associated investigations against, our business, financial condition, results of operations and prospects may adversely impact project economics. Additionally, risks associated with construction, such as cost overruns and delays, and other contingencies that may arise in the course of completing installations may adversely impact project economics.
While we intend to seek acquisitions of solar generation assets and portfolios in various stages of development to add to our portfolio, we may not be successful in identifying or marking any acquisitions in the future.
Our business strategy includes growth through the acquisitions of solar generation assets and portfolios in various stages of development. There is a risk that we may not be able to identify attractive acquisition opportunities or successfully acquire those opportunities that are identified. There is always the possibility that even if there is success in closing acquisitions, we may not derive the benefits, such as administrative or operational synergies or earnings obtained, that were expected. The market acquisition opportunities are highly competitive and may become even more so, which would increase our cost of making future acquisitions.
As part of the acquisition evaluation and close process, we conduct deep due diligence to identify potential contingencies, negotiate transaction terms, complete transactions, and manage post-closing matters such as the integration of the acquired assets into our existing business operations. In some cases, our due diligence reviews are dependent on the completeness and accuracy of disclosures made by third parties. If the information shared by the third parties is incomplete or inaccurate, we may incur unanticipated costs or expenses following a completed acquisition.
General Corporate Risks
Our business, results of operation and financial conditions could be adversely affected by the resurgence of the coronavirus COVID-19 pandemic and any restrictions put in place in connection therewith.
If the COVID-19 pandemic re-emerges and impacts the territories we serve, our business, operations and financial condition could be impacted in more significant ways. The continued spread of COVID-19 and efforts to contain the virus could have the following impacts, in addition to exacerbating the impacts described above:
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Adversely impact our strategic business plans and growth strategy;
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Result in increases in purchase of receivable, or POR fees and allowance for credit bad debt expense as a result of delayed or non-payment from our customers, both of which could be magnified by federal or state government legislation that requires us to extend suspensions of disconnections for non-payment;
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Reduce the availability and productivity of our employees and third-party resources;
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Cause us to experience an increase in costs as a result of our emergency measures;
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Cause a deterioration of the credit quality of our counterparties, including power purchase agreement counterparties, contractors or retail customers, that could result in credit losses;
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Cause impairment of long-lived assets; and
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Cause a deterioration in our financial metrics or the business environment that adversely impacts our credit ratings.
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We could be harmed by network disruptions, security breaches, or other significant disruptions or failures of our IT infrastructure and related systems or of those we operate for certain of our customers.
To be successful, we need to continue to have available a high capacity, reliable and secure network. We face the risk, as does any company, of a security breach, whether through cyber-attack, malware, computer viruses, sabotage, or other significant disruption of our IT infrastructure and related systems. As such, there is a risk of a security breach or disruption of the system we operate, including possible unauthorized access to our and our customers' proprietary or classified information. We are also subject to breaches of our network resulting in unauthorized utilization of our services or products, which subject us to the costs of providing those products or services, which are likely not recoverable. The secure maintenance and transmission of our and our customers' information is a critical element of our operations. Our information technology and other systems that maintain and transmit customer information, or those of service providers or business partners, may be compromised by a malicious third party penetration of our network security, or that of a third party service provider or business partner, or impacted by advertent or inadvertent actions or inactions by our employees, or those of a third party service provider or business partner. As a result, our or our customers’ information may be lost, disclosed, accessed or taken without the customers' consent or our product and service may be used without payment.
Although we make significant efforts to maintain the security and integrity of these types of information and systems, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging, especially in light of the growing sophistication of cyber-attacks and intrusions sponsored by state or other interests. We may be unable to anticipate all potential types of attacks or intrusions or to implement adequate security barriers or other preventative measures. Certain of our business units have been the subject of attempted and successful cyber-attacks in the past. We have researched the situations and do not believe any material internal or customer information has been compromised.
Network disruptions, security breaches and other significant failures of the above-described systems could (i) disrupt the proper functioning of our networks and systems and therefore our operations or those of certain of our customers; (ii) result in the unauthorized use of our services or products without payment, (iii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or our customers, including trade secrets, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; (iv) require significant management attention or financial resources to remedy the damages that result or to change our systems and processes; (v) subject us to claims for contract breach, damages, credits, fines, penalties, termination or other remedies; or (vi) result in a loss of business, damage our reputation among our customers and the public generally, subject us to additional regulatory scrutiny or expose us to litigation. Any or all of which could have a negative impact on our results of operations, financial condition and cash flows.
Our businesses depend on the continuing efforts of our management team and our personnel with strong industry or operational knowledge and our efforts may be severely disrupted if we lose their services.
Our success depends on key members of our management team, the loss of whom could disrupt our business operation. Our business also requires a capable, well-trained workforce to operate effectively. There can be no assurance that we will be able to retain our qualified personnel, the loss of whom may adversely affect our business, prospects and financial conditions.
Uncertainty related to our exit in the Finnish market.
We face uncertainty related to our exit from the Finnish market. On November 8, 2023, the Administrator, acting on behalf of the Bankruptcy Estate, filed a claim in the District Court of Helsinki against Genie Nordic, its directors, officers and affiliates, in which it alleges that the gain from the sale of swap instruments owned by Lumo Sweden amounting to €35.2 million (equivalent to $38.9 million as of December 31, 2023) belongs to the Bankruptcy Estate. We believe that the Administrator’s position is without merit, and it intends to vigorously defend its position against the Administrator’s claims.
We are also notified that the Administrator filed a claim against one of Lumo Finland’s suppliers, seeking to recover payments made by Lumo Finland amounting to €4.2 million (equivalent to $4.7 million as of December 31, 2023) prior to the bankruptcy. The Administrator has also filed a recovery claim jointly against us and the supplier amounting to €1.6 million (equivalent to $1.8 million as of December 31, 2023) related to our payment to the supplier under the terms of a previously supplied parental guarantee. The Administrator alleges that the payments represented preferential payments and therefore belong to the bankruptcy estate which are recoverable under the laws of Finland. We believe that the Administrator’s position is incorrect, and we intend to vigorously defend our position. Nevertheless, should the Administrator succeed in clawing back the funds from the supplier, it is possible that following the conclusion of the bankruptcy proceedings, the supplier will seek to recover its losses against us, under terms of the parental guarantee. At this time, there is insufficient basis to deem any loss probable or to assess the amount of any possible loss.
Risk Related to Our Financial Condition and Reporting
We had a material weakness in our internal control over financial reporting in previous years and cannot assure you that additional material weaknesses will not be identified in the future.
We reported in our Annual Report on Form 10-K as of December 31, 2020, a material weakness in internal control specifically related to management's review of the income tax provision. During 2021, we implemented certain remediation measures related to the material weakness, however, we concluded that our internal control over financial reporting was ineffective as of December 31, 2021 (see Item 9A Control and Procedures in our Annual Report on Form 10-K filed on March 16, 2022). During 2022, we implemented certain additional remediation measures related to the material weakness and concluded that our internal control over financial reporting was effective as of December 31, 2022.
We also reported in our Annual Report on Form 10-K as of December 31, 2018, a material weakness in internal control related to an application, which the Company uses to process a wide variety of functions for GRE related to customer enrollment, customer programs and price plans, rebate programs, sales commissions, invoicing, and invoice payment information. During 2019, we completed the remediation measures related to the material weakness and concluded that our internal control over financial reporting was effective as of December 31, 2019.
Completion of remediation does not provide assurance that our remediation or other controls will continue to operate properly.
While we aim to work diligently to ensure a robust internal control that is devoid of significant deficiencies and material weaknesses, given the complexity of the accounting rules, we may, in the future, identify additional significant deficiencies or material weaknesses in our disclosure controls and procedures and internal control over financial reporting. Any failure to maintain or implement required new or improved controls, or any difficulties we encounter in their implementation, could result in additional significant deficiencies or material weaknesses, cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations and annual auditor attestation reports regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes-Oxley Act of 2002 and the rules promulgated under Section 404. The existence of a material weakness could result in errors in our financial statements that could result in a restatement of financial statements, cause us to fail to meet our reporting obligations and cause investors to lose confidence in our reported financial information, leading to a decline in our stock price. See Item 9A Controls and Procedures for a further discussion of our assessment of our internal controls over financial reporting.
Risks Related to Our Capital Structure
Holders of our Class B common stock have significantly less voting power than holders of our Class A common stock.
Holders of our Class B common stock are entitled to one-tenth of a vote per share on all matters on which our stockholders are entitled to vote, while holders of our Class A common stock are entitled to three votes per share. As a result, the ability of holders of our Class B common stock to influence our management is limited.
We are controlled by our principal stockholder, which limits the ability of other stockholders to affect the management of the Company.
Howard S. Jonas, our Chairman of our Board of Directors controls a majority of the voting power of our capital stock.
As of March 13, 2024, Mr. Jonas has voting power over 1,377,535 shares of our Class A common stock (which are convertible into shares of our Class B common stock on a 1-for-1 basis) and 2,939,730 shares of our Class B common stock, representing approximately 61.0% of the combined voting power of our outstanding capital stock. Mr. Jonas will be able to control matters requiring approval by our stockholders, including the election of all of the directors and the approval of significant corporate matters, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of our other stockholders to influence our management is limited.
None.
Cybersecurity risk management and strategy
Our cybersecurity risk management is based on recognized cybersecurity industry frameworks and standards, including those of the National Institute of Standards and Technology, the Center for Internet Security Controls, and the International Organization for Standardization. We use these frameworks, together with information collected from internal assessments, to develop policies for the use of our information assets (for example, TI business information and information resources such as mobile phones, computers and workstations), access to specific intellectual property or technologies, and protection of personal information. We protect these information assets through industry-standard techniques, such as multifactor authentication and malware defenses. We also work with internal stakeholders across the company to integrate foundational cybersecurity principles throughout our organization’s operations, including the employment of multiple layers of cybersecurity defenses, restricted access based on business needs, and integrity of our business information. Throughout the year, we also regularly train our employees on cybersecurity awareness, confidential information protection and simulated phishing attacks.
We regularly engage third-party assessors to conduct penetration testing and measure our program to industry standard frameworks. We also have standing engagements with incident response experts and external counsel. We frequently collaborate with industry experts and cybersecurity practitioners at other companies to exchange information about potential cybersecurity threats, best practices and trends.
Our cybersecurity risk management extends to risks associated with our use of third-party service providers. For instance, we conduct risk and compliance assessments of third-party service providers that request access to our information assets.
Our cybersecurity risk management is an important part of our comprehensive business continuity program and enterprise risk management. Our global information security team periodically engages with a cross-functional group of subject matter experts and leaders to assess and refine our cybersecurity risk posture and preparedness. For example, we regularly evaluate and update contingency strategies for our business in the event that a portion of our information resources were to be unavailable due to a cybersecurity incident. We practice our response to potential cybersecurity incidents through regular tabletop exercises, threat hunting and red team exercises.
Governance of cybersecurity risk management
The board of directors, as a whole, has oversight responsibility for our strategic and operational risks. The audit committee assists the board of directors with this responsibility by reviewing and discussing our risk assessment and risk management practices, including cybersecurity risks, with members of management. The audit committee, in turn, periodically reports on its review with the board of directors.
Management is responsible for day-to-day assessment and management of cybersecurity risks and reports regularly to the audit committee.
Our headquarters are located at 520 Broad St., Newark, New Jersey. Our lease for our office space at 520 Broad Street expires in April 2025 and is for 8,631 square feet and includes two parking spots per thousand square feet of space leased. The annual base rent is $198,513. We have the right to terminate the lease upon four months’ notice and upon early termination Genie will pay a penalty equal to 25% of the portion of the rent due over the course of the remaining term. Upon expiration of the lease, we have the right to renew the lease for another 5 years on substantially the same terms, with a 2% increase in the rental payments.
GRE’s Jamestown, New York offices are located at 3315 North Main Street where we lease approximately 12,000 square feet of space. GRE’s Arizona office is located in Chandler, Arizona where we lease approximately 3,300 square feet. GRE’s Texas office is located in Houston, Texas where we lease approximately 4,200 square feet.
Genie Solar is constructing community solar array projects in Lansing and Perry, New York where we lease 20 acre and 15 acre land, respectively.
Genie Solar owns and operates a portfolio of 12 solar arrays with an aggregate rating of 9.4 megawatts located in several school facilities in Ohio and Michigan.
Certain legal proceedings in which we are involved are discussed in the Notes to Consolidated Financial Statements — Note 15, Legal and Regulatory Proceedings, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, which is incorporated by reference.
Not applicable.
CLASS B COMMON STOCK
Our Class B common stock trades on the New York Stock Exchange under the symbol “GNE”.
On March 13, 2024, there were 254 holders of record of our Class B common stock and 2 holders of record of our Class A common stock. Howard Jonas has voting dispositive power over 1,377,535 shares of Class A common stock. These numbers do not include the number of persons whose shares are in nominee or in “street name” accounts through brokers. On March 13, 2024, the last sales price reported on the New York Stock Exchange for the Class B common stock was $15.99 per share.
PREFERRED STOCK
Until June 20, 2023, the Series 2012-A Preferred Stock was listed and traded on the NYSE under the symbol “GNEPRA”.
On May 16, 2023, the Company's Board of Directors approved the redemption of all outstanding Preferred Stock on June 16, 2023 (the "Redemption Date") at the liquidation preference of $8.50 per share, together with an amount equal to all dividends accrued and unpaid up to, but not including, the Redemption Date. On the Redemption Date, the Company completed the redemption of all outstanding shares of Preferred Stock. Following the redemption, there are no shares of Preferred Stock outstanding, all rights of Preferred Stockholders have terminated, and the Preferred Stock’s ticker symbol, "GNEPRA", has been retired.
Additional information regarding dividends required by this item is incorporated by reference from the Management’s Discussion and Analysis section in Item 7 to Part II and Note 12 to the Consolidated Financial Statements in Item 8 to Part II of this Annual Report.
The information required by Item 201(d) of Regulation S-K will be contained in our Proxy Statement for our Annual Stockholders Meeting, which we will file with the Securities and Exchange Commission within 120 days after December 31, 2023, and which is incorporated by reference herein.
Performance Graph of Stock
We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.
Issuer Purchases of Equity Securities
The following table provides information with respect to purchases by us of our shares during the fourth quarter of the year ended December 31, 2023.
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Total
Number of
Shares
Purchased |
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Average
Price
per Share |
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Total Number of Shares Purchased as part of Publicly Announced Plans or Programs |
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Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) |
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October 1 – 31, 2023 |
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— |
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$ |
— |
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— |
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4,665,195 |
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November 1 - 30, 2023 |
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26,683 |
(2) |
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20.62 |
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3,778 |
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4,661,417 |
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December 1 – 31, 2023 |
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— |
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— |
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— |
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4,661,417 |
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Total |
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26,683 |
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$ |
20.62 |
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(1) |
Under our existing stock repurchase program, approved by our Board of Directors on March 11, 2013, we were authorized to repurchase up to an aggregate of 7 million shares of our Class B common stock. |
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Pertains to 26,683 shares of Class B common stock that were tendered by employees of ours to satisfy the tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based on their fair market value on the trading day immediately prior to the vesting date. |
We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.
This Annual Report 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 under Item 1A to Part I “Risk Factors” in this Annual Report. The forward-looking statements are made as of the date of this Annual Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report.
Overview
We are comprised of Genie Retail Energy ("GRE") and Genie Renewables. In the third quarter of 2022, we discontinued the operations of Lumo Finland and Sweden as discussed below. Following this discontinuance of operations, Genie Retail Energy International ("GRE International") ceased to be a segment and the remaining assets and liabilities and results of any continuing operations of GRE International were combined with corporate.
GRE owns and operates retail energy providers ("REPs"), including IDT Energy, Residents Energy, Town Square Energy ("TSE"), Southern Federal and Mirabito Natural Gas. GRE's REPs' businesses resell electricity and natural gas primarily to residential and small business customers, with the majority of the customers in the Midwestern and Eastern United States and Texas.
Genie Renewables holds 95.5% interest in Genie Solar, an integrated solar energy company that develops, constructs and operates solar energy projects for commercial and industrial customers as well as its own portfolio, a 92.8% interest in CityCom Solar, a marketer of alternative products and services complimentary to our energy offerings, a 96.0% interest in Diversegy, an energy broker for commercial customers. Genie Solar holds our
80.0% interest in Sunlight Energy, a solar energy developer and operator and
our 60.0% interest in Prism Solar Technology ("Prism") which designs and manufactures specialized
solar panels.
Discontinued Operations in Finland and Sweden
Prior to the third quarter
of 2022, the Company had a third segment, Genie Retail Energy
International, or GRE International, which supplied electricity to residential
and small business customers in Scandinavia. However, as result of volatility in the energy market in Europe, in the third quarter of 2022, we decided to discontinue the operations of Lumo Energia Oyj ("Lumo Finland") and Lumo Energi AB ("Lumo Sweden"). In July 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 to be settled monthly based on the monthly commodity volume specified in the instruments from September 2022 to March 2025. The Company also entered into a series of transactions to transfer the customers of Lumo Finland and Lumo Sweden to other suppliers.
We determined that the discontinued operations in Finland and Sweden represented a strategic shift that would have a major effect on our operations and financial statements. We account for these businesses as discontinued operations and accordingly, present the results of operations and related cash flows as discontinued operations for all periods presented. Any remaining assets and liabilities of the discontinued operations are presented separately and are reflected within assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of December 31, 2023 and 2022. Lumo Finland and Lumo Sweden are continuing to liquidate their remaining receivables and settle any remaining liabilities.
On November 7, 2022, Lumo Finland filed a petition for bankruptcy, which was approved by the Helsinki District Court on November 9, 2022. The administration of Lumo Finland was transferred to an administrator (the "Administrator"). All assets and liabilities of Lumo Finland remain with Lumo Finland, in which we retain our ownership interest, however, the management and control of Lumo Finland were transferred to the Lumo Administrators. Since the Company lost control of the management of Lumo Finland in favor of the Lumo Administrator, the accounts of Lumo Finland were deconsolidated effective November 9, 2022.
Net loss from discontinued operations of Lumo Finland and Lumo Sweden, net of taxes was $0.4 million and $30.4 million for the years ended December 31, 2023 and 2022, 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 the results of continuing operations of GRE internal were combined with corporate.
On November 8, 2023, the Lumo Administrators, acting on behalf of the Bankruptcy Estate, filed a claim in the District Court of Helsinki against Genie Nordic, its directors, officers and affiliates, in which it alleges that the gain from the sale of swap instruments owned by Lumo Sweden amounting to €35.2 million (equivalent to $38.9 million as of December 31, 2023) belongs to the Bankruptcy Estate. We believe that the Administrator’s position is without merit, and we intend to vigorously defend our position against the Administrator’s claims.
We are also notified that the Administrator filed a claim against one of Lumo Finland’s suppliers, seeking to recover payments made by Lumo Finland amounting to €4.2 million (equivalent to $4.7 million as of December 31, 2023) prior to the bankruptcy. The Administrator has also filed a recovery claim jointly against us and the supplier amounting to €1.6 million (equivalent to $1.8 million as of December 31, 2023) related to the payment we made to the supplier under the terms of a previously supplied parental guarantee. The Administrator alleges that the payments represented preferential payments and therefore belong to the bankruptcy estate which are recoverable under the laws of Finland. We believe that the Administrator’s position is incorrect, and intend to vigorously challenge the Administrator’s claims. Nevertheless, should the Administrator succeed in clawing back the funds from the supplier, it is possible that following the conclusion of the bankruptcy proceedings, the supplier will seek to recover its losses against us, under terms of the parental guarantee. At this time, there is insufficient basis to deem any loss probable or to assess the amount of any possible loss.
Discontinued U.K. Operations
On November 29, 2021 Orbit Energy Limited ("Orbit"), which operated in United Kingdom was declared and its customers were transferred to a “supplier of last resort.” Effective December 1, 2021, the administration of Orbit was transferred to a third party Administrators. The accounts of Orbit were deconsolidated from those of the Company effective December 1, 2021.
We determined that the discontinued operations of Orbit represented a strategic shift that would have a major effect on our operations and the financial statements. Since the appointment of the Administrators, we accounted their businesses as discontinued operations and accordingly, have presented the results of operations and related cash flows as discontinued operations. Any remaining assets and liabilities of the discontinued operations have been presented separately, and are reflected within assets and liabilities from discontinued operations in the accompanying consolidated balance sheets as of December 31, 2022. Since the Company lost control of the management of Orbit in favor of the Administrators, the accounts of Orbit were deconsolidated effective December 1, 2021.
On November 28, 2023,
the administration of Orbit ceased and the control of Orbit reverted back to
the Company from the Administrators. The accounts of Orbit
were consolidated with those of the Company effective November 28,
2023.
Genie Retail Energy
GRE operates REPs that resell electricity and/or natural gas to residential and small business customers in Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Texas, Rhode Island, and Washington, D.C. GRE’s revenues represented approximately 95.6% and 96.3% of our consolidated revenues in the years ended December 31, 2023 and 2022, respectively.
GRE’s cost of revenues consists primarily of natural gas and electricity purchased for resale. Certain of GRE’s REPs are party to an Amended and Restated Preferred Supplier Agreement with BP Energy Company, or BP, which is in effect through November 30, 2023. Those REPs’ ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants.
As an operator of REPs, GRE does not own electrical power generation, transmission, or distribution facilities, or natural gas production, pipeline or distribution facilities. Instead, GRE’s REPs contract with various pipeline and distribution companies for natural gas pipeline, storage and transportation services, and utilizes NYISO, PJM, ISO New England and MISO for electric transmission and distribution. GRE’s cost of revenues includes scheduling costs, ISO fees, pipeline costs and utility service charges for the purchase of these services.
For risk management purposes, GRE’s REPs utilize put and call options and swaps as hedges against unfavorable fluctuations in market prices of electricity and natural gas and to reduce exposure from price fluctuations. The put and call options and swaps are recorded at fair value as a current asset or liability and any changes in fair value are recorded in cost of revenues. The impact of these options and swaps on cost of revenues is relatively small in comparison to the purchases of gas and electricity for resale.
The electricity transmission and distribution operators perform real-time load balancing for each of the electrical power grids in which GRE’s REPs operate. Similarly, the utility or the local distribution company, or LDC, performs load balancing for each of the natural gas markets in which GRE’s REPs operate. Load balancing ensures that the amount of electricity and natural gas that GRE’s REPs purchase is equal to the amount necessary to service their customers’ demands at any specific point in time. GRE’s REPs manage the differences between the actual electricity and natural gas demands of its customers and its bulk or block purchases by buying and selling in the spot market, and through monthly cash settlements and/or adjustments to futures deliveries in accordance with the load balancing performed by utilities, LDCs, and electricity transmission and distribution operators. Suppliers and the LDC’s charge or credit GRE for balancing the electricity and natural gas purchased and sold for its account.
Local utilities generally meter and deliver electricity and natural gas to GRE’s REPs' customers. The local utilities also provide billing and collection services on GRE’s REPs behalf for most of customers and certain local utilities offer purchase of receivables, or POR, programs. GRE’s REPs receive the proceeds less the utility’s fees for purchase of receivables billing and other ancillary services, where applicable.
Volatility in the electricity and natural gas markets affects the wholesale cost of the electricity and natural gas that GRE’s REPs sell to customers. GRE’s REPs may not always choose to pass along increases in costs to their customers for various reasons including competitive pressures and for overall customer satisfaction. In addition, GRE’s REPs offer fixed rate products or guaranteed pricing and may be unable to change their sell rates offered to fixed rate and guaranteed pricing customers in response to volatility in the prices of the underlying commodities. This can adversely affect GRE’s gross margins and results of operations. Alternatively, increases in GRE’s REPs rates charged to customers may lead to increased customer churn.
GRE’s REPs’ selling expense consists primarily of sales commissions paid to independent agents and marketing costs, which are the primary costs associated with the acquisition of customers. Selling, general and administrative expenses include compensation, benefits, utility fees for billing and collection, professional fees, rent and other administrative costs.
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 effect. 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 48.1% and 39.7% of GRE’s natural gas revenues for the relevant years were generated in the first quarter of 2023 and 2022, 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 32.5% and 30.5% of GRE’s electricity revenues for 2023 and 2022, respectively, were generated in the third quarters of those years. GRE’s REPs’ 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.
Purchase of Receivable
Utility companies offer purchase of receivable, or POR, programs in most of the service territories in which we operate. 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 year ended December 31, 2023, the associated cost was approximately 0.9% of GRE's revenue. At December 31, 2023, 84.4% of GRE’s net accounts receivable were under a POR program.
Concentration of Customers and Associated Credit Risk
GRE’s REPs reduce their customer credit risk by participating in purchase of receivable programs for a majority of their receivables. In addition to providing billing and collection services, some utility companies purchase those REPs’ receivables and assume all credit risk without recourse to those REPs for those purchased receivables. GRE’s REPs primary credit risk with respect to those purchased receivables is therefore nonpayment by the utility companies. Certain of the utility companies represent significant portions of our consolidated revenues and consolidated gross trade accounts receivable balance during certain periods, and such concentrations increase our risk associated with nonpayment by those utility companies.
The following table summarizes the percentage of consolidated trade receivable by customers that equal or exceed 10.0% of consolidated net trade receivables at December 31, 2023 and 2022 (no other single customer accounted for 10.0% or greater of our consolidated net trade receivable as of December 31, 2023 and 2022).
|
|
|
December 31, |
|
|
|
|
2023 |
|
|
2022 |
|
|
Customer A |
|
|
na |
% |
|
|
10.2 |
% |
na—less than 10.0% of consolidated net trade receivables
The following table summarizes the percentage of consolidated revenues from customers that equal or exceed 10% or greater of the Company’s consolidated revenues in the period (no other single customer accounted for more than 10% of consolidated revenues in these periods):
|
|
|
Year ended December 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
Customer A |
|
|
na |
% |
|
|
10.1 |
% |
| Customer B |
|
|
19.5 |
|
|
|
na |
|
na—less than 10.0% of consolidated revenues in the period
Legal Proceedings
Although GRE endeavors to maintain best sales and marketing practices, such practices have been the subject of certain class action lawsuits in the past.
See Notes 15, Legal and Regulatory Proceedings, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, which is incorporated by reference.
Agency and Regulatory Proceedings
From time to time, the Company responds to inquiries or requests for information or materials from public utility commissions or other governmental regulatory or law enforcement agencies related to investigations under statutory or regulatory schemes. The Company cannot predict whether any of those matters will lead to claims or enforcement actions or whether the Company and the regulatory parties will enter into settlements before a formal claim is made. See Note 15, Legal and Regulatory Proceedings, in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, which is incorporated by reference, for further detail on agency and regulatory proceedings.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to the allowance for doubtful accounts, 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. See Note 1 to the Consolidated Financial Statements in this Annual Report for a complete discussion of our significant accounting policies.
Revenue Recognition
Revenues from the Sale of Electricity and Natural Gas
Revenue from the single performance obligation to deliver a unit of electricity and/or natural gas is recognized as the customer simultaneously receives and consumes the benefit. Variable quantities in requirements contracts are considered to be options for additional goods and services because the customer has a current contractual right to choose the amount of additional distinct goods to purchase. GRE records unbilled revenues for the estimated amount customers will be billed for services rendered from the time meters were last read to the end of the respective accounting period. The unbilled revenue is estimated each month based on available per day usage data, the number of unbilled days in the period and historical trends.
Many utility companies in the U.S. offer purchase of receivable, or POR, programs in most of the service territories in which we operate, and GRE’s REPs participate in POR programs for a majority of their receivables. We estimate variable consideration related to our rebate programs using the expected value method and a portfolio approach. Our estimates related to rebate programs are based on the terms of the rebate program, the customer’s historical electricity and natural gas consumption, the customer’s rate plan, and a churn factor. Taxes that are imposed on our sales and collected from customers are excluded from the transaction price.
We recognize the incremental costs of obtaining a contract with a customer as an asset if it expects the benefit of those costs to be longer than one year. We determined that certain sales commissions to acquire customers meet the requirements to be capitalized. For GRE, we apply a practical expedient to expense costs as incurred for sales commissions to acquire customers as the period would have been one year or less.
Revenues from Solar Panels
Our revenues from sales of solar panels are recognized at a point in time following the transfer of control of the solar panels to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. For sales contracts that contain multiple performance obligations, such as the shipment or delivery of solar modules, we allocate the transaction price to each performance obligation identified in the contract based on relative standalone selling prices, or estimates of such prices, and recognize the related revenue as control of each individual product is transferred to the customer, in satisfaction of the corresponding performance obligations.
Revenues from Solar Projects
Genie Solar enters into a
contract to identify, develop, and in some cases operate solar generation sites
to provide solar electricity to its customers. Solar project contracts
consist of a series of tasks and components and accordingly are accounted
for as multiple performance obligations. Because our performance
creates and enhances assets that are controlled by and specific to customers,
we recognize construction services revenue over time. Revenue
for these performance obligations is recognized using the input method based on
the cost incurred as a percentage of total estimated contract costs. Due to the
significance of the costs associated with solar panels to the total project,
our judgment on when such costs should be included in the measure of progress
has a material impact on revenue recognition. Contract costs include all direct
material and labor costs related to contract performance.
Solar Energy Generation
Energy generation revenue is earned from both
the sale of electricity generated from solar projects and the sale of renewable
energy credits. Revenue from energy generation is recognized
when we satisfy the performance obligation, which occurs at the time
of the delivery of electricity at the contractual rates as stipulated in the power purchase entered into with the customers. We apply for and
receive Solar Renewable Energy Credit ("SREC") in certain
jurisdictions for power generated by solar energy systems it owns. There are no
direct costs allocated to SRECs upon generation. We typically
sell SRECs to different customers from those purchasing the energy. The sale
of each SREC is a distinct performance obligation satisfied at a point in time
and the performance obligation related to each SREC is satisfied when each
SREC is delivered to the customer.
Others
Revenues from commissions
from selling third-party products to customers, entry and other fees from the
energy brokerage are recognized at the time the performance obligations are met.
Our contracts with customers for commission revenue contain a single
performance obligation and are satisfied at a point in time.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses that result from the inability or unwillingness of our customers to make required payments. The allowance for doubtful accounts was $6.6 million at December 31, 2023 and $4.8 million at December 31, 2022. Our allowance is determined based on known troubled accounts, historical experience and other currently available evidence. Our estimates of recoverability of customer accounts may change due to new developments, changes in assumptions or changes in our strategy, which may impact our allowance for doubtful accounts balance. We continually assess the likelihood of potential amounts or ranges of recoverability and adjust our allowance accordingly, however, actual collections and write-offs of trade accounts receivable may materially differ from our estimates.
Goodwill
Our goodwill balances were $10.0 million at December 31, 2023 and 2022. Goodwill is not amortized since it is deemed to have an indefinite life. It is reviewed annually (or more frequently under various conditions) for impairment using a fair value approach.
Goodwill is the excess of the acquisition cost of businesses over the fair value of the identifiable net assets acquired. Goodwill and other indefinite lived intangible assets are not amortized. These assets are reviewed annually (or more frequently under various conditions) for impairment using a fair value approach.
The fair value of the reporting unit is estimated using discounted cash flow methodologies, as well as considering third party market value indicators. Calculating the fair value of the reporting units requires significant estimates and assumptions by management. Should the estimates and assumptions regarding the fair value of the reporting units prove to be incorrect, the Company may be required to record impairments to its goodwill in future periods and such impairments could be material.
We perform our annual goodwill impairment test as of October 1. In reviewing goodwill for impairment, we have the option, for any or all of our reporting units that carry goodwill - to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not (i.e. greater than 50%) that the estimated fair value of a reporting unit is less than its carrying amount. If we elect to perform a qualitative assessment and determine that an impairment is more likely than not, we are then required to perform the quantitative impairment test, otherwise, no further analysis is required. We also may elect not to perform the qualitative assessment and, instead, proceed directly to the quantitative impairment test. The ultimate outcome of the goodwill impairment review for a reporting unit should be the same whether we choose to perform the qualitative assessment or proceed directly to the quantitative impairment test. In 2023 and 2022, we elected to perform a qualitative analysis for our GRE reporting unit as of October 1. The Company determined, after performing a qualitative analysis, that there was no evidence that it is more likely than not that the fair value of any identified reporting unit was less than the carrying amounts, therefore, it was not necessary to perform a quantitative impairment test. We determined, after performing qualitative analysis, that there was no evidence that it is more likely than not that the fair value of any identified reporting unit was less than the carrying amounts, therefore, it was not necessary to perform a quantitative impairment test.
The determination of the fair value of our reporting units is based on an income approach that utilizes discounted cash flows for each reporting unit and other Level 3 inputs as specified in the fair value hierarchy in ASC Topic 820, Fair Value Measurements and Disclosure. Under the income approach, we determine fair value based on the present value of the most recent cash flow projections for the reporting unit as of the date of the analysis and calculate a terminal value utilizing a terminal growth rate. The significant assumptions under this approach include, among others: income projections, which are dependent on future sales, new customers, customer behavior, competitor pricing, operating expenses, the discount rate, and the terminal growth rate. The cash flows used to determine fair value are dependent on a number of significant management assumptions such as the expectations of future performance and the expected future economic environment, which are partly based upon our historical experience. The estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on judgment of the rates that would be utilized by a hypothetical market participant.
Income Taxes
Our current and deferred income taxes and associated valuation allowance are impacted by events and transactions arising in the normal course of business as well as in connection with special and non-routine items. Assessment of the appropriate amount and classification of income taxes is dependent on several factors, including estimates of the timing and realization of deferred income tax assets, the results of Internal Revenue Service audits of our federal income tax returns, and changes in tax laws or regulations.
The valuation allowance on our deferred income tax assets was $10.1 million and $10.2 million at December 31, 2023 and 2022, respectively. We employ a tax strategy that enables us to currently deduct losses from our foreign subsidiaries against our profitable U.S. operations and we assess the realizability of deferred taxes quarterly. Because of our current projections, we concluded that we meet the criteria of more likely than not in order to utilize our deferred federal income tax assets in the foreseeable future and have released the valuation on the assets that we will utilize.
We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the appropriate taxing authority that has full knowledge of all relevant information will examine the position. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability. We review and adjust our liability for unrecognized tax benefits based on our best estimate and judgment given the facts, circumstances and information available at each reporting date. To the extent that the outcome of these tax positions is different from the amounts recorded, such differences may affect income tax expense and actual tax payments.
RECENTLY ISSUED ACCOUNTING STANDARDS
Information regarding new accounting pronouncements is included in Note 1 — Description of Business and Summary of Significant Accounting Policies, to the Consolidated Financial Statements included in this Annual Report on Form 10-K.
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.
Year Ended December 31, 2023 compared to Year Ended December 31, 2022
Genie Retail Energy Segment
|
|
|
Year ended December 31, |
|
|
Change |
|
|
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity |
|
$ |
350,779 |
|
|
$ |
241,828 |
|
|
$ |
108,951 |
|
|
|
45.1 |
% |
|
Natural gas |
|
|
55,988 |
|
|
|
62,144 |
|
|
|
(6,156 |
) |
|
|
(9.9 |
) |
| Others |
|
|
3,112 |
|
|
|
— |
|
|
|
3,112 |
|
|
|
#DIV/0! |
|
|
Total revenues |
|
|
409,879 |
|
|
|
303,972 |
|
|
|
105,907 |
|
|
|
34.8 |
|
|
Cost of revenues |
|
|
266,519 |
|
|
|
150,990 |
|
|
|
115,529 |
|
|
|
76.5 |
|
|
Gross profit |
|
|
143,360 |
|
|
|
152,982 |
|
|
|
(9,622 |
) |
|
|
(6.3 |
) |
|
Selling, general and administrative |
|
|
71,449 |
|
|
|
60,425 |
|
|
|
11,024 |
|
|
|
18.2 |
|
|
Income from operations |
|
$ |
71,911 |
|
|
$ |
92,557 |
|
|
$ |
(20,646 |
) |
|
|
(22.3 |
) |
nm—not meaningful
Revenues. GRE’s electricity revenues increased in 2023 compared to 2022. The increase in electricity revenues in 2023 compared to 2022 was the result of an increase in electricity consumption partially offset by a decrease in the average price charged to customers. Electricity consumption by GRE's REPs' customers increased by 47.8% in 2023 compared to 2022. The increase in electricity consumption reflected an increase in the average number of meters served, which increased by 41.7% in 2023 compared to 2022 and a 4.3% increase in average electricity consumption per meter in 2023 compared to 2022. The increase in meters served was driven by strong customer acquisitions during 2023, while customer acquisition efforts had been reduced during 2022. Electricity consumption per meter increased in 2023 due to warmer weather conditions in our service areas compared to 2022. The average rate per kilowatt hour sold decreased by 1.9% in 2023 compared to 2022. The decrease in the average
rate per kilowatt hour sold is due to a decrease in the average wholesale price of
electricity in 2023 compared to 2022.
GRE’s natural gas revenues decreased in 2023 compared to 2022. The decrease in natural gas revenues in 2023 compared to 2022 was a result of decreases in natural gas consumption and the average revenue per therm sold. Natural gas consumption of GRE's REPs customers decreased by 0.4% in 2023 compared to 2022. Average consumption per meter decreased by 6.6% in 2023 compared to 2022 while the average meters served increased by 6.6% in 2023 compared to 2022. The average rate per therm sold decreased by 9.5% in 2023 compared to 2022. The decrease in the average revenue per therm sold is due to the decrease in the average wholesale price of natural gas in 2023 compared to 2022.
Other revenues in 2023 included revenues from the sale of petroleum products in Israel.
The customer base for GRE's REPs as measured by meters serviced consisted of the following:
|
(in thousands) |
|
December 31,
2023 |
|
|
September 30,
2023 |
|
|
June 30,
2023 |
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
|
Meters at end of quarter: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity customers |
|
|
279 |
|
|
|
304 |
|
|
|
301 |
|
|
|
271 |
|
|
|
196 |
|
|
Natural gas customers |
|
|
82 |
|
|
|
81 |
|
|
|
80 |
|
|
|
78 |
|
|
|
79 |
|
|
Total meters |
|
|
361 |
|
|
|
385 |
|
|
|
381 |
|
|
|
349 |
|
|
|
275 |
|
Gross meter acquisitions in 2023 were 316,000 compared to 159,000 in 2022. The number of meters served on December 31, 2023 increased by 86,000 meters or 31.3% from December 31, 2022. The increase in the gross meter acquisitions for the year ended December 31, 2023 compared to 2022 was due to a “strategic pause” on certain customer acquisition channels that started in the fourth quarter of 2021 and continued through 2022. In the first quarter of 2023, we resumed customer acquisition activities using a variety of new and existing channels.
In 2023, average monthly churn slightly increased to 4.9% compared to 4.8% in 2022.
The average rates of annualized energy consumption, as measured by residential customer equivalents, or 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.
|
(in thousands) |
|
December 31,
2023 |
|
|
September 30,
2023 |
|
|
June 30,
2023 |
|
|
March 31,
2023 |
|
|
December 31,
2022 |
|
|
RCEs at end of quarter: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity customers |
|
|
272 |
|
|
|
298 |
|
|
|
304 |
|
|
|
276 |
|
|
|
181 |
|
|
Natural gas customers |
|
|
78 |
|
|
|
77 |
|
|
|
76 |
|
|
|
77 |
|
|
|
81 |
|
|
Total RCEs |
|
|
350 |
|
|
|
375 |
|
|
|
380 |
|
|
|
353 |
|
|
|
262 |
|
RCEs increased by 33.6% at December 31, 2023 compared to December 31, 2022. The increase is due to the resumption of customer acquisition activities in 2023 as discussed above.
Cost of Revenues and Gross Margin Percentage. GRE’s cost of revenues and gross margin percentage were as follows:
|
|
|
Year ended December 31, |
|
|
Change |
|
|
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity |
|
$ |
218,631 |
|
|
$ |
106,382 |
|
|
$ |
112,249 |
|
|
|
105.5 |
% |
|
Natural gas |
|
|
45,205 |
|
|
|
44,608 |
|
|
|
597 |
|
|
|
1.3 |
|
| Others |
|
|
2,683 |
|
|
|
— |
|
|
|
2,683 |
|
|
|
nm |
|
|
Total cost of revenues |
|
$ |
266,519 |
|
|
$ |
150,990 |
|
|
$ |
115,529 |
|
|
|
76.5 |
% |
nm—not meaningful
|
|
Year ended December 31, |
|
|
|
|
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Gross margin percentage: |
|
|
|
|
|
|
|
|
|
|
Electricity |
|
|
37.7% |
|
|
|
56.0% |
|
|
|
-18.3% |
|
|
Natural gas |
|
|
19.3% |
|
|
|
28.2% |
|
|
|
-9.0% |
|
| Others |
|
|
13.8% |
|
|
|
— |
|
|
|
13.8% |
|
|
Total gross margin percentage |
|
|
35.0% |
|
|
|
50.3% |
|
|
|
-15.4% |
|
Cost of revenues for electricity increased in 2023 compared to 2022 primarily because of increases in electricity consumption and the average unit cost of electricity. The average unit cost of electricity increased by 39.0% in 2023 compared to 2022 due to loss recognized from derivatives in 2023 from the fluctuation of the wholesale price of electricity, while we recognized a significant gain from derivatives in 2022. Electricity consumption by GRE's REPs' customers increased by 47.8% in 2023 compared to 2022. The gross margin on electricity decreased in 2023 compared to 2022, because the average cost of electricity increased while the rate charged to customers decreased. While the average unit cost of electricity decreased in 2023 compared to 2022, the cost of revenue in 2022 was reduced by the favorable results of hedges.
Cost of revenues for natural gas increased in 2023 compared to 2022 primarily because of an increase in the average unit cost of natural gas partially offset by a decrease in total natural gas consumption. The average unit cost of natural gas increased 1.3% in 2023 compared to 2022. Natural gas consumption by GRE’s REPs’ customers decreased by 0.4% in 2023 compared to 2022. Gross margin on natural gas sales decreased in 2023 compared to 2022 because the average unit cost of natural gas increased while the average rate charged to customers decreased.
The cost of other revenues in 2023 included the cost of petroleum products sold in Israel.
Selling, General and Administrative. The increase in selling, general and administrative expenses in 2023 compared to 2022 was primarily due to increases in marketing and customer acquisition costs and employee-related costs partially offset by a decrease in legal settlement costs. Marketing and customer acquisition expenses increased by $6.1 million in 2023 compared to 2022 as a result of an increase in the number of meters acquired. Employee-related expenses increased by $2.2 million in 2023 compared to 2022 primarily due to an increase in the number of employees, commissions earned by employees from commercial sales and share based compensation expenses. Processing and regulatory fees increased by $1.9 million in 2023 compared to 2022 as a result of a higher level of activities from an increase in the number of meters. We also paid $0.5 million in legal fees and settlements in Connecticut in 2023. No legal settlements were paid in 2022. As a percentage of GRE’s total revenues, selling, general and administrative expenses decreased to 17.4% in 2023 from 19.9% in 2022.
Genie Renewables
The Genie Renewables (formerly GES) segment is composed of Genie Solar, CityCom Solar and Diversegy. Genie Solar is an integrated solar energy company that develops, constructs and operates solar energy projects for commercial and industrial customers as well as its own portfolio. CityCom Solar is a marketer of alternative products and services complementary to our energy offerings. Diversegy provides energy brokerage and advisory services to commercial and industrial customers.
On November 3, 2023, the Company acquired ten special-purpose entities that own and operate solar system facilities in Ohio and Michigan for an aggregate purchase price of $7.5 million. The acquisition is accounted for as an asset acquisition and recognized $7.7 million, including $0.2 million of direct transaction cost to solar arrays assets included in the property and equipment account in the consolidated balance sheet.
The Company recorded revenue from the solar array acquisitions of approximately $0.1 million in its consolidated statements of operations and comprehensive income for the year ended December 31, 2023.
|
|
|
Year Ended December 31, |
|
|
Change |
|
| (amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
Revenue |
|
$ |
18,829 |
|
|
$ |
11,567 |
|
|
$ |
7,262 |
|
|
|
62.8 |
% |
|
Cost of revenue |
|
|
15,983 |
|
|
|
9,767 |
|
|
|
6,216 |
|
|
|
63.6 |
|
| Gross profit |
|
|
2,846 |
|
|
|
1,800 |
|
|
|
1,046 |
|
|
|
58.1 |
|
| Selling, general and administrative expenses |
|
|
8,635 |
|
|
|
5,328 |
|
|
|
3,307 |
|
|
|
62.1 |
|
|
(Loss) income from operations |
|
$ |
(5,789 |
) |
|
$ |
(3,528 |
) |
|
$ |
(2,261 |
) |
|
|
64.1 |
% |
Revenue. Genie Renewables' revenues increased in 2023 compared to 2022. The increases in revenues were the result of increases in revenues from commissions from selling third-party products to customers by CityCom Solar and revenues from Diversegy that includes commissions, entry fees and other fees from our energy brokerage and marketing services businesses.
Cost of Revenue. The variations in the cost of revenues in 2023 compared to 2022 are consistent with the variations in revenues of CityCom Solar and Diversegy. In 2023, we recorded a $1.1 million charge to the cost of revenues of Genie Solar to write down the carrying value of solar panel inventories to the estimated net realizable value.
Selling, General and Administrative. Selling, general and administrative expenses increased in 2023 compared to 2022 primarily due to increases in headcount in Genie Solar and Diversegy and consulting fees and warehousing costs at Genie Solar.
Corporate
As discussed above, the remaining accounts of GRE International were transferred to corporate starting in the third quarter of 2022. 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.
|
|
|
Year Ended December 31, |
|
|
Change |
|
|
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
| General and administrative expenses |
|
$ |
11,025 |
|
|
$ |
9,209 |
|
|
$ |
1,816 |
|
|
|
19.7 |
% |
| Provision for captive insurance liability |
|
|
45,088 |
|
|
|
— |
|
|
|
45,088 |
|
|
|
100.0 |
|
| Impairment of assets |
|
|
— |
|
|
|
2,066 |
|
|
|
(2,066 |
) |
|
|
(100.0 |
) |
|
Loss from operations |
|
$ |
(56,113 |
) |
|
$ |
(11,275 |
) |
|
$ |
(44,838 |
) |
|
|
397.7 |
|
The increase in Corporate general and administrative expenses in 2023 compared to 2022 was primarily due increases in employee related cost and stock-based compensation expenses. As a percentage of our consolidated revenues, corporate general and administrative expenses slightly decreased from 2.9% in 2022 to 2.6% in 2023.
In December 2023, we established a wholly-owned captive insurance subsidiary (the "Captive") with the primary purpose of enhancing our risk financing strategies. In December 2023, we paid $51.2 million premiums to Captive, which amount is included in restricted cash in our consolidated balance sheet as of December 31, 2023. The Captive must maintain a sufficient level of cash to fund future reserve payment and secure the insurer's liabilities, particularly those related to the insured risks. We also recognized a $45.1 million provision for captive insurance liability for the year ended December 31, 2023 related to Captive's exposure for the insured risks.
In December 2022, the Company suspended the development of business operations of Petrocycle, Ltd. ("Petrocycle"), a pre-operating entity engaged in the development of a process to recycle used engine oil into usable gasoline, after it was determined that the current operations will not meet the expected results. Petrocycle provided full impairment of its property and equipment and notes and other receivables from its minority interest partner for an aggregate amount of $2.1 million.
Consolidated
Selling, General and Administrative. Stock-based compensation expense included in consolidated selling, general and administrative expenses were $2.8 million and $3.0 million in 2023 and 2022, respectively. At December 31, 2023, aggregate unrecognized compensation cost related to non-vested stock-based compensation was $1.2 million. The unrecognized compensation cost expected to be recognized over the average service period of 0.9 years.
As a percentage of our consolidated revenues, selling, general and administrative expenses decreased from 23.8% in 2022 to 21.3% in 2023.
The following is a discussion of our consolidated income and expense line items below loss from operations.
|
|
|
Year Ended December 31, |
|
|
Change |
|
|
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
|
Income from operations |
|
$ |
10,009 |
|
|
$ |
77,754 |
|
|
$ |
(67,745 |
) |
|
|
(87.1) |
% |
|
Interest income |
|
|
5,076 |
|
|
|
835 |
|
|
|
4,241 |
|
|
|
507.9 |
|
|
Interest expense |
|
|
(99 |
) |
|
|
(129 |
) |
|
|
30 |
|
|
|
23.3 |
|
| Gain (loss) on marketable equity securities and investments |
|
|
478 |
|
|
|
(417 |
) |
|
|
895 |
|
|
|
214.6 |
|
|
Other income, net |
|
|
2,644 |
|
|
|
(520 |
) |
|
|
3,164 |
|
|
|
(608.5 |
) |
|
Provision for income taxes |
|
|
(4,239 |
) |
|
|
(21,037 |
) |
|
|
16,798 |
|
|
|
79.8 |
|
|
Net income from continuing operations |
|
|
13,869 |
|
|
|
56,486 |
|
|
|
(42,617 |
) |
|
|
(75.4 |
) |
| Income from discontinued operations, net of tax |
|
|
6,409 |
|
|
|
30,445 |
|
|
|
(24,036 |
) |
|
|
78.9 |
|
| Net income |
|
|
20,278 |
|
|
|
86,931 |
|
|
|
(66,653 |
) |
|
|
(76.7 |
) |
|
Net (income) loss attributable to noncontrolling interests |
|
|
(740 |
) |
|
|
874 |
|
|
|
(1,614 |
) |
|
|
(184.7 |
) |
|
Net income attributable to Genie Energy Ltd. |
|
$ |
19,538 |
|
|
$ |
87,805 |
|
|
$ |
(68,267 |
) |
|
|
(77.7 |
)% |
nm — not meaningful
Interest income. Interest income increased in year ended December 31, 2023, compared to the same period in 2022 primarily due to increases in average cash, cash equivalents and restricted cash during the period and significant increases in average effective interest rates on those balances.
Gain (loss) on Marketable Equity Securities and Investments. The gain on marketable equity securities and investment for the year ended December 31, 2023 pertains to the change in fair value of the Company's investments various entities including investments in common stock of Rafael Holdings, Inc. ("Rafael") which the Company acquired in December 2020.
Other income (loss), net. Other income (loss), net in the year ended December 31, 2023 consisted primarily of on-time tax credit related to payroll taxes incurred in prior years. .
Provision for Income Taxes. The decrease in provision for income tax in 2023 compared to 2022 is primarily due to decreases in the amount of taxable income in the various taxing jurisdictions. Income before income taxes decreased to $18.1 million in 2023 compared to $77.5 million in 2022.
Net (Income) Loss Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests for the year ended December 31, 2023 is primarily consist of net income from Citizens Choice ("CCE") partially offset by losses incurred in various businesses in Renewables segments. Net loss attributable to noncontrolling interests for the year ended December 31, 2022 primarily consists of net losses from CCE and various businesses in Renewables segments.
Income from discontinued operations, net of tax. Income from discontinued operations, net of tax in year ended December 31, 2023 is mainly from an increase in the estimated value of our investments in Orbit and foreign exchange differences in Lumo Sweden. Income from discontinued operations, net of tax in the year ended December 31, 2022 is mainly due to result of operations of Lumo Finland and Lumo Sweden.
LIQUIDITY AND CAPITAL RESOURCES
General
We currently expect that our cash flows from operations in the next twelve months and the $107.6 million balance of unrestricted cash and cash equivalents that we held at December 31, 2023 will be sufficient to meet our currently anticipated cash requirements for at least the period from January 1, 2023 to March 16, 2024.
At December 31, 2023, we had working capital (current assets less current liabilities) of $131.6 million.
|
|
|
Year ended December 31, |
|
|
(amounts in thousands) |
|
2023 |
|
|
2022 |
|
|
Cash flows provided by (used in): |
|
|
|
|
|
|
|
Operating activities |
|
$ |
50,938 |
|
|
$ |
66,004 |
|
|
Investing activities |
|
|
(10,005 |
) |
|
|
(5,234 |
) |
|
Financing activities |
|
|
(15,157 |
) |
|
|
(25,523 |
) |
|
Effect of exchange rate changes on cash, cash equivalents and cash equivalents |
|
|
(60 |
) |
|
|
17 |
|
| Increase in cash, cash equivalents and restricted cash from continuing operations |
|
|
25,716 |
|
|
|
35,264 |
|
| Cash flows (used in) provided by discontinued operations |
|
|
35,185 |
|
|
|
(29,408 |
) |
|
Increase in cash, cash equivalents and restricted cash |
|
$ |
60,901 |
|
|
$ |
5,856 |
|
Operating Activities
Cash, cash equivalents and restricted cash provided by continuing operating activities were $50.9 million and $66.0 million in the years ended December 31, 2023 and 2022, respectively. Net income from continuing operations after non-cash adjustments increased to $21.1 million in 2023 compared to $64.3 million in 2022. The increase is primarily the result of favorable results of continuing operations in 2022 compared 2021.
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Changes in working capital decreased cash flows by $28.1 million for 2023, compared to 2022. Changes in other assets decreased cash flows by $1.0 million for 2023, compared to 2022.
Certain of GRE's REPs are party to an Amended and Restated Preferred Supplier Agreement with BP, which is to be in effect through November 30, 2023. Under the agreement, the REPs purchase electricity and natural gas at market rate plus a fee. The obligations to BP are secured by a first security interest in deposits or receivables from utilities in connection with their purchase of the REP’s customer’s receivables, and in any cash deposits or letters of credit posted in connection with any collateral accounts with BP. The ability to purchase electricity and natural gas under this agreement is subject to satisfaction of certain conditions including the maintenance of certain covenants. At December 31, 2023, we were in compliance with such covenants. At December 31, 2023, restricted cash—short-term of $0.7 million and trade accounts receivable of $67.5 million were pledged to BP as collateral for the payment of trade accounts payable to BP of $21.0 million at December 31, 2023.
We had purchase commitments of $144.1 million at December 31, 2023, of which $128.3 million was for purchases of electricity.
As discussed above, in December 2023, we established a Captive insurance company. At December 31, 2023, the balance of short-term and long-term restricted of Captive are $6.5 million and $44.9 million, respectively. We also recognized $45.1 million provision for captive insurance liability for the year ended December 31, 2023, related to Captive's exposure for the insured risks. At December 31, 2023, the current captive insurance liability of $0.1 million is included in other current liabilities in the consolidated balance sheet. The amount of the expected loss liability for each risk is based on an analysis performed by a third-party actuary which assumed historical patterns. The key assumptions used in developing these estimates are subject to variability.
We are a lessee under operating lease
agreements primarily for office space in locations where
we operate and for our solar development projects with lease periods
expiring between 2024 and 2052. Our future lease payments under the operating leases as of December 31, 2023 were 4.0 million.
GRE has performance bonds issued through a third party for the benefit of certain utility companies and for various states in order to comply with the states’ financial requirements for retail energy providers. At December 31, 2023, we had outstanding aggregate performance bonds of $19.4 million and a minimal amount of unused letters of credit.
From time to time, we receive 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, and we respond to those inquiries or requests. We cannot predict whether any of those matters will lead to claims or enforcement actions.
Investing Activities
Our capital expenditures were $1.4 million and $1.0 million in 2023 and 2022, respectively. The increase in capital expenditures in 2023 compared to 2022 is due to construction in progress in Genie Solar. In the year ended December 31, 2023, we transferred solar panels with carrying value of $5.4 million that are indented to be used in Genie Solar projects from inventories to construction in progress. We currently anticipate that our total capital expenditures in the year ending December 31, 2024 will be between $10.0 million and $20.0 million mostly related to the solar projects of Genie Renewables.
In 2020 and 2021, we invested an aggregate of $6.0 million for 261,984 shares of Class B common stock of Rafael. Rafael, a publicly-traded company and a related party. In the year ended December 31, 2023, we sold 195,501 shares of Class B common stock of Rafael for $0.3 million. In the year ended December 31, 2023, we acquired 150,001 shares of Class B common stock of Rafael for $0.3 million. We do not exercise significant influence over the operating or financial policies of Rafael. At December 31, 2023, the carrying value of the remaining investments in the Class B common stock of Rafael was $0.4 million.
In the year ended December 31, 2023, we invested $4.6 million to purchase the common stock of a publicly-traded company which we sold for $3.9 million during the same period.
In the year ended December 31, 2023, we invested $4.4 million to purchase investments in total return swap which we sold for $5.5 million during the same period.
In March 2023, we received $0.1 million from Atid 613 Drilling Ltd. ("Atid 613") for the full settlement of its investment in Atid 613 and recognized a minimal gain from settlement of investment included in other income (loss), net in its consolidated statements of operations for the year ended December 31, 2023.
On November 3, 2023, we acquired ten special-purpose entities that own and operate solar system facilities in Ohio and Michigan for an aggregate purchase price of $7.5 million. The acquisition is accounted for as an asset acquisition with a total purchase price of $7.7 million, including $0.2 million of direct transaction cost to solar arrays assets included in the property and equipment account in our consolidated balance sheet.
In 2023 and 2022, we acquired minimal interests in various ventures for an aggregate amount of investments of $1.2 million and $2.7 million, respectively.
On November 29, 2021, Orbit,
which operated in the United Kingdon, was declared insolvent and its customers were
transferred to the “supplier of last resort.” Effective December 1, 2021, the
administration of Orbit was transferred to third-party Administrators. The
accounts of Orbit were deconsolidated from those of the Company
effective December 1, 2021. In 2022, we transferred $28.3 million to the Administrator as part of the administration process. On November 28, 2023,
the administration of Orbit ceased and the control of Orbit reverted back to
the Company from the Administrators. The accounts of Orbit
were consolidated with those of the Company effective November 28, 2023. In 2023 and 2022, the Administrator paid us a return of its interest in Orbit of £18.8 million (equivalent to $23.7 million on the dates of transfer) and £4.6 million (equivalent to $5.4 million on the dates of transfer), respectively.
On February 21, 2022, we entered into a Loan and Security Agreement to extend up to 5.5 million New Israel Shekel, or NIS (equivalent to $1.5 million as at December 31, 2022) with Natan Ohayon (the "Ohayon Loan"). Natan Ohayon holds a minority interest in (Petrocycle Ltd ("Petrocycle"), a subsidiary of the Company. Petrocycle is a pre-operating entity engaged in the development of a process to recycle used engine oil into usable gasoline. The Ohayon Loan, which is secured by all assets that Mr. Ohayon acquired using the proceeds of the loan bears a minimum interest as set by the Income Tax Regulations of Israel (3.23% in 2022) and is due, together with the principal amount on or before December 31, 2023. In December 2022, the Company suspended the development of business operations of Petrocycle after it was determined that the current operations will not meet the expected results. Petrocycle fully impaired its property and equipment and notes and other receivables from its minority interest partner for an aggregate amount of $2.1 million.
Financing Activities
In the year ended December 31, 2023, we paid Base Dividends of $0.1594 per share on our Series 2012-A Preferred Stock or Preferred Stock. In the year ended December 31, 2022 we accrued Additional Dividends on our Preferred Stock of $0.5301 per share in respect of GRE's results of operations through December 31, 2022, which Additional Dividends we paid on May 15, 2023 to stockholders of record as of May 5, 2023. In the year ended December 31, 2023, we paid Base Dividends of $0.3188 per share of our 2012-A Preferred Stock or Preferred Stock. We paid $1.4 million and $0.9 million in dividends on our Preferred Stock in the years ended December 31, 2023 and 2022, respectively.
In each of the years ended December 31, 2023 and 2022, we paid dividends of $0.30 per share to holders of our Class A common stock and Class B common stock. We paid common stock dividends in an aggregate amount of $8.0 million and $7.7 million in the years ended December 31, 2023 and 2022, respectively.
On February 28, 2024, we paid a dividend of $0.075 per share to holders of our Class A common Stock and Class B common stock to stockholders of record as of the close of business on February 20, 2024.
On March 11, 2013, our Board of Directors approved a program for the repurchase of up to an aggregate of 7.0 million shares of our Class B common stock. In the year ended December 31, 2023, we acquired 3,778 shares of Class B common stock under the stock purchase program for an aggregate amount of $0.1 million. In the year ended December 31, 2022, we acquired 639,393 Class B common stock under the repurchase program for an aggregate amount of $4.4 million. At December 31, 2023, 4.7 million shares remained available for repurchase under the stock repurchase program.
On February 7, 2022, the Board of Directors of the Company authorized a program to redeem, beginning, in the second quarter of 2022, up to $1.0 million per quarter of our Preferred Stock at the liquidation preference of $8.50 per share. In 2022 and 2023, we redeemed 983,385 and 1,339,341 shares of Preferred Stock at the liquidation preference of $8.50 for an aggregate amount of $11.4 million and $ 8.4 million, respectively. Following the redemption, there are no shares of Preferred Stock outstanding, all rights of Preferred Stockholders have terminated, and the Preferred Stock’s ticker symbol, "GNEPRA", has been retired.
In June 2023, several holders of warrants exercised warrants to purchase 1,048,218 shares of Class B common stock warrants for $5.0 million.
On December 13, 2018, we entered into a Credit Agreement with JPMorgan Chase Bank (“Credit Agreement”). On February 14, 2024, the Company entered into the third amendment of its existing Credit Agreement to extend the maturity date of December 31, 2024. The aggregate principal amount was retained at $3.0 million credit line facility (“Credit Line”). The Company pays a commitment fee of 0.1% per annum on the unused portion of the Credit Line as specified in the Credit Agreement. The borrowed amounts will be in the form of letters of credit which will bear interest of 1.0% per annum. The Company will also pay a fee for each letter of credit that is issued equal to the greater of $500 or 1.0% of the original maximum available amount of the letter of credit. We agreed to deposit cash in a money market account at JPMorgan Chase Bank as collateral for the line of credit equal to $3.1 million. As of December 31, 2023, there is no issued letter of credit from the Credit Line. At December 31, 2023, the cash collateral of $3.2 million was included in restricted cash—short-term in the consolidated balance sheet.
In the year ended December 31, 2023, we paid $2.9 million to shares of our Class B common stock, and, in the year ended December 31, 2023, we paid $0.6 million to repurchase shares of our Class B common stock tendered by our employees to satisfy tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. Such shares were repurchased by us based on their fair market value on the trading day immediately prior to the vesting date.
Cash flows from discontinued operations
Cash provided by operating activities of discontinued operations was $11.5 million in 2023 compared to $14.7 million in 2022. The cash provided by operating activities of discontinued operations in the years ended December 31, 2023 and 2022 includes proceeds from the settlement of hedges of Lumo Sweden and favorable results of operations of Lumo Finland and Lumo Sweden in 2022. Net provided by investing activities of discontinued operations was $23.6 million in the year ended December 31, 2023 from the return of cash transferred to the Administrator or Orbit in prior year. The investing activities of discontinued operations in year ended December 31, 2023 is due to the transfer of cash proceeds from unwinding of the contract of Orbit with Shell to the Administrators of Orbit in the first quarter of 2022 to settle its liabilities, net of cash received from the Administrators during the second half of 2022.
ENVIRONMENTAL MATTERS
For information concerning climate change, see "Climate Change" in Item I.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 for 2023 and are not required to provide the information under this item.
Our primary market risk exposure is the price applicable to our natural gas and electricity purchases and sales. The sales price of our natural gas and electricity is primarily driven by the prevailing market price. Hypothetically, for our GRE segment, if our gross profit per unit in 2023 had remained the same as in 2022, due to changes in the price of natural gas and electricity, our gross profit from electricity sales would have increased by $68.1 million in 2023 and our gross profit from natural gas sales would have increased by $6.7 million in 2023.
The energy markets have historically been very volatile, and we can reasonably expect that electricity and natural gas prices will be subject to fluctuations in the future. In an effort to reduce the effects of the volatility of the cost of electricity and natural gas on our operations, we have adopted a policy of hedging electricity and natural gas prices from time to time, at relatively lower volumes, primarily through the use of put and call options and swaps. While the use of these hedging arrangements limits the downside risk of adverse price movements, it also limits future gains from favorable movements. We do not apply hedge accounting to these swaps or options, therefore the mark-to-market change in fair value is recognized in cost of revenue in our consolidated statements of operations. See Note 4 – Derivative Instruments, for details of the hedging activities.
Our Consolidated Financial Statements and supplementary data and the report of the independent registered public accounting firm thereon set forth starting on page F-1 herein are incorporated herein by reference.
None.
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2023. Based on our evaluation, our principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2023.
Management's Annual Report on Internal Control Over Financial Reporting
We, the management of Genie Energy Ltd. and subsidiaries (the “Company”), are responsible for establishing and maintaining adequate internal control over financial reporting of the Company.
The Company’s internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
| 1. |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of assets of the Company; |
|
|
| 2. |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
|
|
| 3. |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, the Company’s management used the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our internal control over financial reporting, as prescribed above, as of December 31, 2023. Based on our evaluation, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as such date.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2023 has been audited by Zwick CPA, PLLC, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
Except for the changes in connection with our implementation of the remediation discussed above, there have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the fourth quarter period that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
None.
Not applicable.
